HMRC investigating umbrella company users over 2017 income

The taxman is being accused of ‘lying in wait like a trapdoor spider’ by only now investigating taxpayers who used umbrella companies in 2017/18.

To continue the analogy, put yesterday by an adviser representing six such cases, two lots of penalties accrue due to HMRC keeping still, and so not moving towards the ‘caught’ users.

In particular, the Revenue was waiting for the individuals to declare their taxed and untaxed income on personal tax returns for the 2017/18 tax year, explains the adviser, Carolyn Walsh

'Penalty rises to 45%'

But she says anyone who failed to declare, perhaps thinking it was down to their umbrella company to take care of their tax obligations, now risks paying a range of HMRC charges. 

“There’s the outstanding tax due; a penalty of 30% of the unpaid tax, plus a penalty for not filing a tax return,” the adviser says. “The penalty rises to 45% if an offshore scheme was used.”

'Double-whammy'

Letters sent by HMRC to affected taxpayers tend to mention “tax avoidance,” the specific name of an umbrella company and/ or Finance Act 2008, typically Schedule 36.

“Recipients then get asked for paperwork under Schedule 36, which effectively lets HMRC identify the untaxed income received from 2017/18,” says Walsh, boss of Andraste Accounting.

“By this stage, it's a double-whammy. Because it means a tax return should have been filed so, wham; there’s a HMRC penalty. Oh and there’s no grounds for appeal until a tax return is filed, so wham; there’s a tax debt.”

'Trapdoor spider'

She added: “This is the HMRC which is akin to trapdoor spider because while it expects taxpayers to report untaxed income from 2017/18, the department invariably knew that they would fail to as people are largely unaware of this responsibility. Yet when HMRC can start issuing penalties, it makes it easier to get people to pay up.”

To protect the half a dozen who find themselves in HMRC’s web, the onus is on the adviser and other tax dispute specialists to prove that the individual was not culpable, or was unaware of their wrongdoing.

'Very few exceptions'

“Then, if they also file a tax return in time, the additional penalties can be avoided,” said Walsh, a former tax inspector, who is also the managing director of umbrella company CWC Solutions.

She advised: “If you’re reading this and you’ve got a letter like the one outlined, act fast; because it means that HMRC penalties are already accruing on top of a tax debt.

“That is unless you can satisfy one of the very few exceptions, such as proving you took independent advice before using the offending scheme.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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