Prospective contractors considering working through umbrella companies, and those already trading through their own limited companies, might do well to take heed of a new report from HMRC. It is sharply critical of some new tax schemes currently being offered to freelancers.
Reputable PAYE umbrella firms are fully HMRC-compliant, but new contractors may wish to ensure that they are not being offered any schemes that promise to avoid National Insurance Contributions (NICs) or Income Tax by apparently eluding new rules on disguised remuneration. In its latest Spotlight report, HMRC makes it clear that it takes a very dim view of such arrangements.
The Spotlight reports are designed to protect taxpayers from unwittingly entering into arrangements that are likely to be challenged by HMRC as tax avoidance schemes. The latest report, Taxing the rewards for work carried out for a UK based employer, makes it clear that HMRC considers several new schemes being offered to contractors as tax avoidance scams.
As published on the HMRC website, the report describes the arrangements it considers suspect. These include schemes involving a deed of covenant, a loan from an alleged offshore employer or other third party, questionable claims of self-employment, secondments from one employer to another, or payments that pass through a series of firms.
The sting in the tail comes next: “In HMRC’s opinion, these arrangements do not succeed in avoiding the tax and NICs due. HMRC will challenge these arrangements and litigate where necessary to recover unpaid tax and NICs.”
Consulting an experienced contractor accountant is advisable for those who suspect that they may have been sold such a scheme.