HMRC looks at umbrellas

HMRC has announced a number of issues affecting umbrella companies which will be the subject of detailed, ongoing investigation.

Among those issues for further scrutiny by the compliance teams will be ineffective overarching employment contracts and cases where expense payments are made tax-free without that expense having been incurred.

HMRC has been considering acting against umbrellas for some time and some thought that this might result in legislation. However, in a recent brief (50/09), HMRC has indicated that it will use its existing powers to clamp down on umbrella companies who flout the rules.

The HMRC brief said:

Current compliance activity has identified a number of concerns that are the subject of more detailed, ongoing investigation. These include:

• Potentially ineffective overarching employment contracts
• Dispensations which are invalid, or which have been wrongly applied
• Not complying with the terms of the dispensation
• "Expense payments" made tax-free without that level of expense, or in many cases any expense, having been incurred
• Potential illegal deductions from workers' pay
• Ineffective and sometimes unlawful management processes; and
• Breaches of national minimum wage

Compliance

Bob Jones, an ex-Revenue inspector and member of UKTECH's Ask An Expert panel said: " Through UKTECH I have written articles in the past regarding dispensations and over arching contracts. Last year HMRC published a consultation document regarding umbrellas. I was convinced that HMRC were going to introduce legislation to make umbrellas, at best, a less viable alternative.

Bob Jones "In my response via UKTECH I suggested that some of the problems with umbrellas were of HMRC's own making because of, amongst other things, a lack of staff awareness and failure to use existing powers. In the end HMRC announced their intention to use their existing powers and the link above is the end result of that decision.

"There are some umbrellas operating without robust overarching contracts, without adequate checks that expenses have been incurred, without adequate audit trails where expenses have been incurred and using salary sacrifice to pay below the minimum wage.

"Those responsible umbrellas who comply with all their legal obligations simply cannot compete with those who do not.

Compliant umbrellas will welcome this approach by HMRC. Non compliant umbrellas will be expected to make good all tax, NIC together with interest plus all conceivable penalties that HMRC can charge.

"If you are concerned I can be contacted via email at bob.jones25@btinternet.com."