Recent case highlights danger of using umbrella companies who use tax avoidance schemes

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Whilst many umbrella companies comply with tax rules, some attempt to break them. If you use an umbrella which operates tax avoidance schemes, you could be personally liable for a large tax bill, even if you did not intend to avoid tax.  

In December 2024, at the request of HMRC, the High Court issued an interim freezing order against Ducas (part of the Maxipay group), a popular umbrella company for healthcare workers, and two other companies (1). A freezing order stops a company from reducing the value of their assets or disposing of them in the event they are required to repay debts.  

The freezing order was issued because of the alleged non-payment of approximately £171 million in employer national insurance contributions (NICs) by these companies (2). This is alleged to primarily have occurred through the undisclosed use of Personal Service Companies (PSCs) and the submission of false payslips and Real Time Information documents, which falsely indicated correct deductions had been made and paid to HMRC. HMRC estimates that approximately 30,000 workers may be affected 

The allegations raise serious concerns and serve as a valuable reminder about the risks of using umbrella companies who engage in tax avoidance schemes. 

Why do people use umbrella companies? 

An umbrella company is a payroll intermediary that processes the payroll of temporary healthcare workers. Most healthcare workers use umbrella companies because they work for multiple agencies / employers and want to receive consolidated pay, rather than payments from multiple employers. 

Warning signs of tax avoidance schemes operated by umbrellas 

  • The umbrella company offers a higher level of take-home pay. This means the umbrella is unlikely to be deducting all required tax and national insurance contributions from your employment income.  

  • The umbrella retains a higher fee or margin. You should compare the fee or margin with other umbrella companies to make sure you are not paying higher than normal amounts. 

  • You do not get a written employment contract, or it is very short. Make sure you read and are comfortable with all the details of the contract and you keep a copy of it.   

  • You are asked to sign other documents (in addition to your employment contract)

  • You’re offered an “enhanced” or “tax efficient” option

  • The umbrella uses unusual payment arrangements for example:

    • you receive more than one payment from the same or more than one entity, 
    • all or part of your earnings are described as a loan, annuities, shares, credit facilities or other non-taxable payments paid directly into your bank account or through third parties

  • You get more money in your bank account than shown on your payslip or in your Personal Tax Account

  • The umbrella is referred to you by a comparison or broker website or is based outside the UK. The umbrella may be based overseas if they do not appear in the search results on Companies House or, if they do appear, the directors may not be residents of the UK (which for tax purposes includes the Isle of Man and the Channel Islands)  

  • The umbrella claims their tax arrangements or tax avoidance schemes are HMRC approved. HMRC never approves avoidance schemes or the compliance of any umbrella companies. 

There are a number of HMRC resources which provide further information and can help you ensure that you do not get involved in tax avoidance, as well as ways to report it.  

If your umbrella company is operating a tax avoidance scheme, HMRC strongly advises you to report it and move to a compliant umbrella company as soon as possible. Acacium Group safeguard against rogue umbrellas by conducting rigorous due diligence checks against umbrella companies and auditing them to ensure any non-compliant activity is immediately flagged. Please contact us for further information. 

Footnotes

1. Commissioners for His Majesty's Revenue and Customs v Ducas Ltd & Ors [2024] EWHC 3132 (Ch) (05 December 2024)

2. PAYE and employee NICs may also have been evaded but HMRC are not currently pursuing this. If they chose to do so in the future, much more than £171m may be involved.

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