New year, but same old story: compliance risks continue to plague the umbrella sector
So far this year, HMRC has already added five newly identified tax avoidance schemes to its growing list of non-compliant umbrella companies.
The flurry of activity suggests that the sector continues to face considerable challenges from a non-compliance perspective, with self-employed workers still exposed to a range of tax avoidance risks.
HMRC updated its list of known tax avoidance schemes, promoters, enablers and suppliers on 16th January to include the following:
- Masterstroke Solutions Limited (registered address at 128 City Road, London, EC1V 2NX)
- Calculate Limited (registered at 601 International House, 223 Regent Street, London, W1B 2QD)
- Rainwize Umbrella Ltd (registered at 307 Cotton Exchange Building, Old Hall Street, Liverpool, L3 9LQ)
- Stark Payment Services Ltd (formerly registered at Unity Building, 20 Chapel Street, Liverpool, L3 9AG)
- Penhale Solutions Ltd (formerly at 71-75 Shelton Street, London, WC2H 9JQ, currently registered at 128 City Road, London, EC1V 2NX)
How did these schemes operate?
All five newly identified tax avoidance schemes operated via ‘disguised remuneration’. This means the assignment fees workers received were structured in such a way as to avoid incurring taxes.
For example, in the case of Calculate Limited – which “appears to target NHS workers” – self-employed individuals would “provide their services to [an] end client as employees Calculate Limited”.
In return, they would receive part of their pay as a salary, “paid at or close to the minimum rate permitted under the National Minimum Wage Act 1998”. This portion of pay would be subject to income tax and national insurance deductions.
But these workers would “also receive a secondary element… that is not subjected to deductions”.
However, according to HMRC, “both elements of the payment should be… subject to” tax deductions. This means the workers operating through these schemes have – unwittingly or otherwise – failed to pay the relevant taxes on their income. As a result, they will be liable for unpaid amounts, rather than the scheme operators.
In addition, HMRC has urged umbrella workers of Masterstroke Solutions, Rainwize and Penhale Solutions to check whether “the correct amount of tax is being deducted [from] their income”.
Avoidance still rife, despite Labour’s focus on sector
The addition of five more schemes in just the second full week of the calendar year highlights the need for a solution to tackle avoidance in the umbrella sector – something the Labour government has promised to deliver.
Shortly after the Autumn Budget 2024, the government published a policy paper outlining its plans to tackle tax non-compliance in the industry, and will “bring forward legislation” that will encourage greater supply chain due diligence.
It will do so by making the wider “labour supply chain” – including recruitment agencies and end-clients – accountable for any unpaid PAYE income tax deductions. Such solutions have long been called for in the sector.
With an effective date of April 2026, however, the government may face questions about its implementation – particularly over the timeline.
If you think you might be involved in tax avoidance, you can check HMRC’s list of known tax avoidance promoters, use HMRC’s online risk-checking tool, or report tax avoidance online.
The link to the HMRC list of known tax avoidance providers is dead – a current one would be useful.
From the list of 5 above it seems that registered address could be a guide to filter umbrella companies.
Inside IR35/brollies are a total nightmare for the freelancer.
Clients, agents and umbrellas are happy for rates to be suppressed by exploiting freelancers naive enough to use umbrella companies offering a higher “net”. They’ll eventually end up with a big HMRC bill for unpaid taxes but everybody gets a lower rate.