13th October 2017
As many of you know, public sector tax reforms for the self-employed were introduced earlier this year in order to clampdown on ‘disguised employment’, where non-qualifying freelance workers were being paid through personal services companies. While it’s estimated that these changes will raise around £185 million during this tax year alone, the IR35 reforms have also led to something rather more concerning: a rise in public sector locums using non-compliant umbrella companies.
Non-compliant umbrella companies on the rise
According to recent reports, this increase has been notable as contract professionals in the public sector face reductions in their take home pay as a result of these changes. The Freelancer & Contractor Services Association (FCSA) has admitted that it is aware of a number of ‘dubious’ schemes which have become more prolific since the April reforms. The Recruitment & Employment Confederation (REC) has also reported a rise in the number of its members hearing of contractors being offered ways around the IR35 assessment.
HM Revenue & Customs has, however, stressed that freelance staff and any firms associated with contract professionals should steer clear of a number of evasive schemes. These include payments through annuities or redeemable loyalty points, as well as lump sum payments known as a taxable discretionary bonus.
Indeed, the Financial Times quoted HMRC as stating:
“We always challenge umbrella companies who do not comply with their legal obligations. We check that employers and employees are tax compliant by undertaking targeted compliance activity. The schemes we have seen do not work and those using them can face arrears of tax, interest and penalties. We have seen an increasing number of these schemes within the health sector and we are working closely with the NHS and others to ensure these schemes are closed down.”
Recruiters – don’t be tempted
With more contractors seeking ways to gain better payment, recruitment firms will find themselves facing demand to partner with these less than scrupulous umbrella firms. But be warned, this could put you and your firm at risk of harsh penalties, including fines or even criminal charges, so don’t be tempted by the risk.
If you’re unsure as to whether you, your contractors or any associated firms are compliant, why not cut out the uncertainty by speaking to an expert today.