Your responsibilities

Many umbrella companies follow the tax rules, but some do not.

Some Theseclaim companiesthat:

• their maytax tryarrangements toor attracttax youavoidance byschemes claimingare thatHMRC you’llapproved
• you bewill able to take home a higher percentage of your pay.
  pay

YouIf needan toumbrella understandcompany howtells you getthat paid,some toof makeyour sureemployment youincome areis not involvedtaxable, inthis acould taxbe avoidancea scheme.sign Checkof that your payslip includes all your income, and that tax and National Insurance have been correctly deducted.avoidance.

ReadWhile moreyou aboutcheck howyour andpayslip, whatyou you’llcan getalso paiduse whenthe workingHMRC throughtool to help you work out pay from an umbrella company.

What to look out for on your payslip

IfAs an employee working through an umbrella companycompany, paysyou need to know what to look out for on your payslip. This will help you morework thanout if you’re involved in a tax avoidance scheme.

Check your payslip has the amountcorrect:

• hourly shownrate of pay
• hours worked
• gross and net (take home) pay
• deductions from your salary

These can often look correct on your payslip, itso couldyou’ll also need to look for these on your reconciliation and pay statements.

PaymentsLook describedfor assigns loansof orextra expensespayments

YouLook mightout receive for:

• extra payments into your bank account
• text andmessages antelling email to confirm you haveabout receiveda anseparate amount of money
• payments innot loans.processed Thisthrough couldPAYE be— check your reconciliation statement, or a signpayment ofsent taxto avoidance.
  your bank account
• a high umbrella company fee — look on your payslip to find this fee

These payments might be described as one of the following:as:

• loanloans
• annuityannuities
• bonusbonuses
• profit shareshares
• fiduciary receiptreceipts
• credit facilityfacilities
• capital paymentpayments
• capitalpay advanceadvances

SomeYour payslipspayslip will not may:

• show allonly the payments madepaid bythrough thePAYE umbrella— company,to particularlymake whereit theylook involvecompliant loan-typewith payments.the Yourtax paysliprules
• not mayshow onlyall showthe payments paidmade throughby PAYE,the toumbrella makecompany it— lookif compliantthey withinvolve thedifferent taxtypes rules.
  of payments

You should lookalso outcheck:

• the renumeration section of your assignment contract
• your contract of employment for anythese types of payments that— haveas notthey beenmay subjectbe tolegitimate PAYE.if Iftaxed

Look thefor an umbrella company tellsfee

Umbrella thatcompanies somecharge ofa yourmargin employment(fee) incomeeach istime notthey taxable,process thisyour couldpay beto acover signthe costs of taxusing avoidance.their services.

ForLook example,out yourfor payslipa mighthigh showumbrella non-taxablecompany payments,fee described(or asmargin). expenses,Umbrella evencompanies thoughthat youoperate havetax notavoidance claimedschemes anywill work-relatedoften expenses.charge higher fees than legitimate umbrella companies.

 
Check calculatefor thesethis willfee vary.on your: 

If

• payslip 
• reconciliation you’restatement 
• pay charged fees

statement 

IfThis you’remay chargedbe feestax byavoidance when: 

• the companyfee or personmargin sellingvalue theis arrangementsimilar forto theirthe services,tax theseor feesNational mayInsurance notcontributions alwaysyou should be visiblepaying
• the onumbrella yourcompany payslip.keeps Theya shouldmuch havelarger toldmargin youthan aboutother thesecompanies
• deductions feesare whengrouped youtogether signedon your contract.payslip 

This fee does not contribute to your tax or National Insurance contributions payments.

You shouldcan compareask thesefor: 

• a feesbreakdown withof otheryour companies,deductions to makehelp sureyou understand what they’re for 
• a key information document if you’re working though an agency — this will provide you arewith notthe payingdeductions higherand thanfees, your assignment and contract rates, and how they affect your gross and net pay

Check the normalpayslip fees.examples Thisto help you

Every payslip is different, but we have included some examples of what to look for on your payslip that could be a sign of tax avoidance.

Payslip examples

JoeYou iscan ause supplythe teacher Payslip and isreconciliation paidstatement monthly.examples (ODT, He27 worksKB) ato 40-hourhelp weekyou andidentify isthe paidexample £14of perdisguised hour.remuneration Joetax worksavoidance, throughincluding ana umbrellasummary companyof forsome ancommon agency.key terms.

Example of a correct payslip 

TheThis 2is examplesan example of payslipsthe forfigures you’d expect in the monthincome endingsection Julyon 2021a showcorrect differentweekly amountspayslip.

