Technical Officer LITRG and Chartered Tax Adviser
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LITRG report sheds new light on disguised remuneration saga

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Meredith McCammond explains what the Low Incomes Tax Reform Group (LITRG) has learnt about disguised remuneration usage and umbrella companies.

6th Apr 2021
Technical Officer LITRG and Chartered Tax Adviser
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LITRG has released a research report entitled ‘Labour Market Intermediaries: a technical report outlining how umbrella companies and other intermediaries operate in the labour market and the implications for workers who use them’.

The report seeks to draw together evidence from a range of sources, to help form an overall picture of the current umbrella marketplace.

The report contains a discussion of disguised remuneration (DR) arrangements such as loan schemes, in which contractors and agency workers may become entangled.

HMRC’s recent research states that, despite the loan charge, about 30,000 individuals were involved in DR arrangements in 2018/19 and suggests that umbrella companies were heavily involved.

Key findings in the report

  • There is no single definition of an umbrella company – anyone can set up a company and label itself an umbrella company.
  • Some agencies do not offer workers the ability to be paid through an agency payroll. If workers want to accept an assignment, they have no choice but to work through an umbrella company.

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Replies (3)

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By Rgab1947
07th Apr 2021 10:38

I thought these loan schemes were killed of by HMRC. Change in legislation and many Court cases supporting HMRC.

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By tonyaustin
07th Apr 2021 10:43

Excellent article. I hope it is read by all the contractor companies who are whingeing about IR35. From what I have read, it is not just loan schemes that are the problem. Employees were forced into using a PSC simply to save the client employer's NIC and the employee was told they could pay themselves with dividends at a much reduced rate of tax, with no consideration of the IR35 legislation.

Thanks (1)
By cfield
07th Apr 2021 11:40

Of course, all this will multiply now that private sector contractors are being herded into umbrellas thanks to the new IR35 rules. What we're seeing now is just the fall-out from the public sector roll-out 3 years ago.

One of my ex-NHS contractors has just received a £100 penalty for not filing a 2019/20 tax return. He never even got a notice to file, although he did get a strange letter from HMRC in December telling him hadn't filed yet. He is still on my panel but no tax return is shown as outstanding on HMRC Online as they took him out of SA 3 years ago. Then I noticed that the letter had a different UTR. I thought it was ID fraud at first, but he's just phoned HMRC and they said it was issued by a specialist department. I didn't even know it was possible to have 2 UTRs on the same NI number. Many of his colleagues got those letters too, so it looks like they've targeted the umbrella clients, although probably not the umbrella itself, reading that report.

They changed the IR35 rules to avoid perceived tax avoidance by contractors, but all they've done is facilitate outright tax evasion by some of the new umbrellas that have sprung up in the wake of this, and of course, it's the poor old contractors who are facing the music for loan schemes they didn't even know existed. Soft targets you see! So much easier than picking on firms armed with clever dick lawyers and bent accountants. I've seen payslips produced by some of these firms and told people to run a mile, but many stayed as they didn't want to rock the boat.

All of this was utterly predictable. These dodgy intermediaries existed even before the IR35 fiasco. There was one called Argentia who changed their name to Eagle before going into liquidation. That was a real Frankenstein's Monster combining a payroll (for cover), self-employed earnings, a loan scheme, dividends and even a fake EIS scheme. I got my client out as fast as possible and reported them to HMRC. I even found a whistle-blower on AWeb who used to work for them and he gave me some interesting insights. About a year later I had an email back from their fraud team asking for more information, which I gave, but since then I've heard nothing. The client also went to his local police station and reported them to Action Fraud, but they didn't want to know.

At the end of the day, these fraudsters get away with it because the authorities make it too easy for them. Some of the agencies are complicit too, accepting kickbacks to put them on their preferred supplier lists and then turning a blind eye. And then, when HMRC do find out, they lash out at the contractors, putting the blame on them. I saw a letter from HMRC saying it was my client's fault for appointing this firm as his agent, and he didn't even know they were his agent!

Thanks (2)