If you are looking for an umbrella company to take care of your payroll, you must choose a compliant provider, and not a tax avoidance scheme. The opportunity to pay less tax may sound tempting, but the consequences could be devasting.
Unfortunately, there are hundreds of unethical companies preying on UK-based contractors and freelancers. These businesses are promising their clients the chance to keep more of their money and to pay less tax. However, while it may sound tempting, engaging with a tax avoidance scheme could land you in serious trouble with HMRC.
The Loan Charge (2019) is a piece of legislation that the government introduced, which allows them to claim underpaid tax retrospectively. The legislation has come under heavy scrutiny because even contractors who were misled and underpaid tax by mistake can be asked to pay back thousands of pounds – immediately. Under the Loan Charge (2019), HMRC can retrospectively punish people and reclaim underpaid tax from as far back as 20 years ago. Therefore, if you choose to underpay tax now, you could be punished and face a huge tax bill in 2040. Tax avoidance is something that you should never consider.
Please keep reading and find out how to spot a tax avoidance scheme. There are plenty out there – don’t be fooled into using one.
Sadly, it is not difficult to come across a tax avoidance scheme online and some appear more legitimate than others. To help you identify a tax avoidance scheme, we have created an example landing page – based on real companies our Marketing Team has come across over the last couple of years.
1) Company name – ‘Tax Save Umbrella’
In our example above, the company has a very questionable name – Tax Save Umbrella. Unfortunately, many tax avoidance schemes have names like this – to get the attention of contractors and freelancers.
No umbrella company can save you tax. It’s not possible. Every deduction to your pay (PAYE) will be the same – regardless of which compliant umbrella company you choose. The only thing that will vary between compliant umbrella companies is the margin they charge for their service.
2) IR35 friendly
We have seen companies offering “IR35 friendly” payroll services. But, what does this actually mean? IR35 is tax legislation that was introduced to stop disguised employees. As a UK contractor, your assignments will either be “inside IR35” or “outside IR35”. The phrase “IR35 friendly” is meaningless, and is designed to trick temporary workers who may not have a great knowledge of IR35 legislation.
3) Used by thousands
This is probably a lie. However, even if it were true – all it means is that thousands of contractors are engaging with a tax avoidance scheme and are putting themselves at significant risk of an HMRC investigation in the future.
4) Free insurance
Insurance is great. Most compliant umbrella companies will provide you with what you need (Employers Liability, Public Liability and Professional Indemnity Insurance). However, no insurance will protect you against HMRC is you are investigated in the future – so don’t be misled.
5) We are experts
What are they experts at? Misleading their clients into thinking tax avoidance is okay? It is insulting to discover that some tax avoidance schemes are saying they’re experts. They may be experts at tax avoidance, but they are putting their clients’ welfare at extreme risk.
6) Email support only
Most tax avoidance schemes will be difficult to contact via telephone. This is because they’re probably located offshore and in a well-known tax haven. Advertising email support is great, but how reliable will it be anyway?
7) Our clients Include…
A number of online tax avoidance schemes boast about their impressive portfolio of clientele. However, they have probably just searched online for “major UK businesses” and have copied and pasted the logos onto their website – just to grab your attention.
8) Registered office
Most tax avoidance schemes will either hide where they’re based, or will state they’re from a known tax haven, such as the Isle of Man, the Channel Islands, or the Cayman Islands. You are a UK tax payer, so if you come across a payroll company that is based outside of the UK, alarm bells should be ringing.
9) Fully legal
Technically, tax avoidance is legal. But if HMRC is prepared to retrospectively punish people that use tax avoidance schemes, why is it legal? The answer is relatively straightforward. Tax avoidance schemes are created to target gaps in UK tax law. This means that the tax avoidance scheme can offer a payroll system that is technically legal at the time but will undoubtedly be outlawed as soon as HMRC are aware of it. This explains why tax avoidance schemes are so unethical – because they deliberately exploit the tax system and introduce new ways to pay people – intentionally against HMRC’s wishes.
As soon as a scheme is discovered, HMRC will issue it with a Scheme Reference Number (SRN). This means that it will be thoroughly investigated. As a result, the scheme will be shut down, or a new law will be introduced that makes it illegal. Either way, just because the scheme is presently “legal”, it won’t be once HMRC is aware of it and take action.
The Director of the scheme will then almost certainly shut down the company, hide any traces of his or her involvement, and then move onto another one almost immediately. And, because the Directors are usually so difficult to get hold off, it’s no wonder the unpaid tax burden is then passed on to the contractors and freelancers who used the scheme.
10) Testimonial
It’s common for tax avoidance schemes to use testimonials from clients. However, these are either fake, or confirm that the company is a tax avoidance scheme. Remember, you could get away with using a scheme like the above for years before HMRC investigate you. Therefore, the testimonial might be from a contractor who is paying less tax than they should be. However, they’re taking a risk that could be catastrophic.
11) Keep 90% of your pay
As a UK worker, you know that you should be paying income tax and National Insurance. These amounts, when combined, are far higher than 10%. Therefore, keeping 90% of your pay is clearly not legitimate. Any company making a claim like this is almost certainly a tax avoidance scheme and should be avoided at all costs.
HMRC take tax avoidance very seriously and the introduction of the Loan Charge (2019) shows how devoted they are to punishing people who have used tax avoidance schemes – even if it was an accident. Therefore, tax avoidance is not worth the risk.
If you believe you have accidently used a tax avoidance scheme in the past, you should contact HMRC at your earliest convenience to settle any outstanding tax you may owe.
Founded by experts with over 20 years’ industry experience, Churchill Knight Umbrella is a compliant UK-based umbrella company with an excellent reputation. We are committed to compliance within our sector and we’re proud to be accredited by the FCSA. The FCSA is the UK’s leading professional body that is dedicated to ensuring the supply chain of temporary workers is compliant and ethical.
By choosing Churchill Knight Umbrella, you can go about your contract assignments with complete peace of mind. We process your pay (PAYE) in accordance with HMRC rules and regulations, and this means you will not be at risk of an HMRC investigation in the future.
There are plenty of reasons you should choose Churchill Knight Umbrella. Not only do we offer fully compliant umbrella payroll, but every client also has access to free insurance cover, Employee Benefits, Same Day Faster Payments, no hidden fees and a dedicated Account Manager (with telephone support).
To get a free, tailored and accurate take home pay calculation, please complete the short form on this page or give our friendly team a call on 01707 871622.
Churchill Knight & Associates Ltd and Churchill Knight Umbrella are proudly accredited by the Freelancer and Contractor Services Association (FCSA). The FCSA is the UK’s leading professional body dedicated to ensuring the supply chain of temporary workers is compliant with HMRC’s rules and regulations. We believe that being an accredited member of the FCSA is the best way to showcase our commitment to compliance within our sector.
Whether you’re using one of our limited company accountancy packages (Churchill Knight & Associates Ltd) or you’re an umbrella company employee (Churchill Knight Umbrella), you can rest assured knowing that you are in the very safest hands.
