Contractors And Recruitment Agencies Beware!
In a recent update HMRC have stated that 98% of tax avoidance in 2018/19 was due to disguised remuneration schemes and state that there is increasing evidence showing recruitment agencies directing contractors to such schemes.
As a part of the update, HMRC are now sharing factual examples of individuals that have been caught out by tax avoidance schemes to try and raise awareness and prevent more people falling fowl. (Link to HMRC case studies below)
Back in 2017, when the ‘Off payroll’ (IR35) legislation was introduced to the public sector, thousands of contractors previously operating through their own limited company, moved to the umbrella pay model as an alternative way to be paid. This saw a sharp increase in the amount of new Umbrella Companies arriving to the market, with some looking to take advantage of unwitting contractors through non-compliant pay schemes.
While many of these Umbrella Companies no longer exist, the effects on people’s lives definitely still remains.
Where we are now
What a year. We’re right in the middle of the worst pandemic of the modern age. The government is borrowing more and more with the national debt at the highest level for 300 years. Not to mention uncertainties around Brexit and the delayed extension of ‘Off Payroll’ (IR35) legislation into the private sector both on the horizon.
One thing is for sure, there’s a lot of money that’ll need to be paid back and tax avoidance is very much on HMRC’s agenda as a quick win.
A warning to contractors
When the ‘Off Payroll’ (IR35) legislation is applied to the private sector in April 2021 it’s inevitable that we’ll see new Umbrella Companies offering “too good to be true” take home pay solutions. If you are offered 80% take home pay, some simple maths should tell you it’s not right. In the UK, the standard rate of tax is 20% which immediately takes your pay to 80%. Once you factor in National Insurance and pension contributions you can see why a promise of 80% take home pay is unrealistic.
REMEMBER, a reputable payroll provider, won’t talk you into a ‘new’ or ‘special’ scheme that helps you take home more money. In addition to the ‘deal’ they are offering look at the provider’s accreditations. Properly accredited and independently audited providers are unlikely to be offering non-compliant ‘schemes’.
Set against a new debt recovery landscape, HMRC have been actively recruiting tax inspectors (3,000 of them) in readiness for the challenges ahead.
Legislation such as The Criminal Finance Act, which requires Agency owners to take practical steps to prevent the facilitation of tax evasion, including vetting their suppliers, will have new impetus. With the next round of legislation just months away and umbrella payroll going under the spotlight again, it’s never been more important to provide complete transparency.
At People Group we ensure that contractors maximise value from umbrella payroll by giving them additional benefits and fantastic service. We provide umbrella payroll because there is still wide demand within the industry. However, we do see and provide a simpler and more transparent alternative, which many of our agencies and contractors are already using.
As scrutiny increases and cash flow tightens maybe it’s time to take a look at a fit for purpose alternative to umbrella payroll?
Find out more about PEO
HMRC Case studies:
Guidance on choosing an ‘Umbrella Company’:
Tax Avoidance Explained: