Umbrella Companies

These cases are there genuinely sad ones where the workers have generally been contracted out of previous council or long-term employment and offered jobs on a contract by contract basis.

The ones I have come across in recent years relate to social workers, teachers, doctors, nurses, and IT specialists. The contracts are offered to them through an umbrella company and paperwork is sent for each worker to sign. Whether or not the clients read the paperwork thoroughly I cannot say or whether as some say they could not recall ever seeing a contract to sign the result was that they have been paid small salary elements with a minor tax deduction plus further sums paid into their banks as tax-free loans.

Again, all these umbrella companies would appear to be backed by an offshore entity.

HMRC has issued many hundreds of letters in the last couple of years to these workers and many of them will have numerous employers in one tax year. Some social worker and nurse clients may have five or six different employers paying them in any tax year and therefore will need to gather all the payslips and forms P45 and P60 as issued. A global tax calculation can soon reveal a large underpayment of income tax. HMRC are targeting such umbrella companies heavily and do not accept any of them as legitimate.

This places a large obligation upon the work who literally thought that they were on normal PAYE schemes.

Luckily HMRC are taking a pragmatic view of these cases and treating them with a good deal of sympathy particularly when you have an advisor on board who speak their language and has a lot of experience in dealing with HMRC officers as well as clients from a wide variety of backgrounds.

In every case I’ve dealt with HMRC have easily been convinced that the worker had no choice in signing up to the work offered on a take it or leave it basis and had no option other than to work via the umbrella company. None of them that I have dealt with were aware that they were doing anything wrong. Therefore, in this respect once the tax and interest has been settled no additional penalty charges have been levied to date by HMRC in the cases I have dealt with.

It is worth noting that HMRC are already in possession of the full details of the earnings and the umbrella companies involved, even when they send out their opening letter asking lots of questions. If anyone should get such a letter, please pick up the phone as I will be able to put your mind at rest as to the likely method of settlement and tax due.

HMRC prefer to deal with these cases via email and say that they are dealing with them in chronological order.

However, one case, for an IT consultant who approached me to try to obtain a quick settlement has been dragging on for many months. Not only have we sent every piece of information to HMRC, but we have sent written an email to reminders also. This prompted me to make a complaint to HMRC again in writing and by email to the counter avoidance team to try to stop the interest accruing for my client.

I have not had an acknowledgement of the complaint which is seriously against their own internal practices. We await the outcome of this and again have offered to make payment to them but they seem reluctant to put it to the top of the pile and take our money! The case continues.