The chancellor’s inclusion in this year’s Budget of the government’s concern about the tax benefits being sought by users of umbrella companies was not unexpected. It has been widely acknowledged that HMRC have recently been focusing on umbrella companies that are abusing their dispensations.

The government have announced plans at this point to “monitor the use of these structures and, if necessary, consider action in the future.” The abuse of expense policies will incur heavy penalties, if a contractor is found to be claiming tax relief on expenses they have not incurred, or have misled HMRC about.

Some umbrella companies have openly encouraged contractors to abuse expense systems, leading them to believe that they will gain a tax advantage and become financially better off. This, however, has been achieved through non-compliance, and now that the government look set to legislate against this behaviour, those contractors are at risk of being penalised.

Damian Broughton, managing partner at umbrella company Danbro, has always stressed the importance of compliance with HMRC agreements. “This is not a case of the government punishing all contractors and umbrella companies because of the non-compliance of a few,” he says. “The government are willing to work with genuine contractors and providers, ensuring they continue to be eligible for reimbursements and tax reliefs where legitimate claims are made.”

Danbro are one of a select few companies to have been awarded 100% compliance status by HMRC, setting them apart as a provider of quality, compliant services.

“It’s equally important for recruitment agencies to ensure that any umbrella provider that they recommend, whether officially or informally, is totally compliant,” adds Damian. “If they recommend their candidates to use the services of a non-compliant umbrella company, they too could face action”.

For more information contact Damian Broughton at Danbro on 01253 600140.