‘Usefulness’ of HMRC’s umbrella worker avoidance tool thrown into doubt

A 2,000 character-space contractors have to type feedback to HMRC on its new avoidance-checker might be stretched to the limit, if their advisers’ reactions are anything to go by.

Contract staffing specialist Andy Hallet, managing director of recspand, is among those who thought the Revenue’s beta service for umbrella contractors looks “useful”.

“If you are an umbrella worker, or an agent trying to protect your contractors, this tool takes your through the steps in identifying dodgy schemes and providers,” he reflected.

'Falls short of any useful purpose'

Online, Hallet’s LinkedIn network largely agreed with his assertion that, by building the tool -- ‘Check If You Are At Risk Of Tax Avoidance,’ HMRC has “done something useful.”

“The idea of an online tool can be ‘useful’ where it provides a meaningful outcome [but] this one appears to fall short of any ‘useful’ purpose,” said lawyer Adrian Marlowe, disagreeing.

He says the tool would be useful if it gave “meaningful help” to would-be or existing brolly users, or listed “common modes of tax avoidance” of brollies which "sail close to the wind."

'Stretch the rules'

Pressed about his characterisation, the managing director of Lawspeed told ContractorUK that while “plenty” of brollies offer proper services, some “stretch the rules too far”.

Mr Marlowe continued: “It’s a good idea for HMRC to publish information about what…[to] look out for when using an umbrella company. But it should be clear and obvious.

“And in publishing this sort of resource, HMRC should make it so that contractors’ recruitment agencies can also learn from the information. This tool patently fails to do that.”

'Work in the shadows'

Also chair of the Association of Recruitment Consultancies, Mr Marlowe was part referring to the HMRC tool being only useable by umbrella company staff -- “an immediate problem”.

Even “more odd” he adds, is that the many documents which the tool asks the user to gather, like umbrella company payslip,  have “no function” in any of the questions it asks.

Yet in an alert about those umbrellas that “work in the shadows”, Clarke Bowles, a director at Parasol, suggests payslip-savvy is a key way to expose the rogues.

“Staying vigilant, understanding your payslip and reporting [abuse] where appropriate can help to shine the light on those operating…schemes,” he wrote.

'Line of defence'

Addressing umbrella company workers directly, Mr Bowles added: “You are responsible for your own tax affairs, and to make sure you understand how you are being paid.

“Ensuring you fully understand your payslip can be a simple yet effective line of defence against tax avoidance.”

An accountancy firm says it now offers ‘free umbrella payslip audits’ to outside IR35 PSCs, in a further backing of the staple document that breaks down umbrella worker take-home pay.

'Tricks and techniques rogue umbrellas love'

“We’ll check your umbrella payslips, your umbrella P45; your umbrella employment contract, your Key Information Document [and] payments made to HMRC,” said the firm, inniAccounts.

The firm’s James Poyser added: “It’s fair to say we’ve become pretty clued up about umbrella malpractices.

“We know where to look to find all the common tricks and techniques that rogue umbrella companies love to deploy. If we spot anything, we’ll help you challenge your brolly.”

'Not what contractors pushed inside IR35 want'

Last week, ‘transparency’ was what one worker said he was pleased his new umbrella was demonstrating; even if the brolly itself conceded he probably wasn’t overly pleased to need its services at all.

“He was used to operating via his limited company but for this assignment was pushed inside IR35….[so we] might not be what he necessarily wanted,” the umbrella acknowledged. “But at least we know he was happy with our service.”

Also taking to social media, another umbrella said it wanted to know what went into the final “decision” – when contactors come to pitting one brolly against another.

“Is it compliance, recommendation from a friend or colleague, or is it just about the promised rate?” asked the umbrella, only to receive a quick answer:

“You definitely need to make sure there's no dodgy element,” came the reply, hinting ‘compliance’ wins out. “[You don’t want that element to] come back and bite you later on down the line.”

'Little impact, and half-hearted'

The ARC says that although regulation of brollies is now “anticipated” – albeit “with no firm dates”, HMRC’s avoidance-checker shows the taxman is ”taking matters into its own hands.”

Albeit clumsily according to Lawspeed’s associate director Theresa Mimnagh.

“The [HMRC] tool lacks gravitas and is likely to have little impact,” she says, “[giving] the impression that this is a half-hearted attempt to combat tax avoidance in the umbrella sector.”

'Watch out for SDC questions'

Meanwhile, ARC’s Mr Marlowe recommends that, until widely-sought regulation is introduced, “contractors should always check they have a proper employment contract before they start work for an umbrella.”

He further recommended, in a statement to ContractorUK: “Watch out for questions about whether you are subject to Supervision, Direction or Control, since those questions mean -- as a minimum -- that the umbrella company is considering paying you expenses tax-free. [But note this is] normally contrary to the rules as pretty much all ‘temps’ are subject to the client’s SDC.”

The recruitment lawyer added in a warning: "Such expenses can sound nice to the worker -- until they [potentially] get the [subsequent] demand from HMRC, a line that the Revenue seems to be increasingly taking."

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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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