HMRC have named more umbrella tax avoidance schemes that don’t work as part of the 72 tax avoidance named schemes. And there will be more under investigation or not yet caught.
Added avoidance schemes are Goldfish Umbrella Limited, Signature Vintage Limited and We Are Ava Limited, of course they all claim full compliance with legal obligation!
If you’re using any of these schemes or others shown on the HMRC naming lists or similar schemes, HMRC strongly advises you to withdraw from them and settle your tax affairs to prevent building up further large tax bills.
How do these avoidance schemes claim to work?
Goldfish Umbrella Limited (GUL) users enter into a contract of employment with GUL, providing their services to end clients.
GUL invoice the end clients for the work and, after retaining a portion of that invoiced amount, GUL will make a single payment to the scheme users made up of two elements.
The first element is salary made at National Minimum Wage/National Living Wage with Income Tax and National Insurance contributions (NICs) deducted.
The second element is described as an ‘Advance Payment’ and is made without Income Tax and NICs deducted. The total payment is more than the scheme users would have received if they were paid their salary with Income Tax and NICs correctly deducted on the full amount.
Maybe not so compliant or worry free as they claim.
HMRC have previously published a Spotlight on agency workers and contractors employed by umbrella companies Spotlight 60.
Signature Vintage Limited (SVL) employees provide their services to an end client via a recruitment agency. The recruitment agency pays SVL for the work carried out by the employees.
SVL makes a single payment to the employees each week. Part of the payment is salary at a rate close to the National Minimum Wage with Income Tax and National Insurance Contributions (NICs) deducted, and the remaining balance is allegedly for an ‘Option Granted’ which is paid to the employees without deductions for Income Tax and NICs.
Maybe not the compliant, hassle-free umbrella services that take all of the paperwork and admin stress away from you that they claim.
HMRC’s position is that the payment described as an ‘Option Granted’ is normal income and should therefore be subject to Income Tax and NICs. HMRC have previously published information about the tax avoidance arrangements used by some umbrella companies Spotlight 60.
Hunter State Limited trading as We Are Ava Limited (WAA) provide employment to scheme users, paying a salary close to the National Minimum Wage or National Living Wage rate with Income Tax and National Insurance contributions (NICs) deducted.
Scheme users also receive a secondary payment from WAA described as ‘Option’ or ‘additional’ amount that is paid without Income Tax and NICs deducted. This secondary payment is typically paid on the same day as the salary payments.
It is HMRC’s view that all payments made to the scheme users are taxable. HMRC do not accept these arrangements work as claimed, and Income Tax and NICs should be accounted for on the ‘Option’ or ‘additional’ payments. It is HMRC’s view that the two-payment arrangement is set up purely to facilitate a disguised remuneration tax avoidance scheme.
Are you in, then get out
HMRC are aware that some Umbrella Companies operate more than one scheme, such as a standard compliant scheme and a non-compliant scheme. HMRC advise employees of these schemes to familiarise themselves with the guidance and to satisfy themselves that the correct amount of tax is being deducted on their income.
If you’re already speaking to someone in HMRC about your use of a tax avoidance scheme, you should contact them to discuss this further. If you do not have an HMRC contact and you want to get out of a tax avoidance scheme, then make contact.
PAYadvice.UK 21/5/2024