Like nuclear fallout, the contractor loan schemes that were offered in the past still continue to have an affect on those that used them.
We have posted about these loan schemes in the past warning contractors about the use of these as well as the grey area caused by name changes and workarounds used to fool those that are offered these schemes.
When HMRC introduced the policy to combat these schemes and reclaim the unpaid contributions, many self employed and contractors were affected. The policy effectively adds up third-party loans paid since 2010 and taxes them as income. This has meant unexpected and substantial bills for many workers.
Still In The News
In a recent article published on the BBC’s news website, an anonymous contractor claimed he received a bill for £180,000 in unpaid taxes. This demand was the result of using a loan scheme that promised him an 85% take home of his wage. Based on our own experience talking with contractors, the percentage offered is usually around the 90% upwards which is provided to ensure the quote received is appealing to the contractor. Unfortunately there are no details regarding how the loan scheme was run as well as no confirmation on how the payslip and deductions were presented.
This article can be found by clicking here.
We always advise contractors that are shopping around for quotes to ask about ANY deductions, be it HMRC or umbrella. When getting quotes from multiple umbrellas all should be similar in scope with the fee being the only financial difference. Based on the amount a contractor owes, the amount that HMRC takes should always be the same across all services if the quote is based on the same tax code for calculations. Any providers that offer a higher take home and reduced contribution amounts should set the alarm bells ringing. This is also likewise for any quotes that can not give a breakdown of deductions.
There will always be unscrupulous companies that will offer schemes that provide a higher take home for contractors. These loan schemes will come and go under various guises just as the companies will appear, take the money and then disappear overnight just to surface again under a different name.
We urge all contractors to be wary, ask questions and ask for breakdowns and always look for the FCSA badge of approval when looking for an umbrella service.