A great resource from HMRC (no, we’re not kidding!)
It’s not too often you’ll find us extolling the virtues of an HM Revenue & Customs publication. Pretty much never in fact. But here we are!
HMRC’s “Tax Avoidance - Don’t Get Caught Out” campaign and accompanying website almost makes us wish we wrote it ourselves. It is everything a decent resource needs to be - direct, helpful and jargon-free.
Clear tax avoidance advice for contractors
HMRC’s tax avoidance campaign helps contractors (both employed and self-employed) understand their pay arrangements so they don’t end up in hot water with the tax man.
You’re classed as a “contractor” if you provide services to clients who do not engage you directly. You may work through an umbrella company, an agency or your own limited company, and may be taxed under PAYE or self assessment.
Spot-on guides from HMRC
The difference (we think) with this campaign in comparison with some of HMRC’s other resources is that it does not stop at saying Very Bad Things Will Happen if you get caught up in a tax avoidance scheme.
Instead, it explains how to recognise the signs of tax avoidance and understand how you are being paid, including how to check your payslips and contractual arrangements.
The following online resources in particular are well worth a look:
How to spot tax avoidance
Guide to working through an umbrella company
HMRC’s payslip guide
Avoiding dodgy umbrella companies
While tax avoidance comes under many guises, it’s in our ball park to warn people specifically about dodgy umbrella companies and how to spot them.
Typically, this sort of outfit will apply PAYE to part of the amount paid to the worker, then call the rest something else, and treat it as non-taxable income.
It’s a welcome development in transparency that HMRC has recently started to name and shame tax avoidance schemes providers. At the start of April they named Absolute Outsourcing, based in Greater Manchester, and Equity Participation Scheme (EPS) promoted by Purple Pay Limited, of London.
Both companies were highlighted as paying contractors the National Minimum Wage with the remainder of their earnings paid through a loan to avoid NIC and PAYE tax.
Our blog “Terms that scream dodgy umbrella company” looks at some of the terms which should be instant red flags for both contractors and agencies when considering an umbrella company to work with.