New HMRC Spotlight on umbrella companies 'does not go far enough'
Umbrella companies inspiring HMRC’s new ‘Spotlight’ publication – dedicated to schemes that avoid tax – has been endorsed by payroll company bosses themselves, albeit tentatively.
In fact, far from disliking brollies being in a HMRC series on abusive arrangements, Contractor Umbrella says it is “useful,” CWC Solutions deems it overdue and the FCSA said it was "welcome."
HMRC putting beyond doubt that 80, 90 or 95% take-home pay is not tax-compliant; that brollies are “never HMRC-approved”, and that 'loans' or 'credits' are not “non-taxable”, are among the statements which the trio endorse.
“But does this truly go far enough to help contractors?” asks Contractor Umbrella’s Lucy Smith. “Surely a rubber-stamp from HMRC for those operating correctly would be more useful.
“And what about the agency’s responsibility if they choose to ‘recommend’ a scheme, and what about what a contractor can do if they are forced to use the agency’s chosen brolly?”
Partly in answer to the former, CWC’s Carolyn Walsh, a former tax inspector, says she was directed by HMRC to the ‘enablers legislation,’ for agencies who promote umbrellas operating PAYE incorrectly.
She says it was only following her complaint to HMRC’s Counter Avoidance Promoters team, alleging they were not doing enough to warn taxpayers of the dangers of ‘rogue’ umbrellas, that the new Spotlight emerged.
“Finally,” Walsh reflected, HMRC has “given a definitive statement about ‘dodgy’ umbrella companies. If you suspect you are being paid through a non-compliant company, take the advice given.”
But to speak of ‘umbrellas’ in the context HMRC is outlining in Spotlight 45 is to mislead, according to Freelancer and Contractor Services Association CEO Julia Kermode.
“[It’s] very welcome…however the guidance doesn't go far enough, and actually these types of arrangements are not true 'umbrella' anyway -- they are disguised remuneration schemes.
“It might be semantics,” she added, “but a true umbrella is an employer of contractors, giving them all the benefits of permanent employment, along with all the benefits and flexibility of being a contractor.”
Also under a bonafide PAYE brolly, the company processes 100% of gross pay through RTI payroll, “meaning that contractors are not at risk of a high tax bill at a later date,” the FCSA said.
Contractor Umbrella picked up on what the association is alluding to. “This guidance, which we regard as useful but not rocket science, gently skims over the fact that HMRC is more than happy to retrospectively tax and fine anyone caught using a scheme,” the firm said.
The guidance in Spotlight 45 also omits details of the potential fines that could be enforced if a contractor is found in a challenged scheme, pointed out Smith, co-founder of All Umbrella Companies Are Equal.
Yet the Revenue does warn that the featured arrangements can leave contractors at risk because “you are ultimately responsible for your tax affairs and for paying the correct amount”.
To contractors suspecting themselves to be using a non-compliant 'umbrella,' Walsh issued some guidance of her own. “You will need to file a tax return to rectify your tax affairs,” she said. “[But] by making the first move, you may save yourself from penalties being applied along with any tax demand.”
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