Another umbrella company caught in a tax avoidance scheme. The scope of damage yet to be determined

The latest discovery by HMRC of an umbrella company servicing contractors is likely part of a tax avoidance scheme is a stark reminder to freelancers and temp workers that they must do background research on an umbrella company’s Companies House profile before signing up. HMRC won’t proactively do it, so you have to.

A Sidcup-based umbrella company, MLG Pay Limited, has landed on the notorious list of tax avoidance promoters compiled by HMRC, according to news reports. This means they’ve been flagged or using dodgy schemes to pay contractors less tax than they should.

What does this mean for you?

• If you’re working through MLG Pay, there’s a good chance you’re not paying the right amount of tax on your income. This could lead to nasty surprises down the line, like hefty fines and back tax bills from HMRC.
• Even if you haven’t encountered any issues yet, it’s always a good idea to steer clear of companies with a tax avoidance reputation. Remember, if it sounds too good to be true, it probably is.

Here’s what you need to know:

• MLG Pay was set up in 2021 and primarily serves contractors, freelancers, and temp workers.
• HMRC believes the company is using a “disguised remuneration” scheme, where part of your pay is disguised as something else (like loans or dividends) to avoid tax.
• While the company may initially seem attractive due to lower tax deductions, the consequences can be severe. Not only will you eventually have to pay the unpaid taxes, but you could also face penalties and interest charges.

Red flags you can spot

While founder Michelle Louise Grey runs MLG as a solo operation, offering umbrella services to contract workers, freelancers, and temps, their lack of direct employees and simplified financial filings on Companies House leave the company’s true size shrouded in mystery. Despite this opacity, their website promises to handle PAYE and National Insurance deductions, delivering net salaries to workers upon client payment.

MLG Pay promises

What can you do?

• If you’re currently using MLG Pay:
  • Contact them immediately and ask for a full breakdown of your tax deductions and payments.
  • Consider switching to a reputable umbrella company with a clean tax record.
  • Inform HMRC about your situation to avoid any potential penalties or fines

Always be cautious about umbrella companies offering suspiciously low tax deductions. Choose reputable providers and double-check your tax liabilities to avoid any nasty surprises from HMRC.

Here is the latest HMRC list of umbrella companies that have been earmarked for suspect tax avoidance.

OP-Ed

By leveraging AI for background checks, HMRC could potentially improve its ability to identify and address risks associated with umbrella companies, ultimately protecting workers, promoting tax compliance, and safeguarding public finances.

However, that takes investment, fairness an unbiased approach. The last thing freelancers want is AI hallucinations creating automated tax investigations on faulty information either about your umbrella company’s compliance or you as a freelancer. This begs the questions, should freelancers take part in the development of HMRC’s AI umbrella compliance software?

Read our article: 25 Reasons why HMRC could use AI for umbrella company background checks