The oftable netshows paywhat (alsoyou’d knownsee asin take-homethe pay).income section.

Payslip

Description	Rate	Units 1(hours)	Amount
Basic —pay	£18.89	37	£698.93
Holiday apay	0	0	£84.16
Total standardgross payslippay	0	0	£783.09

The hourly rate forof Joepay showsis on£18.89 payslipan 1hour as(reduced £14from an£25 hour.assignment Therate totaldue hoursto workedcompany showscosts 173.33and holiday pay).

You pay tax and National Insurance contributions on the total netgross paypay.

The table shows £1,878.98.what you’d see in the deductions section.

Description	Amount
	£108.24
National showsInsurance	£43.29
Pension	£26.53
Total thedeductions	£178.06

The correcttotal amountdeductions of pay£178.06 andare deductionstaken forfrom Incomethe Taxgross andpay Nationalof Insurance£783.09 contributionsleaving thata Joenet shouldpay be(take expectinghome topay) see.of £605.03.

PayslipExample 2of — a payslip involving tax avoidance

The table shows 173.33what andyou’d see in the totalincome netsection.

Description	Rate	Units (hours)	Amount
Basic pay	£12.21	37	£451.77
Holiday showspay	0	0	£54.53
Total £1,314.34. gross pay	0	0	£506.30

PayslipThe 2rate of pay is anthe exampleNational Living Wage (NLW) rate of what£12.21. couldThe bepayslip seenshows ifthat Joetax usedand aNational disguisedInsurance remunerationcontributions taxare avoidancepaid scheme.on the total gross pay.

What

The aretable theshows differenceswhat betweenyou’d see in the payslips

deductions section.

Description	Amount
PAYE (Tax)	£52.80
National Insurance	£21.14
Pension	£15.45
Total deductions	£89.39

PayslipThe 2total differsdeductions of £89.39 are taken from payslipthe 1gross because:pay of £506.30 leaving a net pay of £416.91.

Why this payslip shows tax avoidance

Joe

The hascorrect beenamount paidof attax theand National MinimumInsurance Wagewas rate,taken whichbased giveson himthe agross lowerpay netshown pay

Joe’son employerthe haspayslip. notTo usedmake histhe actualpayslip hourlylook compliant, the employer used the NLW rate instead of £14the ancorrect hour

the£25 hourly rate.

The rest of Joe’sthe salary gets(an extra payment of £204.29 not shown on the payslip) was paid directly into histhe employee’s bank account aswithout any tax or National Insurance deductions.

This suggests a loandisguised remuneration tax avoidance scheme was used, because:

• you pay less tax and National Insurance — the employer uses the lower NLW rate
• your gross pay is reduced lowering the amount of £882.25,tax whichand National Insurance taken
• the extra payment of £204.29 is paid into your account but does not appear on hisyour payslip

Both payslipsand showis not part of the correctPAYE amountcalculations of— tax and National Insurance contributionsmight havestill beenbe deducted,owed based on thethis grosshidden paypayment

The shown.extra However,payment forinto payslipyour 2,account Joecould usedeither be:

• paid separately
• combined with the £416.91 salary as a disguisedsingle remunerationsalary taxpayment

How avoidancethis scheme.affects Heyou

The paideffects lessof tax andavoidance Nationalmean:

• your Insurancepension contributions,contributions becauseare less
• the loanemployers waspension notcontributions includedare inless
• your PAYEfuture calculations.
  pension payments will be less at retirement

TheWhat riskshappens ofif usingyou use a tax avoidance schemesscheme

Using an umbrella company that claims you’ll be able to take home a higher percentage of your pay is very risky.

If we find out that you’ve usedbeen using a tax avoidance scheme, you’llyou may be personally liable to pay:

• the tax and National Insurance contributions that are legally due
• interest on tax legally due
• any associated penalty

These payments are in addition to any fees that you have paid to those selling the scheme.

Due diligence

UseCheck oura toolslist to:

• checkof ifthe younamed are at risk of tax avoidance schemes
• work outwe payknow from an umbrella company

about. 

HowGet tohelp reportand an umbrella companysupport

If you’re concerned about thea schemesscheme you’re currently using, you can:

• get independent professional tax advice
• contact HMRC by email: CAGetHelpOutOfTaxAvoidance@hmrc.gov.uk

You can also read guidance on the Money Helper website about understanding your payslip.

Reporting tax avoidance

You should report any tax avoidance arrangements to HMRC.

Add the reference ‘TAC’ when you describe the activity on the online form,form or give this reference when you call HMRC.call.

More information