HMRC publishes a ‘Spotlight’ report to warn taxpayers and tax advisors of specific tax avoidance schemes that have come to their attention. The latest in their series is Spotlight 54, issued on 30th March 2020, which draws attention to schemes that are targeting workers returning to the NHS to help with the coronavirus (COVID-19) outbreak.
It is abhorrent to hear that unscrupulous providers have turned their attention to targeting returning NHS workers, though unfortunately this is not wholly surprising. The promotors of these tax avoidance schemes have been aggressively targeting and luring, often unsuspecting, contractors for many years with promises of greater take home pay than the law allows. We have only to look at the contractor loan charge to see the devastating financial and personal consequences on individuals that get caught up in them.
The tax avoidance schemes highlighted in the latest Spotlight 54 appear to have the following common themes:
- They disguise themselves as a regular “umbrella” company. This is not to be confused with professional umbrella employers who operate within the letter of the law, and in particular those who are audited against the professional standards as set out in the FCSA accredited code of standards for professional employment organisations.
- Pay is structured in two parts. A larger ‘non-taxable element’ and a much lower ‘taxable’ wage payment on which PAYE tax and national insurance contributions (NICs) are made.
- The aim of the model is often to disguise the true level of a worker’s earnings (and therefore the full amount on which tax and NICs should be paid).
- They almost always offer or promote a higher take home pay, often as much as 85% or more, than is achievable through a compliant umbrella company or PAYE model operating PAYE tax and NICs on the worker’s full earnings.
- A lack of transparency as to how the scheme works often giving vague or complicated explanations as to how it works is often a hallmark of these schemes. The old adage that “if it sounds too be good to be true, it usually is” almost certainly applies here.
- Misleading payslips showing only the salary proportion of your payment or inaccurate deductions.
- Ask you to sign documents other than your contract of employment that relate to the second part of your payment.
A compliant umbrella company will employ you on a contract of employment and therefore all of your pay will be subject to PAYE tax and NICs, aside from a limited number of allowable business expenses allowed by HMRC in specific circumstances which will be clear in the legislation. If the take home pay offered to you differs dramatically from a standard payroll calculation, it is highly advisable to avoid the company or risk being caught up on the wrong side of the law with devastating consequences. It is our strong recommendation that an FCSA regulated umbrella company is always used. By using a FCSA accredited umbrella company you can be assured that they have been audited by independent regulated accountants and solicitors against a published code of compliance which seeks to ensure umbrella companies provide the highest standards of compliance.
Parasol sits on the board of the FCSA and is committed to setting the highest standards of compliance and best practice across the umbrella industry.
For more information on this article, you can speak to our Best Advice team on 0800 583 6000.