Here’s a clever way to spot dodgy umbrella companies

HMRC now has a blacklist of companies that contractors should stop using, but there’s another way you can spot promoters of tax avoidance schemes.

• What is IR35?
• Inside IR35 and outside IR35: what does it all mean?
• What is mutuality of obligation (MOO)?
• What does professional indemnity insurance cover?

The government is starting to clamp down on umbrella companies that promise higher take-home pay by using tax avoidance schemes.

These schemes usually involve contractors getting paid in loans and grants to avoid National Insurance and income tax – but they’re not compliant.

To help contractors avoid these companies, HMRC has named scheme promoters for the first time as part of its Tax Avoidance – Don’t Get Caught Out campaign.

But long-awaited umbrella company regulation has so far failed to materialise. This makes it important for contractors to spot the signs of tax avoidance for themselves – but how?

Tip 1: use HMRC’s new umbrella company blacklist

As mentioned above, HMRC has started a campaign to help people spot the signs of tax avoidance.

It’s created a blacklist of tax avoidance scheme promoters – essentially, dodgy umbrella companies.

There are four companies named at the moment:

• Absolute Outsourcing Limited
• Purple Pay Limited
• Peak PAYE Limited
• Saxonside Limited

HMRC is careful to note that the blacklist isn’t exhaustive. It says that there are other companies it can’t publish information about at the moment, either because:

• HMRC is gathering more information about the promoter, enabler, supplier, or avoidance schemes
• the promoter, enabler, or supplier is sending representations to HMRC
• the appeal period for not withdrawing a stop notice hasn’t ended
• HMRC doesn’t know about the promoter or scheme yet

If you’re worried that you’re using a tax avoidance scheme, you should speak to HMRC as soon as possible about your situation.

You can also report tax avoidance schemes to HMRC anonymously.

Tip 2: umbrella companies sometimes use fake accreditation badges

Some companies that promote or supply tax avoidance schemes will attempt to appear legitimate, so contractors should do thorough research before using them.

ContractorUK highlights the example of Peak PAYE Limited, named on HMRC’s blacklist.

A badge appears prominently on their website, explaining that they’re a member of the ‘Institute of Freelancing and Contracting Professionals’.

But further investigation revealed that many experts have never heard of this organisation.

A self-employed adviser, who declined to be named, told ContractorUK: “This is fairly obviously a very unconvincing attempt to provide a veil of legitimacy to at least one non-compliant operator”.

The institute’s website has a number of red flags, according to ContractorUK. The organisation calls itself a few different names, for example the ‘Independent Freelance Contracting Professionals’.

It also claims to have a ‘complete and detailed’ listing of accredited members, but you can’t access this directory on the website.

ContractorUK explains that while being properly accredited doesn’t always ensure compliance, these organisations are more appropriate third party accreditors:

• the Freelancer & Contractor Services Association (FCSA)
• Professional Passport
• the Association of Professional Staffing Companies (APSCo)
• another reputable party, such as WTT Consulting

Do you use umbrella companies? Let us know your experience in the comments below.