TaxAid and the Low Incomes Tax Reform Group (LITRG) say that an increasing number of workers are complaining about umbrella companies operating in a non-compliant manner. This has caused the charities to voice concerns to the FT about umbrella company workers being unknowingly pushed into using tax avoidance schemes.
Educational tax charity LITRG said that non-compliant umbrella companies were engaging in “disguised remuneration” schemes and failing to deduct tax on contractor wages. The LITRG said that these activities, which are banned by HMRC, were affecting agency workers including nurses and supply teachers.
Meanwhile, tax advice charity TaxAid reported a 37 per cent increase in calls from umbrella workers reporting a tax problem over the last year. Affected workers will often receive letters from HMRC telling them that they “may have been involved in tax avoidance” without realising.
The charities say that these letters, which advise workers to exit their umbrella arrangement and provide tips on spotting avoidance schemes in future, are generally the first time that workers will find out they have been involved in a disguised remuneration scheme.
LITRG Technical Officer Meredith McCammond said that people are “beside themselves” when they receive such letters from HMRC. McCammond added that avoidance schemes exist purely to benefit the umbrella company itself, rather than contractors, saying: “They deliver a similar level of net pay, out of a lower gross pay amount, and cut their ‘on top’ employment costs. The umbrella company can easily double or triple their margin from a particular contract rate.”
TaxAid Chief Executive Valerie Boggs said that affected umbrella workers “get caught up in something they don’t understand and they’re powerless against it. They just need the work.” The two charities have urged HMRC to do more to combat non-compliance in the umbrella sector.
Author: Steven English