HM Revenue & Customs’ (HMRC) publicly accessible list of non-compliant umbrella companies now features details of nearly 100 firms operating tax avoidance schemes.
The UK tax authority added four more non-compliant umbrella companies to its list on 12 September 2024, bringing the total number to just under 100 – up from 50 a year ago.
Additions to the list include Tamworth-based 1st Choice Umbrella, which the list confirms has been the subject of a “stop notice” under the terms of HMRC’s Promoters of Tax Avoidance Schemes (POTAS) regime due to discrepancies in the tax treatment of its contractors’ payslips.
Isle of Man-based umbrella firm Adapt, and its UK-based counterpart TGI Payday, have also received a stop notice for providing a loan-based remuneration scheme to contractors.
Birmingham-based AI Global Workforce is also listed for the first time, for providing “payment advances” to its contractors who do not have income tax or National Insurance Contributions deducted from them.
The final addition, Liverpool-based Solucionis, has two entries on HMRC’s list of named tax avoidance schemes and suppliers, having first appeared on it in April 2024 for breaching the Finance Act 2022. Its second entry on the list appears under the terms of POTAS.
“The remuneration for the scheme users’ services is artificially separated into two elements,” said the company’s entry on HMRC’s list. “The first is a salary with tax and NICs deducted. The second is purported to be either for the growth in a share in an Isle of Man cell company, or for an option grant, with no tax and NICs deducted.”
Computer Weekly has reported extensively in the past about how IT contractors have inadvertently found themselves embroiled in tax avoidance schemes after joining non-compliant umbrella companies that lure them in with the promise of “too good to be true” take-home pay rates.
These non-complaint umbrella companies use contrived methods to artificially minimise the amount of employment tax contractors pay, which includes using non-taxable loans to remunerate them for the work they do in lieu of a conventional salary.
In recent years, HMRC has sought to clamp down on this practice and recoup the unpaid tax from these setups though the introduction of its controversial loan charge policy, which has seen tens of thousands of IT contractors saddled with life-changing tax bills.
In a statement to Computer Weekly, a spokesperson for HMRC said the length of the list has doubled over the past 12 months due to a legislative tweak introduced following the publication of the Finance Act 2022 in February 2022.
That change means the names of known tax avoidance schemes are no longer required to be removed from the list after 12 months of publication.
This feature of the list had previously seen HMRC criticised by contracting market stakeholders who questioned how contractors were meant to steer clear of such schemes if details about them were only available for a limited time.
Since the publication of the Finance Act 2022, HMRC has had powers to republish the names of umbrella companies that were previously removed from the list, if it has evidence they are still involved in tax avoidance.
The identification of four more avoidance schemes is good news … but the fact that around 100 have been identified highlights the extent of the problem Seb Maley, Qdos
“Since new anti-promoter measures came into force in 2021, we have published the details of more than 100 tax avoidance schemes, helping steer people away from avoidance,” said the spokesperson. “The list’s growth is mainly due to schemes being published using the Finance Act 2022, which has no publishing time limit and allows us to name schemes even faster.”
As well as regularly updating the list, Computer Weekly is aware that HMRC also sends out “early intervention” letters to contractors who might have unwittingly joined a non-compliant umbrella company to make them aware their payroll provider might be operating a tax avoidance scheme.
However, despite these interventions, Seb Maley, CEO of contractor insurance company Qdos, said more needs to be done urgently to protect contractors from working through non-compliant umbrella companies and finding themselves embroiled in tax avoidance.
“On the face of it, the identification of four more avoidance schemes is good news – one less tax non-compliant umbrella company in existence the better. But dig deeper, and the fact that around 100 have been identified highlights the extent of the problem,” he said.
“A failure to regulate the umbrella sector over the last decade, in combination with IR35 reform, has precipitated a huge increase in tax non-compliance.”
“The off-payroll rules have needlessly put some businesses off engaging genuine contractors for fear of getting their IR35 status wrong. As a result, demand for umbrella companies has skyrocketed – and shifty operators have flooded the marketplace to meet it,” he said.
For this reason, the government needs to step up its efforts to roll out statutory regulation for umbrella companies to reduce the exposure of flexible workers to non-compliant operators.
“Labour’s electoral campaign focused on ending exploitative work practices, and that’s exactly what this is. Some delayed justice for those affected by the Loan Charge scandal would also be welcome,” Maley added.