HMRC issues warning to employees working through umbrella companies

Friday, August 24, 2018

HMRC has sent out a warning to all workers - including doctors - who use umbrella companies to manage their income. The warning has been issued following a number of cases of umbrella companies and recruitment agencies claiming they can reduce employees’ tax liability and increase the percentage of pay that employees can take home. Unfortunately, these arrangements are leaving many at risk of taking part in a tax avoidance scheme. You are ultimately responsible for your own tax affairs, and paying the correct amount of tax and National Insurance. You are also therefore liable to pay additional tax, interest and even penalties if you have partaken in a tax avoidance scheme.

4 steps you can take to protect yourself

  1. Avoid umbrella companies or recruitment agencies that are promising you an 80%, 90% or 95% take home of your wages. This is unlikely to be tax compliant; the basic rate of tax is 20%, whilst you also need to contribute National Insurance as well.
  2. Check if all of your salary is being paid through payroll and subject to PAYE. If not, then this indicates that you are only paying tax on part of your income.
  3. Do not agree to be paid using loans, credit or investment payments. Many uncompliant companies will claim this isn’t subject to income tax or National Insurance, this is not true and is considered tax avoidance
  4. Make sure that payment from your umbrella company is not routed through various companies before it comes to you.

HMRC has advised that claiming ignorance will not stop you being pursued to pay back the tax, National Insurance and interest that you owe. If you are concerned that you may be currently involved in a tax avoidance scheme or have used one in the past, you should withdraw from it immediately and settle your tax affairs with HMRC.

At Pathology Group, we operate to the highest compliance standards and only work with an approved list of umbrella companies. This ensures that any doctors working through us are protected from any potential risks further down the line.

If you would like to discuss your current situation with one of our team, please request a call back here.

For more information, read the full guidance released by HMRC.