By Damian Broughton, MBE
Since IR35 reform back in April, we’ve seen an influx of schemes which either push the boundaries of the law or flout it completely, promising unrealistic take-home pay through unscrupulous means.
Vanessa Houlder of the Financial Times comments,
“Temporary workers who faced losing up to a quarter of their take-home pay in extra tax following reforms introduced in April have been flocking to non-compliant “umbrella companies” that promised to find ways around the new rules.”
It’s therefore increasingly important to be vigilant when choosing a provider, with some less reputable firms out to exploit the individual. Those offering a higher than normal take-home pay (around 80% or more) should be viewed with caution, as they could end up putting you in hot water with HMRC, costing you more in the long run. As we’ve discussed previously, there shouldn’t be a difference in your take-home pay between umbrella providers, as they all need to make the same necessary deductions of Income Tax, Employer’s NI and Employee’s NI.
Which schemes do I need to be aware of?
Among the non-FCSA approved models are: offshore tax avoidance schemes, the Elective Deduction Model (EDM), and the payday by payday model. As explained by the FCSA, the Elective Deduction Model can actually result in the worker receiving less than the minimum wage.
Also under the HMRC’s Spotlight is the use of disguised remuneration loans. These schemes normally result in a loan from a third party on such terms that mean it’s unlikely to ever be repaid. They are set to be tackled by means of a ‘loan charge’ on any outstanding loans on 5th April 2019.
Some providers have already started to suggest schemes to get around this new loan charge, but HMRC have warned that these schemes do not work,
“The only way you can avoid the new loan charge is by making a repayment of the loan balance or settling the tax liability with HM Revenue and Customs (HMRC) in advance. Any repayments connected to a new tax avoidance arrangement will be ignored and the loan charge will still apply.” HMRC, Spotlight 36
So, what are my options?
There are still plenty of compliant accountancy and umbrella solutions around. When looking for a compliant provider, a good place to start would be to look for those who are approved or audited by a recognised trade association or professional body. For example, Danbro is fully accredited and approved by Professional Passport, an independent organisation who give unbiased support to the flexible workforce. The FCSA also hold a list of their associate members, who are approved as working ethically and within the law.