“You might be involved in a tax avoidance scheme”: The HMRC letter received by agency social worker, EL, shortly after joining an umbrella company

Working in the adult social care sector for 25 years, and spending ten years in social work roles across a number of local authorities, EL had only ever experienced her payroll being managed by the local authority she worked for. During Covid, she made the decision to explore other career options and moved to agency social work. She appointed an umbrella company, through recommendation of her agency, to manage her payroll and was stunned when she received a letter from HMRC to tell her she may be involved in a tax avoidance scheme.

“I toyed with the idea of agency for quite a few years, but never really had the guts to do it and press the button until Covid came along and I thought I would try something different.

“I did quite a lot of research on agencies and then a social work agency was recommended to me and I looked into them and decided to sign up. They did a lot for me in terms of setting everything up, but I didn't know anything about the payroll side.

“My assumption was the agency just did it for you. So, in a very general conversation, they asked if I had an umbrella company and I said I didn’t. The agency went on to ask if I’d like for them to recommend one, so I said yes, and I thought it was as simple as that.

“I later realised that the person from the agency received a referral fee for recommending me to this umbrella company and probably received a few hundred pounds.

“I was put in touch with this umbrella company and received a phone call where they talked me through two different payment options offering high take-home pay. I was confused because there were two amounts that you popped out with at the end of the week, and it wasn't really making any sense.

“I kept asking ‘what leads to this amount and what leads to that amount?’ And human nature, you kind of get tempted by what sounds like the nicer amount.

“They explained it away by saying that some of my pay will be paid as part of a bonus scheme. I still didn't really know what that meant, so I asked for that to be sent to me by email so I could show it to my partner and try to understand.

“The email never arrived.

“I received an offer of a job not long after and so proceeded with the umbrella service after colleagues reassured me.

“I remember seeing my first payslip and seeing that it didn’t match the money that had gone into my bank. I emailed them and tried to get an explanation which followed by a series of calls.

“I started to realise they would only ever communicate with me over the phone. Over the next few months I continued to have a gut feeling something wasn’t right.

“I'd obviously gone from being permanent, from paying hundreds of pounds a month in tax and national insurance and suddenly had a few hundred pounds more each month. I couldn’t get to the bottom of why the figures in my bank didn’t match up with my payslip.

“Then it came to a head because an envelope came through the letterbox from HMRC, ‘We think you're involved in a tax avoidance scheme’.

“It made me feel ill. I had other agency social work colleagues who were reassuring me of this umbrella and I started to worry how many people this could effect.

“I called the agency who recommended the umbrella and they said payroll was nothing to do with them and it was separate. So then I called the umbrella company and they provided me with a choice to stay or leave, still with no explanation.

“I’d joined BASW initially for the insurance and extra protection it provided around 18 months before and I remembered I’d seen an advert in the Professional Social Work Magazine about an umbrella company; Social Work Employment Services.

“I got in touch and they answered all my worries and fears straight away. They sent me follow up emails, gave me an example payslip and were totally transparent about everything.

“You pay them one set cost for an absolutely excellent service.

“I had the niggling doubt and as social workers we are told to trust our gut feeling. And on this one I did as well, and I'm glad.

“I'm happy if it's not quite as fruitful at the end of the week because I know I'm being paid what I should be paid nationally.

“I’ve been with Social Work Employment Services 14 months now and have received a letter from HMRC to say everything is up-to-date.

“Luckily, I had only done three or four months before I got the letter. Luckily for me, I didn’t get a huge tax bill and I found an umbrella company above board who are always there when I need them.”

HMRC’s ‘Tax avoidance - don’t get caught out’ campaign

HMRC’s ‘Tax avoidance - don’t get caught out’ campaign helps contractors who are self-employed or employed through an agency understand their pay arrangements so they don’t get an unexpected tax bill.

You can use the HMRC risk checker to check your risk of being involved in tax avoidance if you're an agency social worker.

HMRC also offer a number of resources to support agency workers such as how to spot the signs of tax avoidance and find out how to check your payslip to make sure you are not involved in a tax avoidance scheme.