In the umbrella sector, we see lots of articles about rogue umbrella companies promoting tax avoidance. The vast majority of recruitment agencies and contractors heed the readily available advice and steer well clear. So far, so normal.

But there’s an elephant in the room and it’s a big one. It’s sat over there, in the corner, with a hat on that says “enabler”. I’ll introduce you to the elephant soon, but first, let’s talk about POTAS.

POTAS stands for Promotion of Tax Avoidance Schemes. You’ve probably heard of it and thought it doesn’t apply to you. We know, it’s a long, detailed and boring piece of legislation. But like most legislation, the devil is in the detail, and for recruitment agencies, the details really count. Ignore them at your peril.

Imagine the scenario. You own a reasonable sized recruitment agency, your candidates want to earn as much as possible. It’s a very candidate led sector and good people are hard to find. You don’t want to lose them or your already small margin will drop to zero. One of your candidates tells you they get paid by Big Bucks Umbrella Ltd and unless they can carry on using them, they won’t take the role. So you agree. And then another candidate says they also use Big Bucks Umbrella, and then another. And then Big Bucks Umbrella company contacts you.

The sales pitch goes like this – “We pay a few of your candidates and they’re really happy with the service. We’re fully HMRC approved(!) and we’ve got hundreds of happy contractors. If you refer your guys to us, we can pay you a rebate so everyone’s a winner”. You think carefully. You even do a bit of due diligence and can’t find any immediately obvious red flags so you say yes. We’re not talking a few pounds per timesheet, these guys will give you a regular commission far in excess of any timesheet rebate.

Let’s get back to that pesky elephant. It’s a very helpful elephant and it knows a lot of the rogue umbrella companies very well. It knows that there’s a lot of money to be made when you’re avoiding tax and in these times of squeezed recruitment agency margins, it’s happy to have a chat with you about how it can help add to your bottom line.
At the point you say “yes” to Big Bucks Umbrella Ltd, you become the Elephant in the Room – you are the enabler.

Let’s take a closer look at the POTAS legislation:
POTAS imposes obligations on 3 classes of person:
· the promoter
· the client – typically the user of the arrangements
· the intermediary – who sits between the promoter and the client, and typically provides the client with information in relation to the arrangements

The third one is you.

One day one of your clients will call you and say that they’ve seen a payslip from Big Buck Umbrella company and something doesn’t seem right. The tax that the contractor is paying is very low compared to the guys that use the well known umbrella companies. It looks like the payment has been split into two elements – one taxable and one that hasn’t been taxed. They have sent the payslip off to an independent checker and it’s failed their assessment. You contact the umbrella and they reassure you that everything they do has been approved by a leading Kings Council. But then your contractors start telling you they’re getting letters from HMRC. And then the umbrella stops answering the phone and emails………

You don’t need to know the details of how the scheme works, you don’t need to actively promote it, but if you refer your workers to the scheme promoters, you are involved and the consequences can be huge, both for your business and personally. And HMRC don’t mess about: Penalties for enablers of defeated tax avoidance.

The moral of the story of the elephant in the room is simple. If something sounds too good to be true, it almost certainly is.