‘Avoid tax avoidance’ with a compliant umbrella company

The Government has issued fresh guidance to help contractors’ spot non-compliant, tax-avoidance schemes.

The information, freely available on their website, aims to help contractors and agency workers identify ‘umbrella’ schemes which wrongly claim to be able to increase your take-home pay. This often means paying less in Income Tax and National Insurance contributions (NICs). Additional fees are usually charged as well.

The Government’s advice is important to heed as, according to HMRC, these schemes ‘don’t work’ and by using them ‘you may be taking part in tax avoidance’.

Choosing an Umbrella Company

When it comes to selecting the right employment umbrella company, compliance is key. Beware, if there’s any wrongdoing in relation to your tax, it’s you who stands to get investigated – not them. So, do your homework. Pick a provider that’s audited, accredited and has your best interests at heart.

Like a lot of people you can probably picture, there are plenty of umbrella companies guilty of making pledges they’re unable to keep. But remember, we’re all bound by the same regulatory guidelines. So, if your potential provider is making promises such as ‘receipt-less expenses’ or conspicuously high take-home pay, alarm bells should start ringing.

Also, avoid those umbrella companies with entry fees, exit fees, or minimum term tie-ins. Same applies to those who link their fees to your rate. These can prove costly, with the potential for your fees to rise alongside any salary increases. After all, it’s you who’s doing the work and taking the risk. So, select a provider with well defined, fixed fee structures. You need to be sure you’re dealing with an umbrella company whose affairs are clean, clear and compliant.

What have HMRC said?

HMRC defines tax avoidance – in this instance, at least – as: “any scheme offering better take-home pay by converting your income into something else (e.g. a loan), which results in you not paying the tax you owe”.

They warn: “If you use a [tax avoidance] scheme you’re likely to end up with a bill for any back taxes owed. This includes interest on tax paid late and possibly a penalty.”

“Tax avoidance schemes do not work and can result in unintended tax consequences. You could end up paying much more than you were trying to avoid in the first place. If something looks too good to be true, then it almost certainly is.”

“If you sign up to a scheme that doesn’t work, you may end up with a higher tax bill than expected.” Remember, you’re responsible for your own tax affairs and for paying any tax you owe.

DID YOU KNOW… some schemes are sold on the basis that they’re ‘HMRC approved’. This is a red flag, as HMRC does not approve any scheme that ‘helps’ people avoid tax or boost take-home pay. Furthermore, “HMRC never authorises the use of statements such as ‘HMRC compliant’ or ‘HMRC approved’”. So, be vigilant.

Danbro Umbrella

At Danbro, we’re here to support your contracting career, paying you in full and on time, every time! We’re proud to be accredited by the likes of ipse, ISO, IIP, and the FCSA. So, you can trust Danbro to deliver the very best advice, information and contractor solutions. As well as taking care of your pay, with Danbro, you’ll get benefits such as:

• Continuity of employment
• Statutory employment rights
• IR35 expertise
• BUPA Cash Plan*
• Danbro Rewards
• Weekly/monthly payments
• Danbro One pension scheme
• Exclusive online timesheet portal
• Access to HR support & our dedicated customer care team
• Business Insurance*
• No set-up or exit costs

*Terms, conditions and exclusions apply.

When processing your pay, Danbro retain a margin to cover the costs associated with your employment. Our margins are compliant, fair and totally transparent. They’re dependent on factors such as your payment schedule and rate of pay. So, no hidden surprises. You can get a detailed list of our margins, and the benefits associated with each exclusive package, here. Or, to find about more about our umbrella solutions, and why you should choose us, click here.

How does an Umbrella Company work?

Unsure about how umbrella companies work? Let’s use a bit of magic to highlight how it works in practice.

• ‘Minerva’ is a supply teacher – and contractor – who recently left her long-term role as a Professor at a prestigious selective school. She signed up to Danbro’s umbrella company, and we signed an agreement with her agency – Witches4Hire Ltd.



• We also agreed a contract of employment with Minerva, at witch point, she became our ‘employee’. All we require her to do is complete weekly timesheets, detailing the hours she works and her expenses, if eligible. We’ll take care of the rest. The bad news for Minerva is, her expenses don’t quite cover the copious amounts of alcohol-free Butterbeer she consumes during the course of a week teaching muggle children.



• When she’s completed and submitted her timesheet to our online portal, we’ll invoice her agency. Once the funds have been transferred to us, we’ll send Minerva’s statutory deductions to HMRC and set aside her tax-free deductions. This includes contributions to her pension. We’ll then retain our margin for the cost of employment. At Danbro, we’ll also take care of her tax, NICs, and any additional deductions. Her wages are then paid securely into her Platinum account at Gringotts Bank. She’ll also receive a copy of her payslip detailing her weekly wages.



• Operating through an umbrella company like Danbro is ideal for Minerva. She can combine the reliability of employment with the flexibility of freelancing. She remains employed during and after each assignment. That continuity of employment helped her when applying for a mortgage too. This was important as Minerva had had to give up the free, castle-view property she’d gotten used to with her previous, rather mysterious employers!

For more tax help from HMRC, check out their free guide. Or, to register with Danbro today, click here.