UK – Personal Service Company contractors more likely than umbrella contractors to pay professionals for tax help
03 October 2022
While most contractors in the UK received at least some help on elements of tax, there were differences between Personal Service Company (PSC) and umbrella contractors, according to research from IFF Research.
The HMRC commissioned IFF Research to conduct research into contractors and disguised remuneration tax avoidance schemes.
The majority, or 92%, of the PSC contractors said they paid for help from an accountant, tax agent or bookkeeper, compared to 21% of the umbrella contractors. Meanwhile, most, or 78% of umbrella contractors paid their tax via PAYE operated by their employer, agency or umbrella company, compared to 10% of PSC contractors.
The research also found that while most contractors sought advice on tax, not all of them did. One in five, or 19%, of umbrella contractors and 8% of PSC contractors reported that there is no scenario in which they would seek tax advice. An additional 2% of umbrella contractors and 1% of PSC contractors said that seeking advice was not an option for them. This was usually because they didn’t know where to access or to ‘proactively’ seek advice.
A number of reasons prompted contractors to seek advice. Both PSC and umbrella contractors were most likely to cite a change in tax rules (77% and 52% respectively), the need to submit a ‘Self Assessment’ tax return (68% and 50%), or someone telling them they could pay tax in a more efficient way (56% and 51%) as a reason they would seek tax advice.
Meanwhile, 31% of both PSC and umbrella contractors have, in the past, been offered or told about at least one way of managing their tax which was described to them in a way that suggests it may have been a potential tax avoidance scheme. PSC contractors were as likely to have been exposed to advice or an offer that offered to increase their take home pay for the same work (19%) as they were to advice which offered to reduce tax admin or effort (also 19%). Umbrella contractors were more likely (24%) to have been offered ways to increase their take home pay for the same work than ways to reduce tax admin or effort (16%).
Across both types of contractors, the most common reason in the survey for signing up to potential avoidance schemes was that it seemed like it was within the tax rules and legal.
As for why contractors reject such arrangements, 73% of PSC and 60% umbrella said ‘seeming too good to be true’ was the most common reason for rejecting potential schemes seen through advertising. Contractors were also often not sure if these advertised schemes were within the tax rules or legal (69% PSC; 64% umbrella), and often saw them as too risky (62% PSC; 45% umbrella).