A new HMRC tool has been launched which aims to help contractors engaging with umbrella companies determine whether their provider is operating a tax avoidance scheme. The tool utilises straightforward, multiple-choice questions which can help freelancers to identify non-compliance.
Since the introduction of IR35 rules in April 2021, umbrella company compliance has become a hotly debated topic, with more contractors engaging umbrellas than ever before. Many tax avoidance schemes operate under the guise of umbrella companies in an effort to lure unsuspecting clients in.
The tool can help contractors to avoid the large penalties or tax bills that might result from engaging (even unwittingly) with a non-compliant umbrella company. The tool is part of a wider HMRC campaign – entitled ‘Tax Avoidance – Don’t Get Caught Out’ – which aims to provide education on tax avoidance.
HMRC has outlined three key warning signs which could identify a tax avoidance scheme. The signs are: highly complicated proposed arrangements for contract pay; promises of higher-than-expected take home pay; the offer of a cash bonus for recommending a friend.
Despite this, HMRC has continued to receive criticism over tax avoidance, with some saying its measures don’t go far enough in tackling umbrella company non-compliance. While greater education to help contractors spot tax avoidance has been welcomed, some have called for the introduction of regulation to combat non-compliance and protect contractors.
Labour MP Ruth Cadbury has been among the government’s critics, saying it “has so far done nothing but publish some guidance.” She added that the “’Wild West’ supply chain of unregulated companies” has continued to “conspire to lure workers into tax avoidance schemes, often entirely unwittingly.”
Author: Steven English
26.11.2021
