HMRC Spotlight 64

HMRC is aware of some umbrella companies who use employment and recruitment agencies to promote their tax avoidance schemes.

Some umbrella companies may give commitments about the schemes to agencies that sound too good to be true — and they often are. Whilst employment and recruitment agencies might believe they are agreeing to one set of arrangements, it could be a tax avoidance scheme that the umbrella is promoting.

These schemes are targeted at individuals such as contractors and other temporary workers, who may not know the risks of using them. Employment and recruitment agencies should:

• check very carefully the details they are given by umbrella companies about their products
• consider taking independent professional advice if they are unsure if an umbrella company they plan to use is compliant

Most of these schemes do not work and are successfully challenged by HMRC in the courts and tribunals. Agencies need to avoid recommending such schemes. They must also carry out due diligence to make sure they are not using non-compliant umbrella companies.”