Protect Yourself Against The Next Generation Of Payroll Schemes

The Loan Charge 2019

The Loan Charge 2019 which was brought into force by HMRC has rightfully received a lot attention lately for the enormous impact it is having in the contracting world. Enormous six-figure retrospective tax bills are common place under the new legislation. This legislation aims to recoup taxes lost to disguised remuneration schemes in the last 20 years, since 1999. The damage this has caused many thousands of contractors goes without saying with bankruptcies and even suicides being attributable back to the Loan Charge.

If you need any more information on the Loan Charge 2019, we’ve covered all the latest on our previous blog post: https://exceedoutsourcing.co.uk/2019/04/30/no-delaying-2019-loan-charge/

For those caught by the Loan Charge 2019 there is little that can be done. However, the next generation of contractors can potentially be saved from the same fate if they follow simple guidelines. Unfortunately the disguised remuneration schemes continue to be prevalent and the loan charge has merely resulted in many of them evolving rather than dying. If lessons are not learnt then contractors will continue to fall foul of these schemes time and time again.

Disguised remuneration schemes

There are a vast number of disguised remuneration schemes that purposefully target contractors with the powerful incentives of higher take home pay rates. The common method of operation for these schemes will be to pay a small chunk of contractors earnings via standard PAYE with the large balance of income delivered via another mechanism such as via a loan. If they sound too good to be true, that’s because they are.

Operators of these schemes are ultimately reducing contractor’s tax and national insurance contributions in the short term. However they are kicking the can down the road for inevitable huge tax bills in the future. Over time the unpaid taxes accumulate and snowball so that the risk of using such schemes rapidly escalates to the point that when the bill from HMRC eventually lands, it utterly devastates personal finances. It is vitally important that contractors learn to spot these schemes in order to protect themselves from financial ruin. No one else will protect you, so please enforce your own compliance checks.

Remember these key points first and foremost:

1. Statements or promises of HMRC compliance hold limited value as many of these schemes will try to allay fears by making hollow compliance statements.
2. Look out for statements of ‘HMRC Approved’ as HMRC does not approve anything meaning this is a tell-tale sign of dodgy activity.
3. The branding and marketing for these schemes can look very professional and slick. Do not be fooled into thinking these legitimate simply by how they cosmetically look.
4. If an umbrella company quotes a take home pay in excess of 70% of a limited contract rate, they will NOT be operating legitimately.
5. Statements suggesting that ‘tax advice’ is required in relation to the scheme suggest all is not well as compliant operators never require this.

It is important to remember that the rise in number of disguised remuneration schemes is no accident or coincidence. These schemes are deliberately and aggressively targeting contractor workers. Especially those who have been hit hard over the last few years by legislative changes such as IR35 off-payroll. They don’t care one bit about the loan charge and will continue to target vulnerable workers. The risk continues to unfairly sit squarely with their customers. A new crop of schemes is beginning to emerge. These new schemes are specifically marketed and targeted at victims of the loan charge. They are promising to mitigate loan charge liabilities via the use of more dubious mechanism.

Umbrella companies: Real vs Fake

To complicate matters further these schemes often describe themselves as ‘umbrella companies’ in order to conform to contractor expectations. In doing so they are unfairly tarnishing the legitimate umbrella company industry. Real umbrella companies will always employ contractors themselves crucially paying all of the gross pay through RTI payroll. This gives the individual a range of employment benefits and rights while still giving them the flexibility of temporary work. There are some simple tests you can use to distinguish the compliant from the not so compliant umbrella operators.

You can use these questions to help you:

1. Does the Umbrella Company employ you?
2. Will the Umbrella Company give you employment benefits and all statutory rights (pension, holiday pay etc)?
3. Will the Umbrella Company provide flexibility to work various assignments with different end clients?
4. Does the Umbrella Company consolidate pay from different end clients into a single payment to you?
5. Does the Umbrella Company process all of your gross pay through PAYE?

If all the above questions can be answered with a clear ‘yes’, then you are dealing with a compliant umbrella operator. We can’t name and shame any particular scheme operators for obvious reasons. However, remember the simple compliance tests above to pick out the bad apples. Alternatively just choose to use Exceed Outsourcing and save yourself the compliance headaches altogether. We offer a simple, compliant and reliable PAYE umbrella payroll service.