Tax office criticised for failing to protect contractors amid renewed calls for umbrella regulation
HMRC has drawn criticism for acting too late in identifying a tax avoidance scheme that was liquidated in 2021, with We PAYE Umbrella Ltd – previously registered at 7 Donegall Square West, Belfast, BT1 6JH – added to the official list of known tax avoidance schemes earlier this month.
Critics have suggested that, by naming a tax avoidance scheme which ceased trading over a year ago, HMRC has shown that it’s behind the curve in identifying non-compliant umbrella companies.
While the tax office has started to clamp down on promotors of tax avoidance and evasion, given this is only the 15th such scheme identified by HMRC this year, experts argue that it’s failing to find them quickly enough, leaving contractors at risk.
This has reignited the debate around the need for umbrella industry regulation, amid fresh frustration across the industry.
How tax avoidance schemes work
Tax avoidance schemes frequently claim to be compliant umbrella companies, attracting unsuspecting contractors with promises of high take home pay.
Typically, this means that contractors’ wages are structured in such a way to avoid incurring income tax and National Insurance payments to HMRC.
We PAYE Umbrella Ltd operated its payments in this way, with a first payment at National Minimum Wage, and a second payment in the form of a non-repayable loan.
Receiving payments in this manner leaves the contractor, rather than the scheme operator, liable for a significant retrospective tax bill.
Often, it’s unclear to contractors that tax avoidance schemes operate under the guise of compliant umbrella companies – which is why many are calling for regulation of the industry.
“Barely scratches the surface”
Fred Dures, founder of PayePass – a provider of payroll auditing and verification software – welcomed the identification of another tax avoidance scheme, but warned that HMRC’s list “barely scratches the surface” and accused the tax office of “only calling out the easy targets”.
“While everyone should welcome the fact that HMRC is slowly but surely naming more tax avoidance schemes, the fact remains that this list barely scratches the surface.
“More schemes are being shut down, but in reality, it’s too little too late for many contractors. The scheme in question has been in liquidation for over a year, so in all likelihood, the damage has already been done.
“HMRC is only calling out the easy targets, some of which ceased trading long ago.
“It begs the question – when will HMRC show some teeth and name and shame the biggest tax avoidance schemes?”
Dures also called the list of known tax avoidance schemes “far from comprehensive” and reminded contractors that being proactive is essential.
Currently the responsibility lies with contractors to ensure that they engage a compliant provider, however. With this in mind, it’s worth frequently checking HMRC’s list of known tax avoidance schemes, and conducting further due diligence is advisable before choosing an umbrella company.
If you believe you may be involved in a tax avoidance scheme, you should contact HMRC as soon as possible. You can also use HMRC’s interactive risk checking tool if you think your employment arrangement could involve tax avoidance.