FCSA Welcomes But Criticizes HMRC’s Guidance Aug 30, 2018Views: 229
The HM Customs & Revenue (HMRC) has published a guidance on 23rd August regarding working with employment agencies and umbrella companies. It has stated that most of these agencies are compliant with the UK tax rules. At the same time, the guidance has also mentioned that there is a minority who through an alleged legitimate tax efficient arrangement try to reduce the contractor’s tax liability.
The Freelancer and Contractor Services Association (FCSA) has welcomed yet also criticised the recently published guidance by the HMRC.
According to the CEO of FCSA, Julia Kermode, the suggestion by HMRC that umbrella firms with a nettake-home pay of 80 percent are likely non-compliant is erroneous. She has stated that while this assertion may be correct, but it’s wrong to refer to them as umbrella companies. This is because they don’t follow the compliance standards that most true umbrella companies do. Instead, companies that are non-compliant are nothing more than disguised remuneration schemes that have the sole purpose of tax avoidance.
Kermode says that true umbrella companies are contractors’ employers. They provide them with all benefits that are given to permanent employees while also allowing flexibility of a contractor. Since these companies process the gross pay through RTI payroll, contractors will not have to face the prospect of a high tax bill later on.
FCSA Warns against Wrong Association
The CEO of FCSA has cautioned that although the HMRC’s guidance was a positive development, it has created a confusion that could make people avoid working with umbrella companies.
The reality is that umbrella companies provide entirely legitimate and valuable services that have multiple benefits to end-clients, agencies, and contractors. Those that engage in tax avoidance strategies are not umbrella companies but elaborate tax avoidance schemes. According to Kermode, the FCSA had warned HMRC that such tax avoidance schemes will increase due to the result of off-payroll reforms introduced in 2017. And this has become a reality today. It’s important for recruiters to make sure that firms in their supply chain do not promote tax avoidance otherwise they could be convicted under the Criminal Finances Act.
The importance of choosing a compliant umbrella company cannot be emphasised enough. Umbrella companies provide invaluable services in meeting demand for skilled professionals. Due to the confusion surrounding the tax avoidance scheme, some companies were alleged to have been avoiding the use of umbrella companies. The confusion should be removed to ensure that umbrella companies continue to play a significant role in the UK labour market.
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