HMRC Spotlight on Non-Compliant Umbrella Companies

We’ve previously spoken about the risks attached to non-compliant umbrella companies and the rogue models they offer; this month HMRC have further spotlighted this practice in their guidance on what to do if your umbrella company offers to reduce your tax liability and increase your take-home pay.

“…you’re highly likely to be avoiding tax and you could end up paying additional tax, National Insurance contributions and interest. Penalties may also apply”

Claims of ‘maximising’ take-home pay to upwards of 80% have been abundant in recent years. However, as both Danbro and HMRC have pointed out, these models are more often tax avoidance schemes. For that reason, they should be viewed with extreme caution.

“It’s increasingly important to be vigilant when choosing a provider. As, there are less reputable firms out to exploit the individual”, says Damian Broughton, Danbro Executive Chairman. “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”.

The guidance from HMRC states:

“Most employment agencies and umbrella companies operate within the tax rules. However, some umbrella companies and agencies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability.

These arrangements leave you at risk. This is because you are ultimately responsible for your tax affairs and for paying the correct amount of tax and National Insurance contributions.

These types of arrangements are likely to result in you paying additional tax, interest and perhaps penalties, and are never HMRC approved”.

What to look out for…

So, if you’re unsure as to whether your provider is compliant, HMRC recommends looking out for these four warning signs:

  1. The company promises that you can keep 80, 90 or 95% of your wages and be tax compliant. (This is unlikely to be true as, in most cases, the basic rate of Income Tax is 20% and National Insurance contributions are also due on earnings.)
  2. Only a fraction of your salary is paid through payroll and subject to PAYE. (This indicates that you are only paying tax on some of your income.)
  3. You are paid using a loan, credit or investment payment and the company claims this isn’t subject to income tax or National Insurance contributions. (This is tax avoidance)
  4. The payment from your umbrella company is routed through various companies before it comes to you

What to do if you think your umbrella company is non-compliant

Finally, if you think you’re involved in an arrangement that is promoting tax avoidance, HMRC advises you to withdraw immediately and settle your tax affairs. If you want to speak to someone about getting out of avoidance you should email

How Danbro operate

As a longstanding provider of umbrella employment and accountancy services for contractors, freelancers and consultants, Danbro have supported thousands of careers by acting within the spirit of the law and ensuring your pay is dealt with in a compliant manner.

We’re fully accredited by the FCSA which means our solutions have been audited against the highest industry standards, so you can trust us to support you in meeting your tax and legal obligations, freeing up your time to do what you do best.

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Blog written by
Damian Broughton MBE

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