While the umbrella industry is still unregulated, dodgy umbrella companies are firmly in the sights of this new legislation, so there will be nowhere to hide. Directors, agencies and anyone involved in making the tax avoidance schemes available will be named and shamed by HMRC. Read on to find out more.
Dishonest brollies are never far from the headlines, and with the recent spiralling rises in the cost of living, tensions are running higher than ever. This means that contractors who are looking to maximise their hourly rates might be tempted by umbrella companies who market impossibly low rates. Sadly, these are likely to be tax avoidance schemes.
How do umbrella firms facilitate tax avoidance?Umbrella companies effectively act as an employer. Providing a go-between between the end hirer and the contractor, they give contractors the benefits and convenience of a stable employer when working on changing contracts. Umbrella companies help contractors pay the right amount of tax and National insurance Contributions, but dishonest umbrellas are known to offer rates which, while enticing, won’t include the right amount of tax.
This can leave contractors with a hefty tax bill and possible fines. Compliant umbrella companies like Ship Shape have long wanted the industry to be regulated, to protect contractors from tax avoidance schemes and enable the rest of us to provide our contractors and clients with a valuable service.
But while there has been some movement towards regulation, beginning with the government’s recent consultation period on umbrella firms, there has yet to be permanent legislation.
So, what changes have been made?The HMRC recently published section 86 part 5 of the Finance Act 2022, which is specifically concerned with tax avoidance schemes. Having now received royal assent, it is now officially an act of Parliament.
The main change to affect the umbrella industry is that the HMRC now has the power to publish information about tax avoidance schemes. In short, this means that anyone found to be promoting tax avoidance schemes will be named and shamed.
What does that mean for dodgy brollies?While the industry remains unregulated, the net is effectively tightening around dishonest umbrella companies. Not specifically targeted against umbrellas, this legislation is designed to deter tax avoidance by tackling those that promote it, including those dodgy brollies.
New powers for the HMRC include being able to publish the details of suspected tax avoidance schemes. This includes:
- Details of suspected tax avoidance schemes which are being sold through a website or other channel
- Details of any actions that are being taken by HMRC
But crucially, HMRC are also now able to name and shame individual promoters and details of any past scheme they might have been part of, potentially preventing serial umbrella offenders from repeating the same scam over and over again.
They are also able to name anyone involved with these kinds of schemes, meaning that agencies who facilitate them are also in the firing line.
Follow the red tape…This legislation represents some progress in the quest to eliminate dishonest umbrella firms, and we recognise the need for a thorough process to create a fully regulated industry.
We at Ship Shape welcome any legislation which will help to protect our contractors by creating a safe and compliant landscape for us to provide our service.
We take our responsibility to compliance very seriously and are committed to complete transparency. This includes ensuring that our contractors and clients are fully aware of their tax responsibilities to prevent tax avoidance of any kind. Talk to us today if you’d like more info on how we can help.