New government guidance aims to help agencies and businesses that engage temporary workers avoid working with non-compliant umbrella companies. The guidance clarifies how non-compliance typically works and explains the risks and potential damage of engaging with non-compliant umbrellas.
Although most umbrella companies comply with UK tax laws, some operate in a non-compliant manner in order to avoid tax. This often involves processing payroll in the form of untaxed payments, including loans, advances, credit facilities, shares, grants and annuities, among other payments.
Working with a non-compliant umbrella puts a business within that supply chain and can put it at risk of compliance checks, tax liabilities and even penalties. The penalty for enabling umbrella non-compliance, according to HMRC, is “100% of the fees receivable in consideration for any actions taken by you which enabled the arrangements.”
In such an instance, HMRC also states that it has the right to publish the company’s details, publicly identifying the firm as an enabler of tax avoidance. Clearly, this is something that could cause severe reputational damage to the business.
Any agency or business that places offshore workers is required to process PAYE for payments sent to offshore umbrella companies, under the offshore employment intermediaries rules. These rules apply to agencies that place workers with a hirer as well as for hirers in instances where the supply chain does not contain a UK-based recruitment firm.
The guidance states that companies “should be mindful that some offshore umbrella companies take steps to disguise the fact that they are operating offshore by using a UK based company to contract with agencies.”
HMRC warns that, even if the company is not aware of an offshore umbrella company operating within the supply chain, it remains responsible for unpaid NICs and income tax.
Author: Steven English