HMRC warning for Agency workers paid through umbrella companies

Many umbrella companies are compliant with the tax rules, but some use contrived arrangements that claim to allow agency workers and contractors to keep more of their earnings. These arrangements are tax avoidance schemes and most of them do not work.

Some umbrella companies benefit financially by using contrived arrangements like disguised remuneration to pay workers. For example, an umbrella company might want to claim that a payment is non-taxable to try to avoid paying employer National Insurance contributions (NICs) on it — currently 15.05% of the payment.

Using these non-compliant umbrella companies could leave you at risk of being involved in a tax avoidance scheme, and owing HMRC money, even if you did not set out to try to avoid tax.

You are responsible for your own tax affairs and for paying the correct amount of Income Tax and National Insurance contributions. Most tax avoidance schemes simply do not work and anyone who uses them is at risk of ending up with a large tax bill. You may also find that the umbrella company has deducted a fee (this may be called a margin) from your earnings for using their services, which could be higher than the standard fees. Any tax you owe will be in addition to this.

Under PAYE regulations your employer has an obligation to deduct tax and National Insurance contributions from your employment income on your behalf. However, where this does not happen HMRC may, in some circumstances, recover the tax directly from you.

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Article taken from gov.uk