3 Signs of a Non-Compliant Umbrella Company

2 May 2023

It’s important to choose an Umbrella company like Workwell that takes its compliance responsibilities seriously.

All Umbrella companies must adhere to HMRC’s rules on tax. However, many Umbrella companies are popping up with too-good-to-be-true offers for contractors, promising reduced tax rates and 80%+ take-home pay. Unfortunately, contractors are lured in by these tax avoidance schemes disguised as ‘tax-efficient’ offers.

An Umbrella company must provide you with a clear and detailed illustration of how your pay is calculated and the profit margin that they will deduct for providing the service. Requesting a complete fee structure is a great way to identify how the Umbrella company arrives at your suggested take-home pay, and if they are acting compliantly.

As an Umbrella employee, you could be held liable for working under an Umbrella company who is participating in tax avoidance even if you’re unaware of the scheme.

Occasionally, a company will ask contractors to sign up to an ‘arrangement’ of this kind. However, most companies’ schemes won’t be this obvious, so it’s important you do your research and choose a compliant Umbrella employer.

There are a number of signs to look out for which would indicate that a company is not operating compliantly:

  • Look into their jargon. Non-compliant companies operating tax avoidance schemes will often dress up their services with phrases about ‘legal opinions’ and ‘tax efficiency’ instead of an emphasis on compliance.
  • If the company promises you 80, 90, or 95% of your wage, they’re most likely operating under a scheme. Usually, the basic rate of Income Tax is 20% plus National Insurance contributions. So 80% take-home pay is almost impossible.
  • If only a portion of your salary on your payslip is paid through payroll and the rest comes through as ‘loan’, ‘credit’, or ‘investment’ – this is a sign of tax avoidance.

Compliance assurance with Workwell

We support thousands of contractors to work compliantly through our FCSA-accredited Umbrella company. We are founder members of the FCSA and are audited by independent experts every year.

 

Suggested Reads

3 Signs of a Non-Compliant Umbrella Company

Beware of Loan Schemes (And Other Non-Compliant Payment Vehicles)

May 1, 2024 | Blog

HMRC’s continuing crackdown on users of loan charge schemes underlines the importance of choosing a compliant umbrella company. Many of the people who used loan charge schemes are now being…

Read more
3 Signs of a Non-Compliant Umbrella Company

Working For Yourself An Instant Pay Rise For 1 in 4

Feb 13, 2024 | Uncategorised

Around one in four people giving up full-time employed jobs to work as contractors and freelancers earned more in their first year than they did previously,  research* from Workwell and…

Read more
3 Signs of a Non-Compliant Umbrella Company

2 in 3 Self-Employed Have Not Increased Day Rate

Jan 10, 2024 | Uncategorised

Workwell & IPSE research shows the average day rate for contractors, freelancers and small business owners is around £300 – but nearly half say they don’t have daily rate for…

Read more