However, while trade body of the supply sector, the Freelancer and Contractor Services Association (FCSA) welcomed the Government’s guidance, it claimed it does not go far enough with its advice about explaining what a compliant umbrella looks like.
Julia Kermode, chief executive of FCSA said: “The latest HMRC spotlight just out is very welcome and provides some sound advice. HMRC rightly explains that any 'umbrella' firm offering contractors a high percentage net take home pay, HMRC suggests 80 per cent or more, is unlikely to be compliant.
"However, the guidance doesn't go far enough; these types of arrangements are not true umbrellas firms but disguised remuneration schemes. A true umbrella is an EMPLOYER of contractors, providing them with all the benefits of permanent employment, along with all the benefits and flexibility of working as a contractor.
"It is also true that an umbrella employer will process 100 per cent of gross pay through RTI payroll, meaning that contractors are not at risk of a high tax bill at a later date. They work in exactly the same way as any other employer.
“Whilst it is good to see HMRC issuing a steer on umbrellas we are concerned that it could serve to put people off working with umbrellas entirely. There are many compliant umbrella employers operating who provide a valued service with many benefits to the contractor, agencies, and end-clients.
"We are sick and tired of our sector always being tarnished with the same brush due to the actions of non-compliant firms that do not provide professional employment services and are simply promoting dubious schemes.
"We warned HMRC that we would see a proliferation of tax avoidance schemes as a direct result of the 2017 Off-Payroll reforms and our prediction has become a reality.
"Recruiters must ensure that their supply chain is not facilitating tax avoidance otherwise they risk a corporate criminal offence under the Criminal Finances Act, so choosing compliant umbrella employers for their PSLs has never been more important.”
For more information see: HMRC guidance - Spotlight 45
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Susie Hughes © Shout99 2018