As discussed previously, unfortunately the umbrella market is littered with aggressive tax models.
These models include for example;
Offshore arrangements
Loan Charge arrangements
Mini Umbrella / Shell Company model (Flat rate VAT manipulation schemes)
HMRC are very well aware of these arrangements and have been seriously clamping down on them.
For the higher paid contractors, the Offshore and Loan Charge arrangements are now resulting in retrospective claims.
For lower paid workers, the largest area of non-compliance is the manipulation of workers into schemes known as Shell Company or Mini Umbrella.
Again HMRC are more than aware of these schemes and are actively clamping down on them, through the use of Transfer of Debt Liability and the Criminal Finance Act.
To the untrained eye, the worker will appear to be PAYE and all taxes paid. However, in the background, workers are being put into mini companies, where surplus flat rate vat and the annual allowance is utilised to create an income for the aggressive intermediary.
Agencies if found to be utilising such schemes will come under fire from HMRC.
Below are more information and links regarding the shell company model that have been discussed above:
Shell Company / Mini-Umbrella model
The Guardian article below has a good video explaining it. In our view, this model is high-risk for recruiters and we recommend avoiding it.
Our reasoning for this is the HMRC spotlight referring specifically to the model:
Osborne Clarkes view of the model in light of the Criminal Finance Act:
Press coverage regarding usage of the scheme:
http://www.bbc.com/news/business-32914372
From our view, the HMRC Spotlight 24 is the clearest indicator that this model represents significant financial risk to recruiters engaging with it:
“HMRC’s firm view is that such schemes are notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) rules. Anyone who comes within the meaning of a promoter for such a scheme, who has not notified it under the DOTAS rules, could be liable for a fine of up to £1 million. The definition of ‘promoter’ under the DOTAS rules goes beyond those who devise the scheme itself.”
Symptoms of aggressive scheme promoters:
- Directors with a history of phoenixing companies
- Directors with hundreds of small companies under them
- Companies registered offshore e.g Philippines & India, Isle of Man
- Payslips for an agency using different PAYE references
- So called FREE schemes – i.e no margin charged to the worker
- High rebates to agencies
- High take home pays promised
- Reasons to use NumberMill
- FCSA Accredited – the only independently reviewed accreditation for umbrellas – undertaken by Ernst & Young and files passed to HMRC
- Genuine ACCA and IPSE IR35 accountants offering an agile choice of services
- CEO – Active HMRC lobbyist – close relations with HMRC intelligence hub
- CEO background: CFO Adecco and Commercial Director Randstad – expert on contractor and HMRC engagement models
- All calls are recorded
- State of the art portals
- Contracts issued by DocuSign
- GDPR compliant
- Partnered with Accountax to ensure all documentation, contracts, processes and practice are efficient and compliant
For more information and a no obligation discussion on this matter, give us a call on 0333 121 2001.
Published: 11 December 2018