HMRC issues brief on umbrella firm crackdown

Date: 18th August 2009

HM Revenue & Customs (HMRC) has released a new brief, discussing its concerns about the tax status of UK umbrella companies.

A range of issues were mapped out by the document, including the potential for ineffective overarching employment contracts and illegal actions from management.

In particular, the use of so-called "expense payments" made free of tax, where no expense had in fact been incurred, was highlighted as an area of future focus for the authority.

HMRC has also indicated that it will be using existing rules to enforce its crackdown on the companies, rather than push for new legislation on the matter.

Speaking to Shout 99, former tax inspector Bob Jones said: "There are some umbrellas operating without robust overarching contracts, without adequate checks that expenses have been incurred, without adequate audit trails where expenses have been incurred and using salary sacrifice to pay below the minimum wage.

"Those responsible umbrellas who comply with all their legal obligations simply cannot compete with those who do not."

Umbrella firms are limited companies which employ temporary contractors who have themselves been recruited by an outside agency.