What are the warning signs of a tax avoidance scheme?

Unfortunately, hundreds of tax avoidance schemes (non-compliant umbrella companies) are posing as legitimate umbrella companies that target UK-based contractors and freelancers. It may seem tempting to use one when it offers you the chance to take home more of your hard-earned money, but using a non-compliant umbrella company could land you in serious trouble with HMRC.

What is a tax avoidance scheme (non-compliant umbrella company)?

Tax avoidance schemes come in various setups, and before signing up with an umbrella company, it’s essential to conduct thorough due diligence to ensure you do not use a non-compliant provider. Examples of some common tax avoidance schemes are:

• Grant
• Salary advance
• Non-taxable loan
• Credit facility
• Bonus
• Annuity
• Shares
• Capital payments
• Fiduciary receipts

Commonly, with tax avoidance schemes, you will receive one payment on which you are taxed and then another untaxed payment, often paid to you by another company, third party, or subsidiary of the company you registered with.

In reality, HMRC sees the entirety of the payment as normal income, and income tax and National Insurance should be calculated on the whole payment and the tax paid to HMRC. Everyone is legally responsible for their tax affairs and for paying the correct amount of tax, even if they get someone else to do it for them. Failing to pay the right amount of tax can result in a massive tax bill in the future.

What are the warning signs of a tax avoidance scheme?

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

• 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
• The scheme is ‘approved by HMRC’
• 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 asked to sign more than one contract
• Only part of your payment is taxed as income
• You are offered a cash bonus
• Your employment contract does not state how your income will be paid

HMRC is increasingly stepping up its efforts to name and shame promoters or tax avoidance schemes and regularly updates its list of named tax avoidance schemes, promoters, enablers and suppliers. 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.

What are the consequences of using a tax avoidance scheme?

If HMRC finds out that you have previously used a tax avoidance scheme or are currently using a non-compliant umbrella company, you’ll have to pay back all the unpaid tax that you owe – plus interest. HMRC may also issue a penalty, which you will be required to pay.

Always use a compliant umbrella company for your payroll

You must only ever use compliant umbrella companies for your payroll to ensure you pay the correct amount of tax to HMRC each time you are paid. Before registering with an umbrella company, it’s important you look for a provider that is FCSA accredited or SafeRec Certified.

FCSA

The Freelancer and Contractor Services Association (FCSA) is a professional body that self-regulates the contractor payroll marketplace. For an umbrella company to earn FCSA membership, it must undergo a series of audits and assessments to ensure that all its processes and procedures abide by the highest compliance standards and UK tax law.

Once an organisation earns FCSA membership, it must undergo an annual audit to ensure its processes remain compliant with UK tax law. Contractors and freelancers seeking a compliant umbrella company should only consider those with FCSA accreditation. A list of FCSA-accredited members is available on the FCSA’s website.

To view Churchill Knight Umbrella’s official FCSA listing, please visit the FCSA’s website.

SafeRec

As a SafeRec Certified umbrella company, every payslip we process for an employee is examined by SafeRec’s AI-powered payslip auditing software and cross-referenced with RTI sent to HMRC. From disguised remuneration schemes to pay skimming or mini umbrella fraud, SafeRec will fully audit your payslips and detect any fraud that could put you at risk. If any signs of malpractice are discovered, the whole supply chain (the contractor, recruitment agency, and end hirer) will be immediately alerted. SafeRec is revolutionising compliance within the umbrella company payroll industry as it allows contractors to check they are being paid compliantly, and if they are not, they can immediately leave the scheme and find a compliant umbrella company.

Every Churchill Knight Umbrella employee is given access to Payslip Buddy (powered by SafeRec), which is completely free of charge. Every time we process a payment, you will be sent a payslip audit report from Payslip Buddy, allowing you to check that your payslip is compliant and that all deductions are legal. You can also log in to your account to check previous payslips.

To view Churchill Knight Umbrella’s SafeRec certification, please visit SafeRec’s website.

Register with an FCSA-accredited and SafeRec-certified umbrella company

Founded in 2017, Churchill Knight Umbrella is FCSA-accredited, SafeRec-certified, and takes compliance seriously. We process your pay (via PAYE) per HMRC regulations. By choosing Churchill Knight Umbrella, you can complete your assignments with complete peace of mind and ensure you do not face a significant tax bill or HMRC investigation in the future.

Not only do we offer a fully compliant umbrella payroll, but there are also many other benefits of using our umbrella service. Every client has access to free £25 million insurance cover, Same Day Faster Payments, no hidden fees, Employee Benefits, and telephone and email support from our Customer Service Department. We also have a salary sacrifice service and Churchill Knight Rewards, which you can add to your payroll service if required.

To get a free, tailored take-home pay calculation, please call our Sales Consultants on 01707 871622 or complete the short form on this page.