HMRC collects over £500m in crackdown on payroll taxes

HMRC collected £524.6m through its investigations into payroll tax abusers last year, and is set to continue its crackdown on disguised self-employment carried out by so-called ‘umbrella companies’.

According to Pinsent Masons, much of the revenue collected by HMRC between 2014 and 2015 was through the taxman’s clampdown on umbrella companies, which often use complex structures to minimise PAYE and National Insurance contributions.

The law firm said that umbrella companies employ contract workers directly, invoice businesses for work they undertake, and pay those workers as employees, or on occasions as self-employed.

Although many of these firms operate within the law, HMRC is cracking down on umbrella companies avoiding taxes via an abuse of travel and subsistence tax reliefs currently available to contract workers.

Some abusive umbrella companies pay contractors national minimum wage and then supplement each individual’s income by paying inflated travel and subsistence allowances or other benefits under salary sacrifice arrangements, thereby significantly reducing the amount of tax and NIC collected by HMRC.

Despite HMRC collecting over half a billion through the directorate, Fiona Fernie, partner and head of tax investigations at Pinsent Masons, believes that the some law-abiding companies could be wrongly affected by HMRC’s investigations.

“The Revenue has been clamping down hard on companies operating these schemes and their efforts are now bearing fruit.

“However, whilst there has undoubtedly been abuse going on, many perfectly legitimate companies and contractors are also being caught in the crossfire, with the result that the entire industry now faces a bleak future.

“The increased scrutiny from the Revenue, alongside new restrictions coming into force this year, will make it extremely difficult for all umbrella companies – even those operating within the law – to function,” added Fernie.