an umbrella company wants to take my client!

an umbrella company wants to take my client!

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 Hi

An umbrella company registered in Jersey has approached one of my biggest clients (recruitment agency) to take over the temps payroll, promising that the client will not pay any employer's NI on the temps' wages (because the umbrella company is not a UK employer) and also the client will not pay professional fees to them for payroll preparation (because technically the umbrella will take over the temps and it will charge the temps a % on their wages). Does anyone have any experience of this, whether this is legal and acceptable to the taxman (the umbrella claim that the HMRC has approved all this) and any advice how I could best advise the client and maybe save the fee (although it sounds too good of an offer to deny!). Many thanks.

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By stgreg
09th Jun 2010 10:09

NIC is payable

If the temps are working in the UK NIC is payable by the employer (and the employee) - even if the employer is a Jersey (or anywhere else) company.
How happy will the temps be if they suddenly get a % of their pay deducted as a "payroll preparation charge"?
I suggest that you remind your client of the old saying that "if an offer sounds too good to be true it probably is"

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By Steve Holloway
09th Jun 2010 10:14

Had this recently ...

although the details of the proposed provider were different.  Get a copy of the scheme details (strictly confidential as only being offered to a small number of clients in my case!!!) and just point out the holes in it to your client. The scheme I saw would have required the temp agency staff to file self-assessments but pay over tax on account to the provider based in Hong Kong!

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By User deleted
09th Jun 2010 10:18

Too good to be true?

Probably yes.

I suspect that this firm will bully your client's employees into joining up, encourage them to tell lies about their place of employment to HMRC, save money for everyone, and line their own pockets. So everyone's a winner? Not quite. It's arguably a scam on UK taxpayers - just what we need when there's a huge deficit.

If your client is willing to turn a blind eye to this then there's perhaps not much you can do about it. But I would look very sceptically and critically at the claims they make (HMRC approved? my a**e) and the way it's supposed to work. If that involves sailing close to the wind, then give your client frank advice. After all, there would be very few objectors if George Osborne decided to 'throw the book at' these type of arrangements.

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By User deleted
09th Jun 2010 10:22

Client poaching

Have you spoken to HMRC and obtained their input, which could help you convince your client of the problems they would face if they took up the offer?

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Red Leader
By Red Leader
09th Jun 2010 10:35

no permanent establishment in UK

I think if the Jersey company has no permanent establishment in the UK, then employers NI is not payable.

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By cymraeg_draig
09th Jun 2010 10:38

MLR ?

You have reasonable grounds to suspect this is a scam intended to defraud the Revenue. Report it.

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By Johnday72
09th Jun 2010 11:11

Correct

I think Red Leader is right, a non-UK based employer has no PAYE obligations - it would presumably be up to each employee to account to HMRC for the PAYE and employees NIC, and probably the Jersey company would handle that on their behalf? Is that a scam or a money laundering offence? I don't think so, even if it is morally challengeable.

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By DMGbus
09th Jun 2010 13:41

http://www.hmrc.gov.uk/avoidance/spotlights.htm

HMRC "spotlights" says:-

Tax planning to be wary of

It sounds too good to be true.

Artificial or contrived arrangements are involved.

It seems very complex given what you want to do.

There are guaranteed returns with apparently no risk.

There are secrecy or confidentiality agreements.

Upfront fees are payable or the arrangement is on a no win/ no fee basis.

provided.

The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are

The scheme is said to be approved by HMRC (it does not follow that this is true).

Taxation of income is delayed or tax deductions accelerated.

Tax benefits are disproportionate to the commercial activity.

Off-shore companies or trusts are involved for no sound commercial reason.

A tax haven or banking secrecy country is involved without any sound commercial reason.

Tax exempt entities, such as pension funds, are involved inappropriately.

It contains exit arrangements designed to sidestep tax consequences.

It involves money going in a circle back to where it started.

Low risk loans to be paid off by future earnings are involved.

The scheme promoter lends the funding needed.

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By cymraeg_draig
09th Jun 2010 14:48

non-UK based ??????

I think Red Leader is right, a non-UK based employer has no PAYE obligations - 

Is that a scam or a money laundering offence? I don't think so, even if it is morally challengeable.

Posted by Johnday72 on Wed, 09/06/2010 - 11:11

 

 

The whole point is that the employer IS UK based and that by claiming to work for this Jersey outfit they are lying to HMRC to evade their liability.  To put it simply, it's tax evasion and it's illegal.

I'm no fan of HMRC and I'm all for reducing liability by all legal means possible - but this is not legal.

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By bwalters
11th Jun 2010 10:55

Employer's NIC liability can be transferred to UK end-user

Although the Jersey-based company may not technically have a liability for Employer's NIC, provisions exist for transferring the liability to the UK end-user of the services i.e. the end client or, depending on interpretation, the recruitment agency:

Section 689 ITEPA 2003

Where an employee works for someone in the UK but is employed and paid by an employer outside the UK the person in the UK for whom the employee works is treated, for the purposes of the PAYE regulations, as making any payments of or on account of PAYE income.

The UK person is required to operate PAYE on awards of readily convertible assets in the same way as on cash.

For further guidance see EP8077.

Let me know if you want more information.

 

 

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By Rob Fox
11th Jun 2010 10:57

Umbrella company in Jersey and NICs

As the employees will still be based in the UK, NICs are applicable to their earnings.  I suspect that the employees will be pressured to go self-employed.

It is also worth telling the Jersey Taxes Office (try David le Cuirot, Deputy Comptroller of Taxes), who are keen to ensure that the island is not used for obvious avoidance.

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By Taxcon
11th Jun 2010 11:08

Be careful

because in the context of agencies if the employer agency is outside the UK then the person for whom the worker actually does the work can be compelled to account for PAYE/NIC:  s.688(2) ITEPA 03.  No doubt they will be told to say they're no longer in an employment relationship - but it's unlikely there will be any substantive factual change and any contract purporting to the contrary may well be vulnerable as a sham or even possibly void as a fraud on HMRC.

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By User deleted
11th Jun 2010 11:12

VAT?

Might there not also be a VAT reverse charge to account for, for the supply of staff?  Which may or may not be recoverable?

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By zarathustra
11th Jun 2010 11:14

Mortgages

What happens when one of the workers wants a mortgage ?

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By User deleted
11th Jun 2010 11:33

No employers NIC is payable

I have a client is an employee for a foreign employer with no permanent establishment in the UK.  She has to account for her own PAYE/NIC but not Employers NICs are payable.  This is in line with with Employee-Only National Insurance Contribution tables (CA40).  I suspect like we do for our client, the Jersey based company will deal with this on their behalf.

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