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I'd also be very interested to know whether this is also the case in the other western countries, as this is how several sketchy umbrella companies work in the

by jddj 7y ago

I'd also be very interested to know whether this is also the case in the other western countries, as this is how several sketchy umbrella companies work in the UK. For those unaware, an umbrella company acts as the "employer" of contractors for places like the NHS. It's often required (or perhaps phrased strongly enough as such by the recruiters that it's difficult for a layperson to know whether it's true) to have one, and they charge a fee + withhold income tax and national insurance contributions + pay the salary of the contractor. The sketchy ones have determined that they can pay the contractor minimum wage + a small "loan" each month of the remainder which is promised (verbally only, of course) to be forgiven entirely, and this way charge a higher fee and remain competitive because the contractor is paying minimal tax.

philjohn 7y ago
The UK can, and previously has, clamped down on this kind of thing AND backdated the law as it’s classed as a clarification that they were breaking existing tax law provisions ... in some cases contractors had fines and penalties going back 20 years. IR 35 is what a lot of these companies claim to shield you from ... but it’s notoriously complex.
makomk 7y ago
HRMC cracked down on that recently and sent a bunch of NHS staff bills as large as multiple years of wages, which obviously they can't afford to pay: https://www.theguardian.com/money/2019/feb/16/thousands-of-workers-hit-with-massive-tax-avoidance-bills https://www.theguardian.com/money/2019/feb/16/thousands-of-w... Basically, they they changed the rules so that the entire "loan" counted as though it was forgiven and chargable as income in one lump sum in 2019, meaning that most of it was charged at the higher rate of tax. The astounding thing about this is that as I understand it, the nurses and doctors who're being screwed over aren't generally the ones who benefited financially from this scheme - it was the NHS (effectively the government) which did. The companies running it witheld the tax the employees should've paid but kept it and used it to fund the cost of running payroll plus their profita, meaning the NHS didn't have to pay those costs. A bunch of existing employees were forced onto the scheme in order to keep their jobs too. (There were similar schemes for wealthy individuals in other industries which did cut them in on most of the tax savings though.)
- jddj 7y ago
  Thanks for this. On your second point, from my personal experience (we investigated the scam when it was offered to us before avoiding it based on the bad smell it gave off), my instinct would be to disagree. When we did the calculations, we would have been hundreds of pounds per week better off under the conditions of the scam than if we had paid tax directly as a contractor or under an umbrella company who reported the full salary as a salary. I don't have much doubt that these nurses and doctors didn't benefit financially by only paying [tax and NI on minimum wage + the slightly higher umbrella fee] rather than [tax and NI on their full salary + a smaller umbrella fee]. Although that's not to say that they thought what they were doing was shady, or even that they actively chose that particular umbrella company. I dont see the benefit to the NHS either. If the NHS pays the contractor's salary of £1000/month (under subcontract conditions) to: - Umbrella company A, who then subtracts a fee + withholds (for HMRC) NI and tax for minimum wage before paying the contractor minimum wage + a loan of whatever remains from the £1000 and - Umbrella company B, who subtracts a fee + withholds NI and tax for the full salary before paying the contractor the remainder My understanding is that to the NHS both scenarios look the same (a cost to them of £1000/month), but in scenario A the contractor and umbrella company (through their ability to charge a higher fee than their competitors and still attract clientele) benefit from money which otherwise would have gone to HMRC.

by jddj 7y ago

philjohn 7y ago

The UK can, and previously has, clamped down on this kind of thing AND backdated the law as it’s classed as a clarification that they were breaking existing tax law provisions ... in some cases contractors had fines and penalties going back 20 years. IR 35 is what a lot of these companies claim to shield you from ... but it’s notoriously complex.

makomk 7y ago

HRMC cracked down on that recently and sent a bunch of NHS staff bills as large as multiple years of wages, which obviously they can't afford to pay: https://www.theguardian.com/money/2019/feb/16/thousands-of-workers-hit-with-massive-tax-avoidance-bills https://www.theguardian.com/money/2019/feb/16/thousands-of-w... Basically, they they changed the rules so that the entire "loan" counted as though it was forgiven and chargable as income in one lump sum in 2019, meaning that most of it was charged at the higher rate of tax. The astounding thing about this is that as I understand it, the nurses and doctors who're being screwed over aren't generally the ones who benefited financially from this scheme - it was the NHS (effectively the government) which did. The companies running it witheld the tax the employees should've paid but kept it and used it to fund the cost of running payroll plus their profita, meaning the NHS didn't have to pay those costs. A bunch of existing employees were forced onto the scheme in order to keep their jobs too. (There were similar schemes for wealthy individuals in other industries which did cut them in on most of the tax savings though.)

jddj 7y ago
Thanks for this. On your second point, from my personal experience (we investigated the scam when it was offered to us before avoiding it based on the bad smell it gave off), my instinct would be to disagree. When we did the calculations, we would have been hundreds of pounds per week better off under the conditions of the scam than if we had paid tax directly as a contractor or under an umbrella company who reported the full salary as a salary. I don't have much doubt that these nurses and doctors didn't benefit financially by only paying [tax and NI on minimum wage + the slightly higher umbrella fee] rather than [tax and NI on their full salary + a smaller umbrella fee]. Although that's not to say that they thought what they were doing was shady, or even that they actively chose that particular umbrella company. I dont see the benefit to the NHS either. If the NHS pays the contractor's salary of £1000/month (under subcontract conditions) to: - Umbrella company A, who then subtracts a fee + withholds (for HMRC) NI and tax for minimum wage before paying the contractor minimum wage + a loan of whatever remains from the £1000 and - Umbrella company B, who subtracts a fee + withholds NI and tax for the full salary before paying the contractor the remainder My understanding is that to the NHS both scenarios look the same (a cost to them of £1000/month), but in scenario A the contractor and umbrella company (through their ability to charge a higher fee than their competitors and still attract clientele) benefit from money which otherwise would have gone to HMRC.