How do non-compliant umbrella companies operate?

Sadly, many tax avoidance schemes pose as legitimate umbrella companies to trick contractors into using them. Continue reading to discover how non-compliant umbrella companies operate and how to spot a tax avoidance scheme.

How do non-compliant umbrella companies operate?

Non-compliant umbrella companies often pay the worker some or all of their pay in the form of a salary advance, grant, loan, annuity or any other payment they’re not expected to pay back. Non-compliant umbrella companies will often claim these payments are non-taxable without a reason; their sole purpose is to illegitimately increase your take-home pay.

There are certain things to look out for which will help you spot tax avoidance schemes:

• Any company that claims you can keep 80-95% of your income and is “HMRC approved” or tax compliant. This is impossible as the minimum income tax rate is 20%, and you must also pay National Insurance Contributions on top of this.
• Payments where only a fraction of your salary is paid via Pay As You Earn (PAYE), and any payments listed as loans, grants or other payments are not subject to income tax or National Insurance.
• Payments to your bank account are not listed on your payslip, and they are often made by a third party or another company.
• You are asked to sign more than one contract or agreement, and it is not clear where your payments will come from.

No reputable umbrella company will offer to reduce your tax bill, and all compliant umbrella companies will process your salary via PAYE – paying the correct amount of tax to HMRC on your behalf.

If you are concerned that you might be using a tax avoidance scheme, contact HMRC as soon as possible to help you settle your tax bill.

What are the implications of using a non-compliant umbrella company?

Using a non-compliant umbrella company for your payroll could have devastating consequences, and you could end up owing thousands of pounds in unpaid taxes to HMRC. As a contractor, you must understand that you are responsible for paying the correct taxes to HMRC; only compliant umbrella companies will help you do this. HMRC is stepping up its efforts to combat tax avoidance, and if you fail to pay the correct tax, it is likely to come knocking. Whether it’s a year or five, when they discover you have used a tax avoidance scheme, you will have to pay every single penny of unpaid tax, interest, and, most likely, a penalty.

Importance of using a compliant umbrella company for your payroll

It is important you only use compliant umbrella companies for your payroll. A compliant umbrella company will process your payroll by Pay As You Earn (PAYE) – HMRC’s system for collecting tax. By working with a compliant umbrella company, you are protecting yourself from tax avoidance and costly penalties, as you will pay the correct amount of tax to HMRC each time you are paid.

Churchill Knight Umbrella

Churchill Knight Umbrella is proud to be an FCSA-accredited umbrella company, and we truly value customer service and compliance. You can register for our service in under 15 minutes, and joining is straightforward. Our service has plenty of benefits, including Statutory Rights, £25 million insurance cover, Same Day Faster Payments, access to My Digital, and more. Please call our Sales Consultants at 01707 871622 to request a free, tailored, and accurate take-home pay calculation.