Whilst we welcome latest HMRC guidance on engaging with umbrella employers issued yesterday (23 August 2018), we are concerned that it does not go far enough to explain what a compliant umbrella looks like.
Julia Kermode, chief executive of FCSA said: “The latest HMRC spotlight just out is very welcome and provides some sound advice. HMRC rightly explains that any “umbrella” firm offering contractors a high percentage net take home pay, HMRC suggest 80% or more, is unlikely to be compliant. However, the guidance doesn’t go far enough; these types of arrangements are not true umbrellas firms but disguised remuneration schemes. A true umbrella is an EMPLOYER of contractors, providing them with all the benefits of permanent employment, along with all the benefits and flexibility of working as a contractor. It is also true that an umbrella employer will process 100% of gross pay through RTI payroll, meaning that contractors are not at risk of a high tax bill at a later date. They work in exactly the same way as any other employer.
“Whilst it is good to see HMRC issuing a steer on umbrellas we are concerned that it could serve to put people off working with umbrellas entirely. There are many compliant umbrella employers operating who provide a valued service with many benefits to the contractor, agencies, and end-clients. We are sick and tired of our sector always being tarnished with the same brush due to the actions of non-compliant firms that do not provide professional employment services and are simply promoting dubious schemes. We warned HMRC that we would see a proliferation of tax avoidance schemes as a direct result of the2017 Off-Payroll reforms and our prediction has become a reality. Recruiters must ensure that their supply chain is not facilitating tax avoidance otherwise they risk a corporate criminal offence under the Criminal Finances Act, so choosing compliant umbrella employers for their PSLs has never been more important.”