Despite all the warnings in the national press concerning HMRC actively chasing payment for outstanding tax and National Insurance due against income disguised as loan schemes, there are still a number of schemes that aggressively target professional contractors by touting ‘higher take-home pay.’ These schemes typically operate by paying a small portion of contractors’ earnings via PAYE and then disguising the remaining, larger part of their income as something else, often an offshore loan. Most of these schemes are questionable at best, or downright unlawful at worst. Any scheme that sounds ‘too good to be true’ almost always is.

Although the companies behind these schemes are suggesting they can reduce contractors’ tax and NICs, in reality anyone joining these schemes will be personally liable to pay both these levies to HMRC, themselves, personally. The unpaid tax and NICs soon adds up, and by using such a scheme, individuals are putting themselves at very significant personal financial risk. Indeed, HMRC will usually just backdate any charge for unpaid taxes to the very date that the individual signed up to the scheme. Once these fines and interest are added, the total tax bill becomes exorbitant.

We would strongly advise you to please DO NOT sign-up, register or join any such scheme or a variant of it.


  • Their marketing is very, very convincing but quite simply — don’t believe anything that they tell you.
  • Just because they claim they are compliant with HMRC, or tell you such on an email, that does not mean that they are compliant with HMRC.
  • Anything stating “HMRC Approved” is a red flag, as HMRC does NOT approve ANYTHING.
  • Anything stating or requiring a ‘QC’ or ‘tax barrister’ opinion or approval is a red flag, because compliant operations simply don’t usually need such assurances.
  • Scheme providers are very, very unlikely to support you if HMRC investigates.
  • Schemes are right now deliberately and aggressively targeting susceptible workers, who have had their income reduced as a result of both tax changes in the public sector (IR35 off-payroll working rules) and the 2019 Loan Charge.

HMRC have published their own advice into these ‘disguised remuneration schemes’, most notably in Spotlight 45 which explains how to spot a tax avoidance scheme and Spotlight 50 which outlines the methods some providers are using to try to get around the 2019 Loan Charge.

According to HMRC: “These arrangements aim to disguise the use of loans by transferring assets rather than actually making a genuine repayment. They are deliberately designed to try to avoid the loan charge. If you use these arrangements the loan charge will still apply and you may face a significant penalty in addition to the tax charge.”

Sometimes the types of schemes preying on contractors label themselves as “umbrella”, but they are not umbrellas in the conventional sense. They are actually bringing the valuable, legitimate umbrella company sector into disrepute. A true umbrella employs the worker directly themselves, on their payroll, while giving the worker flexibility to work for numerous end-hirers. So the worker effectively has an ‘umbrella’ of employment benefits and rights that they take with them wherever they work. More crucially, an umbrella will always pay 100% of the individual’s gross pay through RTI payroll.

Hallmarks of a compliant umbrella
So that offer in your inbox saying you’d be silly to turn it down; does it or the company behind it…

  1. Employ you?
  2. Give you all statutory rights and benefits of employment (holiday pay, sick pay, pension etc)?
  3. Give you the flexibility for engagement with numerous different end-hirers?
  4. Consolidate your pay from numerous hirers into one pay packet?
  5. Process the full amount of your gross pay through PAYE?

If you answered ‘yes’ to ALL these five questions, you have a genuine, bonafide, legitimate umbrella company emailing you – it’s not a scheme at all. But if you didn’t answer ‘yes,’ move the email to your ‘junk’ folder, because that’s how you should treat it – it’s not a compliant firm; there scheme is potentially unlawful and they are storing you up significant financial pain in the future, so for the good of your financial health and well-being, steer clear.