The HMRC have added a further 3 umbrella organisations that have been found to promoting tax avoidance schemes which HMRC claim do not work.
An umbrella company is a business often used by recruitment agencies to pay temporary workers.
The common theme of these failed arrangements is a payment close to National Minimum Wage levels that has been subjected to tax and National Insurance,, with an added disguised payment where no tax nor NI has been accounted or deducted.
So who has been added to the list of named avoidance schemes?
Cube Umbrella Limited (CUL)
Scheme users sign a contract of employment with Cube Umbrella Limited (CUL), who then contracts with employment agencies. The Scheme users are paid for their services by CUL.
The payment is made up of two elements.
- The first is a salary at a rate around National Minimum Wage/National Living Wage with Income Tax and National Insurance Contributions (NICs) deducted.
- The second element is made without deductions of Income Tax or NICs.
HMRC advises employees of CUL to familiarise themselves with the guidance and to satisfy themselves that the correct amount of tax is being deducted on their income.
Mountain View Admin Limited
Mountain View then pays the scheme users for their services. The payment is artificially separated into two elements.
The scheme users enter an employment contract with Mountain View Administration Limited and provides their services to an end client.
- The first element is a salary paid with Income Tax and National Insurance contributions (NICs) deducted.
- The second element, described as a ‘projected payment’ with no deduction of Income Tax and NICs. This second element had been previously described as a ‘Propelled payment’ also made with no deduction of Income Tax and NICs.
365 Umbrella Ltd
The scheme users’ total remuneration for their contracts with 365 Umbrella Limited (3UL) is artificially separated into two elements.
- The first element is a salary with Income Tax and National Insurance Contributions (NICs) deducted.
- The second element is sometimes referred to as ‘Grantee’s payments under a conditional annuity purchase agreement’ and is made without the deduction of Income Tax and NICs. 3UL claim that the second element should not count as employment income.
What is the HMRC view of these schemes
HMRC’s view is that both elements of the payment should be treated as ‘normal income/as the user’s salary’, and therefore subject to Income Tax and NICs.
If you’re using any of these schemes or similar schemes, HMRC strongly advises you to withdraw and settle your tax affairs to prevent building up a large tax bill.
If you do not have an HMRC contact and you want to get out of a tax avoidance scheme, contact HMRC.
Are umbrellas a problem?
According to the TUC, those working under these umbrella arrangements experience a multitude of problems ranging from a lack of transparency over core terms and conditions such as pay rates, to unwittingly becoming embroiled in fraudulent tax arrangements with serious financial consequences.
HMRC is aware that some Umbrella Companies operate more than one scheme, for example, a standard compliant scheme and a non-compliant scheme.
PAYadvice.UK 17/6/2024