Picking a compliant umbrella company is extremely important to ensure your payroll is processed in accordance with HMRC’s rules and regulations. To help make your search for a trustworthy umbrella company easier, we’ve put a short video together which answers the commonly asked question – what are the warning signs of a non-compliant umbrella company? Please keep reading to see the video and the transcript.
Transcript – what are the warning signs of a non-compliant umbrella company?
Below is the transcript from our video outlining the common signs of a non-compliant umbrella company.
In this short video, we will answer the commonly asked question – what are the warning signs of a non-compliant umbrella company?
If you use a compliant umbrella company, you will be paid in accordance with HMRC’s tax system called Pay As You Earn, and you will be making the correct and legal tax and National Insurance Contributions to the government. As a result, your payroll will be compliant, and you have nothing to worry about. However, a growing number of non-compliant umbrella companies are targeting contractors and freelancers in the UK. If you engage with a non-compliant umbrella company (often called a tax avoidance scheme), the consequences could be severe. HMRC actively searches for those facilitating tax avoidance and the workers who engage with such schemes. If you are identified as someone who has underpaid taxes, you could face a life-changing tax bill.
Here are the most common warning signs of a non-compliant umbrella company and a typical tax avoidance scheme.
Non-compliant umbrella companies are frequently advertising the opportunity for workers to retain more of their hard-earned money. It’s common to see non-compliant providers advertising the chance to retain upwards of 90% of your take-home pay. If you see such terminology, avoid the company at all costs because it’s clear they are not running Pay As You Earn. Also, it is worth noting that most unethical payroll providers will operate in unusual ways. Rather than processing your pay with Pay As You Earn, they will probably offer unusual payment methods which involve loans, job boards, shares and more. Do not use a payroll provider if you do not understand how they operate or if you suspect they are not compliant with UK laws and regulations.
A lot of tax avoidance schemes and non-compliant umbrella companies do not have much trading history. They are usually set up by a director (or directors) with little to no trading history. The company doesn’t have reliable accounts for you to review, and it appears as if the company was almost set up overnight. It is a good idea to choose an umbrella company with a proven trading history.
Non-compliant umbrella companies are sometimes located offshore in well-known tax havens such as the Channel Islands, Isle of Man and the Cayman Islands. If you’re working in the UK, your payroll provider should be based in the UK. However, it’s important to remember that some UK-based payroll providers are non-compliant and you need to conduct thorough due diligence.
Having conducted some research, we’ve come across companies online that look non-compliant. In most cases, the websites of these businesses do not contain much information, and contact information is scarce. There are frequently using misleading phrases such as “HMRC compliant” and “HMRC approved”. These are not true because HMRC does not endorse individual umbrella companies.
The government has recently released several pieces of online guidance to help contractors and freelancers understand umbrella companies and choose compliant payroll providers. Have a look on the official government website for umbrella walkthroughs and a list of named and shamed tax avoidance schemes that you should avoid at all costs.
Before choosing an umbrella company, always make sure they are compliant. We recommend that you only seek the services of an umbrella company with an FCSA or Professional Passport accreditation because these businesses have undergone strict audits to ensure they operate compliantly and in the best interests of their employees.
Please visit the Umbrella Companies YouTube Channel
If you’re interested in finding out more information about umbrella companies, our new YouTube Channel is a really helpful resource. We’re regularly uploading new videos designed to answer the most commonly asked questions among temporary workers in the UK.
Top 10 umbrella companies
If you are looking for a new umbrella company you can trust, we have just the place to look! To make your search for your next umbrella easier, we’ve collated a list of our top 10 umbrella companies, and they’re all accredited by the FCSA or Professional Passport. Please check them out – some have special offers at the moment.
