Are your contractors walking into the lion’s den with their eyes wide open?
In April 2023, HMRC published guidance for contractors to help them “avoid getting caught out by tax avoidance schemes”. Good advice which can be found here: https://dontgetcaughtout.campaign.gov.uk/tax-avoidance/
But here’s a truth that many in the umbrella industry seem reluctant to confront: A very large proportion of contractors using tax avoidance schemes WANT to use them and enter into the schemes with their eyes wide open.
There are well publicised instances of lower paid workers being unwittingly funnelled into dodgy schemes without their knowledge. But, in most cases it’s the higher paid workers who are deliberately entering into tax avoidance schemes to extract greater financial compensation from their contract, and they don’t appear to worry about the consequences.
It’s important to remember that many sectors are candidate led and the problem is more prevalent in certain industries. The healthcare sector is particularly affected by the proliferation of tax avoidance schemes and recruitment agencies in many cases either turn a blind eye to it or actively condone it.
Over the years I’ve benchmarked many umbrellas where I’ve been warned they’re not playing by the rules. I’ve mystery shopped them and heard the sales pitch. And there’s one thing that jumps out from the transcripts of those calls. In the majority of cases, the person selling the scheme makes it very clear that what they are offering is not the norm.
This should ring alarm bells for any contractor.
Phrases I’ve heard over and over are:
“Your pay is between you and your umbrella company so make sure you don’t send your payslips to your agency”
“It’s an enhanced umbrella that only we can offer”
“You may get a letter from HMRC but it’s only a fishing letter and all umbrella company employees get them”
“We use a loophole in tax law that allows us to reduce the amount of tax you pay”
“Your agency may not want you to use our company so if you can give me the details of your consultant I’ll get in touch with them and smooth the process”
Any, if not all of these statements should raise red flags. Despite this, there are still plenty of contractors who are prepared to take the risk and walk into the lions den of tax evasion with their eyes wide open.
If you’re an agency you’re unlikely to hear these conversations for yourself – so who’s ringing the alarm bells for you? Remember, it’s your reputation on the line, or worse, you could be implicated in tax evasion schemes too!
If you have contractors that need to be paid and you want to be sure they are working compliantly, refer them to Meades Umbrella – we’re happy to have the awkward conversation with them on your behalf.