Healthcare Professionals What are the Risks of Using a Non-Reputable Umbrella Company?

Healthcare Professionals What are the Risks of Using a Non-Reputable Umbrella Company?

For locum doctors and agency nurses, working through an umbrella company off-loads some of the administrative responsibilities that arise when working through an agency. Relinquishing duties surrounding payment and tax allows healthcare professionals to focus on their day to day work and prevents any need to worry about financial issues.

However, as the number of umbrella companies in the United Kingdom grows ever larger, so the competition to attract clients intensifies. Unfortunately, this struggle for supremacy has resulted in some umbrella companies promoting payment models which are potentially very risky.

In an effort to entice new clients or retain existing customers, some firms claim to be able to offer doctors and nurses more money in their pay packets. Now, this offer might sound too good to be true. More often than not, it is.

What are the risks?

Claiming to be ‘legitimate’ and ‘tax-efficient’, some umbrella companies are able to increase an individual’s income by reducing their statutory deduction liabilities. This is achieved by reducing your tax and National Insurance contributions, a move that is illegal and could land you in deep trouble with Her Majesty’s Revenue and Customs (HMRC).

This may leave some thinking: “Surely it is the company’s responsibility to pay tax and National Insurance to HMRC on my behalf, not mine?” Sadly, HMRC does not see it that way. Ultimately, you are responsible for your own tax affairs which include paying the necessary amount of income tax and National Insurance.

Operating through one of these umbrella companies carries a multitude of risks. The schemes on offer are never approved and will always be challenged by HMRC. If you are found guilty of avoiding payments, the penalties can be severe and range from additional tax payments (including interest) to other sizeable fines.

How do these schemes work?

Under the traditional (legal) model, umbrella companies, like agencies must comply with rules around tax and National Insurance, as outlined by HMRC. All payments made must be through the umbrella company’s pay as you earn (PAYE) system. This means that the company’s doctors and nurses receive the same pay as all other agency workers and directly employed healthcare professionals performing the same role, minus any fees stated by the umbrella company.

Unfortunately, some umbrella companies decide to play by their own rules.

In order to boost a healthcare professional’s pay packet, an umbrella company will process a small payment which has tax and National Insurance deducted. The company will then submit a second, much larger payment which has no deductions.

This second payment may originate from a different account to the first, potentially from an overseas provider. The larger payment may also be referred to as something other than ‘pay’ to avoid detection.

Often the company will claim that their scheme is HMRC approved and perfectly legal. Unfortunately, this is not the case.

How to spot a non-reputable umbrella company

Non-reputable umbrella companies can be easily identified, but only if you are able to spot the signs.

Before joining an umbrella company, be wary of any organisation that promises higher levels of ‘take-home pay’. The basic rate of income tax is 20 per cent, so a company that is willing to let you keep 80 to 95 per cent of your wage could be worth avoiding.

Of course, without knowing it, you may have already joined a non-reputable umbrella company. In which case, it is important to monitor your pay closely for irregularities. If only a small percentage of your pay is being taxed, alarm bells should start to ring.

It is also worth noting from which account your pay is being transferred. If your pay is routed through various, unknown companies before it reaches your account, it may be that you are enrolled in a scheme. If this is the case, you may not be paying the right amount of tax or National Insurance.

Avoiding non-reputable umbrella companies

Searching for a reputable umbrella company might sound tricky, but don’t worry, not all organisations operate these schemes. That said, all doctors and nurses are strongly advised to exercise due diligence before joining any umbrella company.

It might be that you have already joined an umbrella company and you are unsure as to whether the firm is operating one of these schemes. If so, it is vital that you seek independent professional advice.

Unfortunately, we are unable to offer guidance on which umbrella company you should use. However, as a leader in compliance, we regularly audit all of the umbrella companies we work with to ensure they are both reliable and trustworthy.

Find out more

If you would like to learn more about using an umbrella company as an agency nurse or locum doctor, please contact our Finance Compliance Team or call +44 (0) 1756 702 226 or 0845 340 876 and select option 1.

Alternatively, why not find out more in our agency nursing pay rates and payment guide.