HMRC issues guidance for workers to identify whether they may be subject to tax avoidance schemes

On the 18th November, HMRC issued guidance to assist workers who may have used or are looking to use the services of an umbrella company. This guidance has been issued in the form of an ‘online risk checker’, a series of questions that helps workers identify if their employment arrangements could involve tax avoidance.

You can view the government’s online risk checker here.

The tool itself centres around asking the following set of questions:

· Do you work through an umbrella company?

· Have you been told your take-home pay will be higher than expected?

· Have you received more pay than your payslip or personal tax account shows?

· Have you been told that part of your pay is not taxable?

· Has your pay been topped up with another payment?

· Have you received your pay in more than one payment?

· Has Income Tax and National Insurance contributions been deducted from the additional payments?

· Are there any deductions on your payslip you do not understand?

· Did you find the documentation unclear or confusing?

Whilst the idea of this sort of tool is a welcome addition to help identify non-compliant umbrella companies, it is clear some of the functionality isn’t suitable for real world use. As an example, one of the questions asks ‘Are there any deductions on your payslip you do not understand’ – it is perfectly plausible that there may be, even for workers who are paid through an accredited umbrella company. Should you choose ‘yes’, you are given an alert that states ‘you may be involved in a tax avoidance scheme’. This could be quite a scary statement for some workers and cause undue alarm.

Perhaps further information to aid in answering these questions could be useful. For instance, explaining the typical things you should see on a payslip, or those you certainly shouldn’t. Or perhaps HMRC should start listening to stakeholders like FCSA members to understand how their tool may be interpreted by workers in real life scenarios.

Whilst we have seen a drop in the use of uncompliant umbrella companies, there are still plenty out there. We look forward to version 2 of HMRC’s online risk checker that will hopefully be much clearer for the average user.