HMRC have issued guidance targeted at helping employment agencies and those using temporary labour reduce the risk of using a non-tax compliant umbrella company.

The guidance highlights some of the features of schemes that could fall foul of the Disguised remuneration provisions. Such schemes could include payments that are said to be untaxed. These payments include:

  • Loans.
  • Grants.
  • Capital Payments.
  • Credit facilities.
  • Profit shares.

HMRC highlight their view that most of the schemes do not work and involvement in such a scheme could lead to tax compliance checks, unexpected tax liabilities and penalties.

HMRC highlight the following steps that such businesses should take to help minimise these risks:

  • Performing due diligence on the whole supply chain.
  • Reviewing processes when engaging workers.
  • Adding appropriate clauses in any contracts with umbrella companies.
  • Check payslips to ensure PAYE is being operated on the full amount received by the worker.
  • Be particularly cautious when working with offshore umbrella companies or companies which offer financial incentives.
  • Educate workers by sharing information about tax avoidance schemes.

Comment

Employment agencies and users of temporary labour already have a lot to be concerned about including Employment status, IR35 the Off-Payroll Working provisions and the Agency Workers provisions.

This guidance is a helpful summary of further steps that should be taken in order to protect those companies from further anti-avoidance and compliance obligations.

Useful guides on this topic 

Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

Employment status & detailed checklist
Why is it important to check my employment status? What tests should I use? What is the recent case law?

IR35: Off-Payroll Working
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?

Agency Workers: Employment intermediaries rules
What are the tax rules for Employment Intermediaries and Agencies? Are agency workers subject to PAYE? 

Spotlight 45: Umbrella companies
HMRC tax Spotlight: ‘Umbrella companies offering to increase your take-home pay’ highlights the fact that many employees and self-employed contractors are failing to realise that some staff agencies and umbrella companies are flouting tax anti-abuse rules.

External links

Check how to reduce your risk of using an umbrella company that operates tax avoidance scheme


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