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Avoid ending up in a tax fraud scam

Avoid being caught in a tax scam

Avoid being caught in a tax scam.

You may have read in the press and on the FCSA website about clones and some of the crazy offers made to workers to entice them to sign up as umbrella employees. These clones look professional – they have great websites and their marketing and contract documents look just like the real thing – often because they’re straight copies of the real thing with just a few tiny details changed.

If you’re a worker you might think that the scam wouldn’t really affect you – well, it really would, and here’s why. First a quick example of the sums involved

Making an assumption of an assignment rate of £360 per day the (very rough) calculation for an umbrella worker would be:-

Monthly Income  £7,200.00
Employer National Insurance £826.18
Apprenticeship Levy £31.24
Umbrella Margin £95.00
Pre-Tax Deductions Total £952.42
Gross for Tax £6,247.58
Employee National Insurance (Higher Rate) £446.00
Employee National Insurance (Lower Rate) £66.90
Employee National Insurance (Total) £512.90
Employee Tax (Basic Rate) £628.35
Employee Tax (Higher Rate) £823.13
Employee Tax (Additional Rate) £0.00
Employee Tax (Total) £1,451.48
Total net Income £4,283.20

Assuming the cloned umbrella actually pays the worker what s/he should be due net of all employment costs and legitimate deductions – which they probably would solely in order to maintain the fraud for as long as possible – the monthly fraud per worker would amount to:-

Loss by HMRC: £2821.62 Loss by the genuine umbrella:  £95.00 Minimum fraud value: £2916.62.

Notice we say “minimum” – that’s because this is just the bare-bones scenario and the cloners will often use other wrinkles involving workers’ pension contributions – money the worker will likely never see again – and VAT being charged to the employment business which will never be remitted to HMRC.

So the big loser here appears to be HMRC, and some people might not have a huge sympathy for that. However, and this is really vital for the worker, that’s not really the case. For one thing the worker’s tax and NI account hasn’t been credited by the fraudsters so, at best, their NI payment record will be incomplete and this could have far-reaching implications when it comes to state pension entitlement. At worst HMRC may take the view that the income tax and NI contributions are still due and they will be trying to find someone in the chain to pay these. It may very be unlikely that they’d be able to turn to the worker to recover the loss but that must be a worry.

This is why workers should take the time to do a little bit of due diligence on exactly who they’re signing up with and avoid being caught in a tax scam. Don’t just take the umbrella’s word for it – check they’re the real thing by

  • Search Google for similarly named umbrellas –
    • Clones often change just one letter of a real company’s name or add words like “payroll” or “systems” to it
  • Check Companies House
    • Clones are often very recently formed but try to give the impression they’ve been around forever
  • If they are FCSA members their real details (Registered Number, contacts and website address) are on our site
  • If you’re cold called by a sales people, be cautious
    • Real umbrella margins are quite low so cold-calling isn’t generally financially viable for them
  • Check your own HMRC account regularly to make sure the tax and NI deducted by the umbrella are being credited each month
    • If you see no payments going into your account, ask your umbrella why

FCSA has called on government to strengthen their approach to this problem and has recommended that a joint task group is formed as soon as is practicable comprising of BEIS, Companies House, HMRC, NCA, National Cyber Security Centre, Nominet and FCSA (which now has extensive data and experience in this area) to begin to create unified rapid response protocols to deal with what is a serious threat to both service providers and individual workers.