Are umbrella companies compliant with HMRC legislation?

Most umbrella companies exist to provide a compliant payroll service to contractors and freelancers in the UK. However, many tax avoidance schemes pose as legitimate umbrella companies to trick contractors into using their services. Continue reading to discover how to check if an umbrella company is compliant and how to spot a tax avoidance scheme. 

Are umbrella companies compliant with HMRC legislation?

Hundreds of umbrella companies operate in the UK, and the majority exist to ensure contractors get paid compliantly. Compliant umbrella companies will process your payroll (PAYE) in precisely the same way. The only thing that will vary between providers is the margin they deduct for carrying out their service. To ensure the provider you are using is compliant and that the deductions that will be made to your pay are legitimate, we recommend you look for the FCSA accreditation or SafeRec certification.

FCSA

The Freelancer & Contractor Services Association (FCSA) is the UK’s leading professional body dedicated to ensuring the supply chain compliance of temporary workers. Our FCSA accreditation is the perfect way to prove our commitment to compliance within our industry. Our clients are in the safest hands and can be assured they’re paying the correct amount of tax and National Insurance Contributions (NICs).

To attain this well-respected and prestigious accreditation, Churchill Knight Umbrella has undergone a rigorous audit and assessment process conducted by independent accountancy and legal professionals. The information gathered is shared openly with HMRC, guaranteeing full transparency with all of our procedures.

The FCSA’s website states:

“FCSA’s aim is to ensure all parties in the supply chain – especially those served by FCSA members – can expect the highest levels of compliance, transparency, and reliability. We hold our members to the highest standards of compliance in the industry, which drives market reputation and benefits workers.”

To view Churchill Knight Umbrella’s FCSA listing, please click here.

SafeRec

SafeRec is revolutionising compliance within the umbrella company payroll sector. Every time Churchill Knight Umbrella processes payment and issues a payslip to our employees, SafeRecs payslip auditing software (powered by AI) conducts a real-time audit to ensure the deductions are legal and there are no signs of malpractice. SafeRec also cross-references all payments with RTI submissions sent to HMRC to verify that all workers are employed under a single PAYE reference, eliminating any possibility of mini umbrella company involvement. SafeRec also confirms with HMRC that all tax contributions are correctly paid and recorded.

Every time Churchill Knight Umbrella pays an employee, they will receive an email from Payslip Buddy (powered by SafeRec) with a payslip audit report, allowing them to check that their payment has been processed compliantly and transparently. Our employees can also log in to Payslip Buddy and check the reports issued for each of their payslips (since we have been certified).

To view Churchill Knight Umbrella’s SafeRec certification, please click here.

Look out for tax avoidance schemes!

Sadly, many tax avoidance schemes pose as legitimate umbrella companies to trick contractors into using them. We strongly advise you not to use a tax avoidance scheme for your payroll, as doing so could land you in serious trouble with HMRC. Once HMRC discovers you are using a tax avoidance scheme (or have used one in the past), you will be required to pay back all the tax you owe – plus interest. It really isn’t worth the risk!

Tax avoidance schemes come in various setups, such as salary advances, grants, shares, non-taxable loans, a bonus, and many more! Commonly, tax avoidance schemes claim these are non-taxable payments when, in reality, HMRC views them as regular income; therefore, income tax and National Insurance should be deducted. Before registering with an umbrella company, it’s essential to conduct thorough due diligence to ensure you do not use a non-compliant provider.

There are many warning signs that you can look out for that can help you spot a tax avoidance scheme:

• The scheme is ‘approved by HMRC’
• Your employment contract does not state how your income will be paid
• A scheme that allows you to increase your take-home pay and not pay the full amount of tax – remember basic rate of income tax is 20%, and you must also pay National Insurance
• You are asked to sign more than one contract
• Some or all of your payments do not appear on your payslip or are said to be non-taxable
• You are offered an ‘enhanced scheme’ when you make an enquiry or register
• You are offered a cash bonus
• Only part of your payment is taxed as income

HMRC is increasingly stepping up its efforts to stamp out tax avoidance schemes and name and shame promoters of tax avoidance schemes. Please visit their website to view HMRC’s list of tax avoidance schemes. You can also check the government’s list of tax avoidance schemes subject to a Stop Notice.

Register with a compliant umbrella company

Churchill Knight Umbrella is proud to be an FCSA-accredited and SafeRec Certified umbrella company, and we truly value customer service and compliance. You can register for our service in under 15 minutes, and joining is straightforward. Our service has plenty of benefits, including Statutory Rights, £25 million insurance cover, Same Day Faster Payments, access to My Digital, and more. Please call our Sales Consultants at 01707 871622 to request a free, tailored, and accurate take-home pay calculation.