Contractors are at risk from dishonest umbrella companies | www.pertempssocialcare.co.uk
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Contractors are at risk from dishonest umbrella companies

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Unscrupulous umbrella companies may promise higher take-home pay, lower tax bills and less paperwork but sadly, in the long run, many workers find it costs time, money and stress.

It can be tempting to hear claims such as: “Retain 80% of your earnings after tax,” but signing up to an arrangement where your pay is broken down into artificial 'non-taxable' investment payments, grants, loans, credits, etc. is very likely to be illegal tax avoidance.

Essential information: umbrella companiesIf it sounds too good to be true, it probably is.

Agencies like PPR use umbrella companies to employ contractors while they perform work for an end client. The umbrella company takes over paying the worker, and deals with PAYE tax and National Insurance contributions (NIC).

The challenge is that while many umbrellas comply with HMRC’s tax rules for their workers, not all are quite what they seem.

Workers must remember that they are accountable for their own tax arrangements, and it is their responsibility to pay the correct amount of tax and NIC. However, Pertemps has a dedicated finance division responsible for managing, maintaining and auditing all umbrella companies on our preferred supplier list.

To be considered as a Pertemps supplier, umbrella companies must undertake a lengthy application and audit process and prove they are FSCA or Professional Passport accredited. We scrutinise their most recent audited accounts, engagement letters with professional advisers regarding tax and legal developments, HMRC audit details and example candidate payslips. We also require confirmation that umbrella companies do not operate loan schemes, have any part of their business offshore and that they meet all applicable UK tax obligations in line with HMRC. These submissions are scrutinised by a committee of experienced senior managers and a final decision is made.

The umbrella companies who successfully make it onto our preferred supplier list are audited on a regular basis to ensure they continue to adhere to our terms, and we also regularly update our criteria in accordance with legal amendments.

For further information, read the government’s advice on tax avoidance schemes:

  • How to spot tax avoidance schemes
  • Spotlight 45– find out what to do if an umbrella company offers to reduce your tax liability and increase your take home pay
  • Spotlight 54– a guide on tax avoidance schemes targeting returning NHS workers during the COVID-19 pandemic
  • Spotlight 55– find out what you should consider before using an umbrella company to make sure it complies with the tax rules