An enormous number of illegitimate umbrella companies that operate tax avoidance strategies to lower their tax responsibilities to HMRC are found by HMRC each year, despite their apparent legitimacy. An individual employed by these schemes (even if unaware of any illegal activity) could be subject to severe penalties. We’ve compiled a short guide to help you spot a tax avoidance scheme in 2024.
Overview of tax avoidance schemes
The potential for fraud has expanded along with the availability of non-compliant umbrella companies in recent years, and HMRC has intensified its efforts to counter it. Tax avoidance strategies can take many different shapes, thus before joining an umbrella company, careful due diligence must be done. The most popular tax evasion strategies entail paying employees a portion of their wages in the form of non-taxable loans, grants, annuities, shares, capital payment advances, or other payments. Since these payments are the same as regular income, standard tax deductions ought to be made.
Regrettably, hundreds of tax evasion schemes target freelancers and contractors in the UK by assuming the identity of compliant umbrella firms. We highly advise against participating in a tax avoidance as it will put you in serious difficulty with HMRC and result in a significant tax bill for unpaid tax.
It is highly advised that you go to the government website to learn more about tax avoidance schemes and how to recognise the warning signals of one. Additionally, you should keep an eye out for the government’s list of currently-known tax avoidance schemes, promoters, facilitators, and suppliers.
Signs to spot a tax avoidance scheme in 2024
It should go without saying that any company that offers you a notably high take-home pay retention is more than likely offering a tax avoidance scheme. But, let’s examine some of the obvious indicators of a tax avoidance scheme.
- Take-home pay retention: Although we’ve said it a lot, let’s reiterate: you should steer clear of businesses that offer you a notably high take-home pay retention. A pay retention of around 50% to 70% will be provided by compliant umbrella companies, as this will guarantee that the appropriate amount of tax and NICs is delivered to HMRC on your behalf. A corporation that offers you a greater pay retention rate – up to 90% in some cases – is most likely engaging in tax evasion.
- Odd terminology: A lot of tax evasion techniques make use of odd language, like “we’re IR35 compliant.” What is the real meaning of this? Most likely, they’re attempting to deceive you into believing they are compliant when they aren’t. Check to discover whether a supplier has a respectable accreditation, like FCSA accreditation, to determine if they are compliant. Additionally, we’ve heard several businesses brag about how they can “help you pay less tax.” This statement is entirely untrue as the amount of tax you pay is determined by your tax code which is set by HMRC.
- Location: While not all tax avoidance strategies are located in known tax havens, the majority do. Examine the location of the company’s headquarters. Steer clear of them at all costs if their main office is located in the Cayman Islands, the Isle of Man, the Channel Islands, or any other similarly exotic location!
- Accreditation logos copied and pasted to the website: In an attempt to look more legitimate, non-compliant providers will copy and paste well-known industry accreditation logos to their website. Always check the approved or accredited list of providers on the accreditors website. For example, for FCSA accredited providers, always check the FCSA’s website.
- Impossible to contact: Since most tax avoidance schemes are offshore, it’s likely impossible to reach them by phone. Check out the available help by having a look. A separate line for clients, new business, etc. should be available for compliant umbrella companies.
- Fake testimonials: Many of these dubious tax avoidance methods will feature a phoney endorsement from someone like Trevor, for instance, praising them greatly. Once more, how simple is it to falsify a testimonial? Regretfully, very! Don’t be misled by testimonials.
- Scheme Reference Number (SRN): When a company is the subject of an inquiry, the government will always assign an SRN to it. It is therefore worthwhile to make sure that any umbrella you are thinking about using is free of SRNs.
Use our list of top 10 umbrella companies to pick a compliant provider
Ultimately it is your responsibility to ensure you are using a compliant umbrella company for your payroll and a good way to start is to ensure you only consider using SafeRec certified, FCSA or Professional Passport accredited providers. We’ve created a list of top 10 umbrella companies which are all FCSA or Professional Passport accredited to help you start your search for a compliant umbrella company.
