What if I use a non compliant umbrella company?

These are some of the stories from real life contractors who are facing additional tax bills. And on top of that penalties, plus interest from using a non compliant umbrella company…

“To be honest going with Edge is the worst mistake of my life – like many of u i am an average family guy and if I have to pay the liability it is going to cost me my house and place an emotional burden on my family that I’d like to think we can deal with but but in reality I cannot contemplate – sorry love we need to sell the house because i did something which wasn’t illegal but is now seen as illegal by HMRC?”

Too Good to be True!

There is an old saying ‘if it seems too good to be true it very probably is’. People obviously want the best for themselves and their families. But you have to be sensible; tax rates start at 20% in the UK and rise to 45%! So a 90% take home will obviously fall under that category.

“I hear what you are saying about the emotional stresses – I’ve had too many sleepless nights and depressing days. I regret going down the EBT route, but what is done is done.”

HMRC Investigations

Unfortunately HMRC investigations often take a very long time (years rather than months)! So the sort of stress and anxiety felt is unlikely to be short lived.

“They do indeed seem to be staggering these .. I came home to an HMRC assessment (in the tens of thousands) on my 08/09 SANZAR engagement, on Friday evening, to ensure I had a sleepless weekend.”

Tax Liabilities

HMRC do not only consider your tax liabilities for a single year; they are likely to investigate your tax affairs, in minute detail, covering several years. The bill that subsequently follows may then be issued for each of those years.

“I received the dreaded 08/09 letter a month ago…I am extremely worried about this as the amount requested is very large & only relates to part of my time with them.”

“They [HMRC] did dismiss the fact it had a fully disclosed DOTAS,stating :- “HMRC does not approve any scheme designed to avoid tax”.

DOTAS (Disclosure of Tax Avoidance Schemes)

As HMRC have advised this contractor… just because a scheme has been registered DOTAS (Disclosure of Tax Avoidance Scheme) it does not mean that they have approved the scheme. It certainly does not mean that your tax affairs won’t be investigated at a later date.

“I contracted through this lot between 2003-4 and since then have been out of the UK. Just received a Notice of Further assessment from HMRC “Special Civil Investigations” department for approx 20K for the year to April 2004. Interest is also payable (although not detailed) from Jan 05 and a “surcharge” may also be payable. I tried to telephone/email Consulting Overseas but the phone goes to voicemail and the emails bounced. When I signed up they said the scheme was watertight .. had been approved by their tax lawyers etc.. etc.. Obviously not!

Tax Avoidance Schemes

Many companies that start tax avoidance schemes or non compliant umbrella companies, do so to make a quick buck. They then disappear when the going gets tough, leaving the contractor with a big bill and a lot of stress. A lawyer may state that a scheme is ‘watertight’ but this will cut no ice at a tax tribunal. It will be up to a Judge to decide.

“The problem with these investigations is that they can drag on for years. The Montpelier one has been going on for 5 years now without a resolution. If the Revenue ultimately wins then you face interest penalties (currently 8.5%) on top of the back tax”.

Unfortunately, the tax debt you start off with won’t necessarily be the one that you end up with. Ultimately you will end up paying far more than you would have had you not used the scheme in the first place!

“I was also contacted by the Revenue letting me know that they intend to enquire into my tax returns (specifically income received from the Amazon partnership). After reading through the information on this site I fear I’m in a real mess and have lost sleep over not being sure what action I should take”.

Once HMRC have contacted you to say that you owe thousands of pounds worth of tax… what do you do then? Contact an accountant? A lawyer?

Whatever you decide it will cost you, possibly more than you saved from using the tax avoidance scheme.

“the impact to me is stress with my wife not having “certainty over our tax affairs” so a house extension and kids university support on hold until its resolved …”

Tax investigations don’t only impact the individual concerned, they also affect their families; the major factor is uncertainty about the financial future. Worrying about what you will have to give up to clear your debts.

“My wife also wrote her own letter to him (that I enclosed in a separate envelope) describing the emotional, physical and psychological stress that this is putting our whole family through. She didn’t go into any of the S58/BN66 facts, as they’re in my letter, but gave her very personal view of our honest and ethical lifestyle compared to what has been done to us and the effect it is having on our relationship and our 4 children.”

So, do you still want to use a tax avoidance scheme / non compliant umbrella? Or does “Guaranteed Take Home 90%” sound a little bit hollow now? It’s certainly too good to be true!