Umbrella companies are unregulated and that is one of the prominent reasons why we have seen a spur in non-compliant/tax-avoiding umbrella companies in recent times.
Out of over 500 umbrella companies operating in the UK market approximately, there are quite a few umbrella companies that are non-compliant and are heavily indulged in tax-avoiding schemes thereby putting the temporary workers at legal and financial risk.
Not only that, these non-compliant umbrella companies are causing a huge loss to the government.
There have been cases wherein due to non-compliant and tax-avoiding umbrella companies, contractors were penalised and had a terrible impact on their professional careers.
For first-time contractors, it becomes very difficult to differentiate between a legitimate and an illegitimate company. They are often lured by umbrella companies by being offered higher take-home pay by using disguised remuneration schemes.
Those shady umbrella companies often promote themselves as the best in the business, an expert. They make tall claims of being 100% compliant, safe, professional and reliable. In reality, they aren’t.
Some of them even claim to be HMRC-approved umbrella companies. That’s when one must be alarmed as no umbrella company is approved or regulated by the HMRC at the time of writing this article.
They use the following methods to avoid tax:
- Loans
- Grants
- Profits
- Shares and Bonuses
- Salary advances
- Credit Facilities
- Annuities etc.
The above list has been provided by the government to raise awareness and to help spot a non-complaint and tax-avoiding umbrella company.
If you are found involved or engaged with an umbrella company that is indulged in tax-avoidance schemes, you are subject to compliance checks, harsh penalties and tax liabilities. This can prove very harmful to your professional career.
It is best to not engage with such umbrella companies and not fall for the higher take-home pay trap.
What should you do before appointing an umbrella company?
Thorough due diligence is required before appointing an umbrella company. Check on the internet, on Google, and on Social Media sites like LinkedIn, Twitter etc. to gather information about the umbrella company you are trying to appoint.
Check with fellow workers, seek recommendations from your Recruiter friends, post on the internet, and ask questions to make sure that the umbrella company you are planning to appoint is a fully legitimate and compliant one.
Ask for a contract/agreement to review from the umbrella company. Review it thoroughly. Look for their pay structure and see if you find words like loans, grants etc in the agreement as mentioned in the article above.
It is also worth looking up the Companies House and seeing what information you can gather/review about the umbrella company.
Don’t go by the umbrella company’s word. In the end, you are responsible for your actions and that makes it even more important to take some and invest in researching the company. Like we always say – it’s better to invest some time now than to regret it later.
If you need any help in appointing an umbrella company or if you have any queries related to umbrella company services, please feel free to write to us at [email protected].