In the contractor realm, compliant umbrella companies offer vital payroll services, allowing professionals to focus on their assignments. However, the industry has been blighted by companies promoting tax avoidance schemes that can lead contractors to financial peril.
Like Big Fish, any compliant umbrella company should prioritise its employees’ protection and financial well-being (contractors). So, here are our tips on how to spot and navigate the dangers posed by rogue umbrella companies:
1. A very simple first step is to check with HMRC.
HM Revenue & Customs produces a list of umbrella companies that promote tax avoidance schemes. You can find the list at https://www.gov.uk/government/publications/named-tax-avoidance-schemes-promoters-enablers-and-suppliers/current-list-of-named-tax-avoidance-schemes-promoters-enablers-and-suppliers
These organisations should be avoided at all costs.
2. Beware of “free” services.
Umbrella companies have to cover their operational costs, so they have to recoup them in some way. This is traditionally done via the umbrella margin. Any “free” payroll service offering will likely include hidden fees or dubious practices.
You should beware of any such offers, as it is likely to be you who ends up paying.
3. Be wary of tax promises such as increased take-home pay.
Most non-compliant umbrella companies promise tax savings, usually achieved through tax avoidance schemes. These schemes regularly lead to unpaid taxes and penalties that you’ll be liable for. As the saying goes, if it sounds too good to be true, it probably is.
Always safeguard your financial security by prioritising compliance over dubious savings schemes.
4. Do your due diligence.
Check to see whether the umbrella has any compliance accreditations and look at reviews on sites like Trustpilot, even where the supplier is part of the recruiter’s preferred supplier list (PSL).
5. Accept and understand your liability.
As a contractor, you will ultimately be liable for your tax obligations, even if you have been involved in tax avoidance schemes without your knowledge. Selecting a trustworthy and compliant umbrella company is crucial to protecting you from HMRC investigations, unpaid tax demands, and penalties.
In summary, you may find yourself in a position where you have no choice but to utilise an umbrella company’s services. While you understandably want to maximise the income you can generate on your assignment, you must do your due diligence on the available providers.
Avoiding non-compliant and unscrupulous umbrella companies will mitigate the risks associated with tax avoidance schemes and save you a great deal of hassle and money in the long run.
Trust us when we say it’s not worth the risk.
For further information on how Big Fish can support and protect you, contact the Big Fish team at 01925 989800 or visit our website at www.bigfishgroup.co.uk
