HMRC urges businesses to check their supply chains

HMRC has published new guidance Check how to reduce your risk of using an umbrella company who operates a tax avoidance scheme to help employment agencies and businesses using temporary workers avoid exposing themselves to the risks of contracting with non-compliant umbrella companies.

The guidance is drafted in straightforward terms, highlighting some of the common components not treated as taxable income, and therefore not subject to PAYE, by umbrella companies which are operating avoidance schemes.

Critically, the guidance notes that businesses which contract with a non-compliant umbrella company become part of the avoidance scheme supply chain, potentially risking tax compliance checks and penalties, in addition to reputational damage and any associated loss of business. The penalties for enablers of tax avoidance could also apply if the business is deemed to have enabled the use of an arrangement, by virtue of having contracted with the company that is running an avoidance scheme.

HMRC suggests key steps businesses should take to reduce their risk:

• perform due diligence on the whole supply chain;
• understand how workers supplied to the business are engaged;
• consider adding clauses in contracts with umbrella companies requiring them to produce relevant details and documentation;
• check payslips to make sure PAYE is being operated on the full amount received by the worker;
•  exercise extreme caution if working with umbrella companies that are offshore or offer financial incentives;
• check umbrella companies’ details and returns filed with Companies House are consistent with information provided to the business; and
• raise awareness of tax avoidance schemes among the workforce.