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

1 May 2024

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 asked to pay back tax that their Umbrella company employers should have paid.

In some cases, the tax demands run into tens of thousands of pounds.

HMRC is targeting workers whose salaries were paid into non-compliant umbrella companies who would circumnavigate income tax and National Insurance due by paying the individuals a loan that was typically not paid back. Around five years ago, HMRC highlighted the schemes as ‘disguised remuneration’ and began a campaign to recoup the unpaid tax and NI along with interest.

It’s likely that many workers were not aware of any wrongdoing and were simply following the instructions of their non-compliant Umbrella company. However, it is the individuals who are paying the price, with HMRC issuing letters to thousands of individuals who were paid via loan schemes.

The situation underlines why it is so important to choose your Umbrella company with care. You need to work with a company that does everything the way it should be done, making the correct deductions for income tax, National Insurance and any other statutory deductions that may apply to you.

If your pay is difficult to understand and/or involves more than straight-forward deductions faced by every employee, then think twice before you sign up. The old adage applies – if it sounds too good to be true, it probably is.

Whilst a higher take-home pay may look attractive, the risk of paying incorrect tax is simply too high. Many of those who have been investigated by HMRC have to pay back their unpaid tax plus interest, with bills mounting up to significant sums.

How to choose a good Umbrella company

1. When choosing an Umbrella company, look for FCSA accreditation. This shows the Umbrella company adheres to a set of key principles and takes its compliance responsibilities seriously. This is not to say that all non-FCSA accredited companies are not compliant, but FCSA accreditation shows that the Umbrella company has been independently assessed against a rigorous code of compliance which tests for the very things that we are talking about here.

2. Look at your pay illustration. A compliant Umbrella company will provide you with an example pay illustration. These illustrations will not vary greatly between compliant providers because tax and NI deductions are the same, regardless of the provider you choose. The only difference, if there is one, should relate to the ‘margin’ which is the retained profit of the Umbrella company from the fee it charges to the agency.

3. Speak to an advisor. Get in touch with the Umbrella you’re considering working with and get a feel for how thoroughly they answer your questions and how open they are at explaining your payslip. If the company is open, transparent and helpful and explains things in an easy-to-understand way, this will help to give you more confidence that you’re working with a compliant Umbrella that will put your interests first.

4. Look at the company’s track record. How long has it been in business? How many workers does it support? How easy is it to contact the organisation? What can you glean from independent reviews such as TrustPilot?

We operate one of the UK’s largest and longest-established Umbrella companies. Find out more about our compliant service and how we can help you enjoy the freedom and flexibility of being a contractor – without the compliance headaches!

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