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Duo of umbrella companies put agency staff at tax risk

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Peninsula Team, Peninsula Team

(Last updated )

HMRC has warned that two more umbrella companies, Pay Rec and Prime Umbrella Services, are paying agency staff without income tax and National Insurance.

The umbrella agencies hire the staff under dubious contracts and leave the workers exposed to the risk of HMRC investigations.

There are now over 60 umbrella companies on the list of agencies paying staff tax free but so far none of the businesses have been taken to court by HMRC to strike them off or wind up their activities.

Pay Rec is a Manchester based business which was set up in October 2021 with a sole director Daniel Asad-Hamed. The agency’s micro accounts’ filing for year end October 2022 on Companies House claims that it has 97 staff and current assets for the year of £610,326. He is also a director of two other companies, TMT Consultancy and Unity Services Marketing.

People hired for work through Pay Rec enter into an employment contract with the agency and are told they will be paid with a mix of national minimum wage with tax deducted and a tax-free advance bonus payment. On the company’s website it states that their ‘service is for contractors and freelancers who appreciate communication and a straightforward service. We engage with your agency and clients invoicing for the work you’ve done and taking care of all your tax and National Insurance obligations’.

However, in reality the work contracts result in much of the pay avoiding tax. Users have to sign up to a tax avoidance scheme to work for the agency. As a result, the element of the pay attributed to the bonus scheme, described as an advance against future bonus payments, is paid tax free without income tax and NICs deducted.

HMRC said that the ‘advances’, paid against future bonus payments, are ‘no different to normal income, and are therefore taxable’. HMRC has previously published guidance for agency workers and contractors employed by umbrella companies in Spotlight 60, issued in August 2022.

London based Prime Umbrella Services Ltd has a sole director Adam Whitehead and was set up in October 2019. The latest accounts showed turnover of £954,431 for year end March 2022 and has 119 staff.

It runs the avoidance scheme through Wilson Costello Limited, run by director Jonathan Milne and set up in December 2019. The annual accounts show a turnover of in excess of £1.2m with no employees. Milne was previously a director of Prime Umbrella Solutions & Services Ltd, which was dissolved in November 2019.

Both companies are based at the same address in the City of London and use Cheshire based Griffins Accountants for their accounting requirements.

The arrangements involve a user providing their services to end clients/recruitment agencies through Prime Umbrella Services Ltd and receiving two payments, one equivalent to national minimum wage or, if applicable, the national living wage (NLW) salary and a second payment, described as a ‘pass through item’, on behalf of Wilson Costello Limited.

The result is that the total remuneration for the users’ services is artificially separated into two payments. The first is a salary with tax and National Insurance contributions (NICs) deducted, and a second payment which is made without tax or NICs deducted.

Anyone signed up to these schemes should ensure that they are paying the correct income tax and NICs on their annual self assessment tax returns.

These schemes are high risk and are viewed as tax avoidance by HMRC with no reason whatsoever as to why the payments are made tax free.

For more information on agency workers, visit BrAInbox today where you can find answers to questions like Can agency workers claim discrimination?

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