When individuals are asked to sign documents other than their contract of employment, they should consider this very carefully, and should question any requests to sign separate agreements to receive loans, advances, shares, annuities or anything else not relevant to their work. This could result in tax avoidance, and individuals could owe tax and interest, as well as having to pay the relevant fees to the umbrella company.
If individuals believe that they are being offered this type of scheme, they should:
• Calculate the amount of tax they would ordinarily have to pay on their income, utilising HMRC’s online tax calculator, to determine what their net take home pay should be after tax and NI deductions • Request a breakdown of the deductions being made from the person offering the scheme, and check the amounts being charged, what the fees relate to and whether tax and NI deductions have been made • Compare the two sets of figures to check whether the scheme on offer is legitimate and compliant HMRC regularly publishes warnings relating to similar schemes, and previous Spotlights provide further details. Edition 53 gives further detail on how these schemes claim to work, and edition 45 outlines what to look out for in umbrella companies offering schemes that are tax avoidance. There is also further guidance on tax avoidance schemes aimed at contractors and agency workers.
HMRC are urging any individuals who are already using a scheme of this nature, to leave as early as possible and to settle their tax affairs. They should also contact HMRC immediately.
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The Chartered Institute of Payroll Professionals
Payroll: need to know
cipp.org.uk
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