An ‘umbrella’ company may act as an employment agency in sourcing workers, but its core role will normally be to pay the contractors or temporary workers.
Businesses that hire temporary labour either directly from umbrella companies or employment agencies need to be aware of potential tax avoidance in the supply chain. The umbrella may quote a price for the work which seems unreasonably cheap, because it is not deducting all the tax required from the worker.
We advise clients to educate their workers about possible tax avoidance schemes operated by umbrellas. One way to check for a tax scheme is to compare the payslip the worker receives with the pay details provided by the umbrella to the hiring company.
Look out for elements of the pay described as:
- loans
- grants
- salary advances
- capital payments
- credit facilities
- annuities
- profit shares
- shares and bonuses
- amounts held in a fiduciary capacity
These could all be indicators of untaxed pay and the operation of a tax avoidance scheme.
Workers and businesses can both get scammed by clones of legitimate umbrella companies. The clone company is set up with a very similar name to a legitimate company. It then attempts to convince the hirer that the legitimate Co has changed its bank account so it can receive misdirected payments.
If a company is a clone company set up only to commit fraud is unlikely to have:
- Companies House history– check exact company number and names of directors
- Filed accounts
- Website or social media presence – check physical address and contact details
- Membership of professional bodies or trade association – check with the bodies for the exact company name
- VAT registration – ask to see registration certificate
The clone company is also likely to have:
- Directors based outside of the UK
- Directors who hold multiple positions in many companies
- An address at a residential property that has many companies registered there.
Written by the Tax Advice Network