Tax campaigners are calling on HMRC to clamp down on firms who force workers to incorporate, to avoid having to pay Employers’ National Insurance payments that would otherwise be due if the workers were paid via the PAYE system.
The Low Incomes Tax Reform Group says that while much media attention has been focused on the use of so-called ‘personal service companies’ by high profile public sector staff, there are a growing number of ‘ordinary’ workers who are being forced into using limited companies by unscrupulous employers.
Workers forced to use personal service companies
The Group says that many low to middle-earning workers (including construction industry, teaching and cleaning staff) are informed by recruitment agencies that they must work via their own limited companies, rather than being employed directly via the agency itself, or a client.
Not only are these firms avoiding their employment law obligations by forcing workers to incorporate, but they are typically doing to to avoid paying Employers’ National Insurance Contributions (NICs) on workers’ earnings.
The Group says that workers who do incorporate are often unaware of the implications of becoming a company director, and may well be caught by anti-avoidance legislation at a later stage – and asked to pay pack taxes, and penalties.
Some workers encouraged to work via an umbrella company may also find that business travel and subsistence expenses may have been deducted from their gross pay, when no such expenses have been incurred (allowing the umbrella scheme to avoid meeting their Employers’ NIC obligations). HMRC may later pursue the individual for any back taxes subsequently found to be outstanding, rather than the umbrella company.
HMRC not doing enough to tackle the problem
The Group’s chairman, Anthony Thomas, suggests that HMRC are not using their powers to clamp down on recruiters who force workers to use unfamiliar business structures as a condition of securing work.
“HMRC must have the capability to go after the organisations that wrongfully force individuals to use personal service companies to obtain work.
“The fact that these schemes continue to proliferate suggests not enough is currently being done, either on the information front or on the compliance side.”
The Group itself is an initiative of the CIOT (Chartered Institute of Taxation). You can find out more here.