UK tax collectors crack down on umbrella companies • The Register

Britain’s Tax Collection Agency is cracking down on umbrella companies used by contractors to pay their fees, with 10,000 pending court cases waiting to be heard.

That’s according to Pinsent Mason’s right-wing eagles, which say the number of specific cases has increased sevenfold over the 12 months from the 1,200 recorded at the end of June 2021.

“With a large number of umbrella companies suspected of VAT avoidance, the backlog in the tax courts has grown massively in a very short period of time,” Steven Porter, a partner at the law firm, said in a statement The registry.

“Contractors wishing to register with an umbrella company should be aware that the umbrella company will likely have to pay VAT. HMRC will be suspicious of any claims to the contrary,” he added.

The government’s introduction of the IR35 tax reform in April 2021 in the private sector made companies using freelancers responsible for the taxes their contractors were supposed to pay. This in turn has led to a massive increase in the use of umbrella companies by freelancers, including tech hands-for-hire.

Using an umbrella company gives contractors the opportunity to have an employer to take care of tax returns etc while still having some flexibility to work on a contract basis.

“HMRC (Her Majesty’s Revenue & Customs) and the Tribunal are keen to clear the backlog of court cases quickly – HMRC is confident they will win and proceed to collect the VAT they feel owed,” Porter said.

“HMRC sees contractor tax affairs as an area where it misses out on a lot of unpaid tax. Umbrella companies are firmly in the crosshairs,” he added.

IR35 was one of the most emotional topics for Registration number Readers in recent years, as they have to pay taxes like other full-time workers but don’t get the same benefits like vacation or sick pay.

It hasn’t helped that despite the rules being laid, some government departments have been unable to put the reformed rules in order themselves, including NHS Digital and Defra, which were forced to pay bills for unpaid taxes just last month.

A spokesman for HMRC told us:

“We are using our civil and criminal jurisdiction to challenge those involved in the Mini Umbrella Company (MUC) fraud, including the de-registration of tens of thousands of MUCs who we believe took advantage of the flat rate VAT scheme , and the blocking of their access to employment benefits.

“We have made a number of arrests related to MUC fraud and have also taken steps to reclaim input VAT in cases where it is determined that a company in the supply chain knew or should have known there was fraud.”®

https://www.theregister.com/2022/12/05/hmrc/ UK tax collectors crack down on umbrella companies • The Register

Rick Schindler

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