Doctors looking to maintain the tax benefits of PSCs are being enticed to join Umbrella companies offering 65-90% take home pay. It is important before signing any agreement with an umbrella company that you make the necessary background checks.  
What we have found is as below and derived from guidance on the website.

If it sounds too good to be to be true, then it probably is

Disguised remuneration schemes operated by some umbrella companies have the objective of avoiding tax on earned income and national insurance contributions. 

Many of these schemes sound enticing – they will make claims that you ‘take home 80% or 90% of your income’, that ‘you don’t have to declare the scheme’ or even that ‘the scheme is approved by HMRC’ – this is never the case (even if the provider supplies you with a scheme number). They may not be financially regulated. Some examples of such schemes are listed below:

Contractor Loan Schemes

These companies operate by loaning you money instead of paying you a salary, you theoretically avoid tax. HMRC has responded to these by making it a legal requirement that schemes have to be registered and the scheme number put on your tax return along with any benefit you have had, which will then be fully taxed. If you use an unregistered scheme or do not provide a scheme number it will be looked on as tax avoidance and fines result. 

Offshore umbrella schemes

On the basis that money sent offshore is non-taxable, umbrella companies place contractor’s earnings in to offshore investments and the contactor draws down money as available. You are paid a minimum wage through PAYE. 

Umbrella companies making payments via job boards or loyalty points

Contractors employed through an umbrella company operating this scheme are paid in two parts. Firstly, a minimum wage is paid to the contractor with basic tax and NICs deducted. Secondly, the rest of the payment is used to advertise the contractor’s services on a job board for which the worker receives loyalty points in return. The loyalty points are then cashed at a later date with no deductions made for tax or NICs.

HMRC investigations and penalties

Given HMRC’s increasing interest in the schemes that people are using to avoid paying tax, the chances of any such scheme being investigated and closed down is relatively high.
If you opt to use a scheme which is considered to offer a form of tax avoidance, HMRC will fully investigate your tax affairs. You will be treated as a high risk tax payer and not only be asked to pay the additional tax back with interest but will incur significant fines.

Some NHS Trusts won’t employ locums paid via umbrella companies

It is also worth noting that some NHS Trusts operating a direct engagement model may choose to operate via their payroll only or may limit which umbrella companies may be used. 

Make the necessary checks before entering in an agreement with an umbrella company scheme

Holt Doctors does not endorse, investigate or recommend any umbrella company. 

The payment method you opt for is purely your decision. Holt Doctors is able to pay doctors through a number of payment methods – see full details on payment methods here

Please ensure that you fully investigate and assess any umbrella company before entering in to an agreement with them. Request the letter of compliance or expert advice the umbrella company received when the scheme was set up. 

If you have any further queries, please check with your recruiter. You may be required to fill in a disclaimer form in order to verify that you have made the necessary checks and are aware of the potential financial risks.

You can also change from using an umbrella company to PAYE at anytime during the year. Simply let your recruiter know how you wish to be paid going forward and they will update our system for you.

Useful links

HMRC have released a number of useful guidance pieces:

The information contained in this is correct at the time of writing but this article is not maintained.

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