Warning against the use of umbrella companies to save tax

HMRC has published a new tax Spotlight 45 looking at the use of umbrella companies who are offering to increase your take home pay. It highlights the fact that many employees and self employed contractors are failing to realise that some staff agencies and umbrella companies are flouting tax anti-abuse rules.


HMRC have warned that some of these arrangements are promoted as a means of reducing tax liabilities when in fact they are caught by anti-avoidance legislation and so their use could lead to additional tax, interest and penalties becoming due.


Most employment agencies and umbrella companies operate within the tax rules. However beware that if you are employed through an agency or umbrella company and are signing up to arrangements that claim to save you tax, they could well be tax avoidance schemes.


These arrangements leave you at risk because you are ultimately responsible for your tax affairs and for paying the correct amount of tax and National Insurance contributions.


These arrangements may work in different ways, but often the companies that use them claim they will help you keep more of your income and reduce your paperwork. They will tell you that the payment is non-taxable because it doesn’t count as income as it’s a loan, credit, or something similar.


If you are unsure, speak to the team at KPP so that you fully understand the options available to you.

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