Avoiding Tax Traps: A Warning for Agency Workers and Contractors Moving Between Umbrella Companies
If you’re an agency worker or contractor operating through an umbrella company, it’s vital to be aware of the risks of becoming involved—often unknowingly—in tax avoidance schemes. HMRC has issued warnings about certain umbrella companies that promote these schemes, especially when workers are moved between different umbrella firms without their full knowledge or consent.
Some non-compliant umbrella companies claim their schemes allow you to keep more of your pay, but this is misleading. These arrangements often result in the incorrect amount of tax and National Insurance being deducted and paid. Ultimately, you are legally responsible for ensuring the correct tax is paid—if not, you could be left with a large tax bill and possibly lose access to state benefits.
Spot the Warning Signs
Being aware of red flags can help you avoid falling into one of these schemes. Start by reviewing your employment contract carefully. Be cautious if:
- You’re unexpectedly moved to a new umbrella company with minimal paperwork.
- You sign a contract with one company but are paid by another, possibly with a similar name or based overseas.
- You’re asked to sign more than one employment contract or an unusual agreement such as an annuity.
Next, check your payslips and salary payments. Warning signs include:
- Changes to your PAYE reference or employer name without explanation.
- Payslips showing less income than what’s deposited into your bank account.
- Tax and National Insurance deductions that seem unusually low.
- Receiving multiple payments instead of a single net salary.
- Being moved to a new payroll system without clear justification.
You can verify your pay and tax details using your HMRC Personal Tax Account to see if the reported figures match your payslips.
What You Should Do
If any of these signs apply to you, speak with your umbrella company and ask for clarification. Be alert if they:
- Refuse to answer in writing.
- Ask you not to contact HMRC.
- Offer to speak to HMRC on your behalf or recommend third parties to do so.
These behaviours can be attempts to avoid scrutiny and should raise serious concerns.
If you're worried you’re already involved in a scheme, seek professional advice. HMRC can provide support, and low-income workers can access help from tax charities such as TaxAid. You can also report suspected tax avoidance schemes to HMRC anonymously via an online form or by phone.
Settle Your Tax Affairs Promptly
If you find yourself owing tax, contact HMRC as soon as possible. They can help you arrange an affordable payment plan and minimise any penalties or interest. Settling your tax affairs voluntarily is always the best course of action.
Remember: Even if a scheme seems legitimate, the responsibility for your tax lies with you. Stay informed, stay alert, and don’t hesitate to get help if something doesn’t feel right.
