HMRC has recently issued Spotlight 54 warning tax avoidance schemes that are targeting NHS workers who have returned to jobs in response to the Coronavirus response. HMRC further says that all such schemes are using an umbrella company where the wages consist of 2 payments to you that can be described as follows:
The first payment is being declared as your earnings that are processed through the umbrella company’s payroll mostly at National Minimum Wage level or at a flat rate payment like £100 per week or so.
The second payment can be described by the umbrella as a loan, annuity, shares, capital advance, a payment from a revolving line of credit facility or some other non-taxable form, since the umbrella claims it to be not taxable.
All such schemes have one thing in common which is; they all are trying to hide your actual earnings to avoid Income Tax and National Insurance contributions
Moreover, it is quite possible that the umbrella company false claims that you can take home 80% to 85% of your pay by claiming to use your personal allowances efficiently. Also, they will provide misleading payslips that show only the first payment and/or incorrect deductions.
2. Spotlight 55
Following up the Spotlight 54, the government also issued Spotlight 55 for taxpayers that are considering the services of an umbrella company. Spotlight 55 advises that a few umbrella companies are being marketed through comparison websites and the HMRC has cautioned individuals against going for tax avoidance schemes with such umbrella companies that are rated by such websites on the basis of customer service and fees charged.
All such listed umbrella companies aren’t always legitimate, therefore taxpayers should consider cross-checking the following before entering into any contract:
- company name
- postal address
- company registration number
Also, these umbrella companies have websites with very little or no information and taxpayers need to do thorough research before considering them.
Comparison websites are like brokers that connect people with umbrella companies that aren’t compliant and not abiding by the tax rules. These websites claim that higher rated umbrellas offer a higher take home pay and fool people in the process.
Moreover, you’ll also find many comparison websites(third-party brokers) offering both compliant and non-compliant arrangements. They advertise services as ‘advanced’ or ‘enhanced and may state:
- ‘We ensure you get the highest take home pay’
- ‘Retain 80% of your earnings after tax - safe and compliant’
- ‘Compliant tax efficient pay’
- ‘We only use HMRC compliant umbrella companies that are independently reviewed’
- ‘QC approved’
If you are being offered any of the above schemes or see any such advertisements, HMRC advises you to cross check the following:
- Use HMRC’s tax calculator to calculate the actual amount of tax on your pay.
- Ask the offering party a complete breakdown of your deductions and cross check for National Insurance deductions.
- Double check for the legitimacy and compliance of the offer and think before you sign any document specially if you are asked to sign separate documents for loans, advances, shares, annuities and/or anything else that isn’t relevant to your work.
Other important guidelines:
In case you have enrolled yourself in any of these schemes, HMRC advises you to leave it asap and email the details to CA.CLscot@hmrc.gov.uk. Also, if you become aware of any such marketing or promotion of these types of schemes, contact HMRC.