Workers paid via umbrella companies
Umbrella companies are commonly used by employment agencies to pay temporary workers. HMRC are aware that some umbrella companies purport to avoid tax and claim to be able to maximise the worker’s take-home pay.
Legitimate umbrella companies employ workers and pay their wages through PAYE. As an employee of the umbrella company, the worker should have the same employment rights as a regular employee and has a right to a written employment contract. The worker has the right to be paid at least the National Minimum Wage and is entitled to holiday pay.
HMRC have recently updated their guidance which will help temporary staff identify whether the payment arrangements are legitimate, and also sets out their employment rights:
Some workers operating via umbrella companies may be concerned that they have become embroiled in a tax avoidance scheme. This could be indicated if they get:
- A separate payment which they are told is not taxable, such as a loan.
- More money paid into their bank account than is shown on their payslip.
- A payment from someone other than the umbrella company, which has not been taxed.
- Asked to sign another agreement in addition to their employment contract.
The worker may be responsible for paying the tax underpaid. If they have concerns they should be made aware of HMRC guidance in spotlight 60.