A further three tax avoidance schemes were yesterday named by HMRC, but tax authorities have been criticised for not going further to stamp out umbrella employment schemes that involve tax avoidance.
Umbrella payroll and data compliance auditor PayePass called the uncovering of a further three schemes “a drop in the ocean” and urged HMRC to work harder to prevent the proliferation of such schemes, which it said posed a big risk to freelancers and contractors, along with recruitment agencies and end clients. The firm’s founder went as far to say that HMRC knew who the major players were in the schemes but had not as yet moved against them.
The three schemes named yesterday on the HMRC website were Focus Contractor Limited, Greenwich Contracts Ltd and Nicely Paid Limited.
Off-payroll working reforms have resulted in increased use of rogue umbrella companies, along with a number of workers who are being treated as employees for tax purposes, but who lack employment rights, the House of Lords economic affairs committee stated earlier this year.
The committee found that a rising number of umbrella companies that had been set up to “lure” contractors with unrealistic and unfair offers so that they could continue to work under the off-payroll working rules.
Fred Dures, founder of PayePass, said that although it was good to see tax avoidance schemes being named and shamed, HMRC’s list – which stands at 22 – was a drop in the ocean. He said the umbrella companies named so far were “largely just the small fish, with most not actually still in business”.
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He added that the list had not brought any tangible benefits to the temporary workforce sector, nor helped the Treasury to increase tax revenues.
Dures said: “HMRC is well aware of who the big players are and the identity of the people and organisations that are actually behind the majority of them. It’s why I really struggle to understand why HMRC hasn’t been able to tackle them so that reincarnations of named umbrellas don’t return to the market. Then, and only then, will the sector and the Treasury reap the rewards of driving tax avoidance schemes out of business. As things stand, they continue to pose a big threat to contractors, recruitment agencies and end-clients.”
Evidence heard by the Lords committee in December suggested there had been a fivefold increase in the number of individuals working through umbrella companies over the past 15 years.
Dures said this “wave of dodgy umbrella schemes” had been encouraged by IR35 reforms: “HMRC’s ill-thought-out and poorly implemented IR35 reform in 2017 and 2021 played a significant part in this. Thankfully, the government hopes to undo the damage caused by HMRC and the reforms. I hope the chancellor’s announcement that IR35 reform will be repealed quickly forms part of a new Finance Bill and becomes law in April 2023.
“The fact of the matter is the government haven’t delivered on countless promises to regulate the umbrella sector. What’s more, the department that has been earmarked to be responsible for combating tax avoidance and other unlawful activity is desperately underfunded. Ultimately, action speaks louder than words and until more is done, the risks will remain.”
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In May last year the government rejected moves to outlaw or curb umbrella firms during the passing of the Finance Bill. Dave Chaplin, CEO of ContractorCalculator, said at the time that “the continued lack of regulation and impotence by the government on this issue will only seek to fuel the non-compliance further and I would suggest contractors conduct due diligence before signing up to any umbrella company”.
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