HMRC hands umbrella contractors new avoidance ‘risk-checker’ tool

New HMRC guidance to help umbrella contractors check for avoidance risks probably won’t satisfy a campaigning Labour MP, but it is enjoying a warm reception from much of industry.

Unveiled on Thursday, ‘Check if you’re at risk of tax avoidance’ is a widget for contractors to enter their details into, potentially using info on their payslip, bank statement and contract.

Although HMRC says the “interactive risk-checker” is for usage if “you’re an agency worker or contractor working through an umbrella company,” it is actually solely for the latter.

In fact, selecting ‘No’ to ‘Do you work through an umbrella?’ causes the tool to close to the message, 'You’re unable to use this checker as you do not work for an umbrella company.'

'Must-read'

Whether or not it’s because it’s exclusive to them, brollies who want to clean up their industry seem pretty pleased.

Orca Pay Group describes the three-part HMRC guidance as a “must-read for anyone operating through an umbrella or payroll company.”

“[This] will help protect you against the potential of finding yourself in an avoidance scheme,” says the group’s CEO Robert Sharp.

“Despite what many of these businesses who pedal avoidance schemes tell you, you are responsible for your own tax affairs! In other words, HMRC will pursue you for the unpaid tax liabilities.”

'Not new, nor rocket science'

The widget does allude to taxpayers’ responsibilities, such as by saying 'If you’re in a tax avoidance scheme you could end up with a large tax bill plus interest; [and] penalties.'

This alert appears under ‘You may be involved in a tax avoidance scheme’ which appears if ‘yes’ is selected as to whether higher take-home pay or partly untaxed income has been promised.

“This is not new…nor is it rocket science,” says IWORK founder Julia Kermode, reflecting on the two red flags.

“Guidance to explain why you need to check these, i.e. to prevent being unknowingly caught in a tax avoidance scheme…[is] not new [either]”, she said. “’But HMRC’s guidance is straight-forward and well-written.”

'Government has done nothing but publish guidance'

However, the widget still represents just more non-binding HMRC guidance -- the last instalment of which for umbrellas was published on the eve of Autumn Budget, raising hopes brollies were on the cusp of being regulated by the chancellor.

“Yet the government has so far done nothing but publish some guidance,” said Labour MP Ruth Cadbury, speaking in the House of Commons last week.

“The ‘Wild West’ supply chain of unregulated companies…[continues to] conspire to lure workers into tax avoidance schemes, often entirely unwittingly.”

'Skimming contractors' pay'

A former chair of the Loan Charge APPG (now the LCTF APPG), Ms Cadbury said that “without [umbrella company] regulation to clean up the supply chain,” there will continue to be:

“Ongoing skimming of contractors’ pay; of misappropriating holiday pay; of backhanders between agencies and umbrella companies, so action is needed to actually stop the schemes.”

At Orca, Mr Sharp backs the new HMRC widget underpinned by the department’s guidance but, paradoxically, he also agrees with the MP, for whom mere guidance is no longer enough.

'Scheme promotion and pedalling are at is worst ever'

“We are helping contractors every day at the moment, who have been placed in avoidance schemes completely unknowingly and unwillingly.”

Addressing contractors directly, Mr Sharp continued: “The promotion and pedalling of avoidance models is the worst I have ever seen in our industry. So it is imperative that you educate yourselves on how to protect yourselves from not being placed in one of these schemes.”

But according to another umbrella company boss, it is the beta service from HMRC which needs a little more education.

'Misleading'

Explaining her assessment, Lucy Smith, boss of Clarity Umbrella said too many of the tool’s questions immediately return the answer, ‘You could be involved in a tax avoidance scheme.’

Even answering ‘yes’ to ‘Are there any deductions on your payslip you don’t understand?’ returns the alert that the user 'could be' embroiled in a scheme.

“We regularly have contractors telephone us believing that their umbrella company is doing something wrong,” began Ms Smith. “If you answer ‘yes’ to this question it would automatically give you a response suggesting that you are part of a tax avoidance scheme, which is hugely misleading.”

She added: “Issues [around misunderstanding a payslip] more typically stem from an umbrella company not explaining things properly from the outset. So unfortunately this HMRC tool might lead to an onslaught of contractors believing that a compliant umbrella is doing something abjectly wrong -- leaving the floodgates open for criticism of an unregulated industry once again.”

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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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