Career advice

Agency nurses beware the false lure of tax umbrellas

An arrangement that offers agency nurses quick payment and more money in their pocket than usual sounds tempting – but there’s a catch

An arrangement that offers agency nurses quick payment and more money in their pocket than usual sounds tempting – but there’s a catch

Picture: iStock

Agency nurses working in the NHS have had a tough time recently. As well as caps on how much they are paid, they are increasingly being caught by regulations that mean they have to pay tax as if they are an employee and cannot offset expenses, such as travelling to work, against tax.

These regulations – known as IR35 – have led some to turn to umbrella companies to process their pay. Messages on nurses’ forums suggest that some nurses have been told they would receive very high percentages of their gross pay in their pocket – far higher than would be expected after tax and national insurance (NI) are deduced.

An umbrella company pays the nurse – often within a week or so of an assignment – and bills the agency, which in turn bills the trust. Some umbrella companies pay holiday pay weekly, which can inflate the amount in nurses’ pay packets. In return for their service, they deduct a charge from the nurse, often a set amount per week.

Warning by tax officials

The arrangement can free nurses from some of the administration involved in agency working, and speed up payment, but tax officials are warning nurses and other contractors to be wary of any suggestions that there are tax, NI and expenses benefits in using an umbrella company – claims which reputable umbrella companies won’t make.

‘These arrangements do not work, and workers can find themselves facing tax arrears, plus additional interest and penalties. We are actively targeting those using these schemes to try and break the rules,’ says a spokesperson for HM Revenue and Customs (HMRC).

‘Some schemes promise to lower your tax bill for little or no real cost. They will say you do not have to do much more than pay the scheme promoter and sign some papers.’

Claims for unpaid tax

Some umbrella schemes have tried to use elaborate schemes in the past, such as trusts making loans to workers, to avoid paying tax. HMRC is adamant it will crack down on these and ensure that full tax is paid.

The union Unite has called for umbrella companies to be banned.

The bad news for nurses is that if the wrong amount of tax is paid, it is not the umbrella agency which is liable – it is likely to be the individual contractor. And HMRC can claim unpaid tax dating back six years.

Nurses who want to work with an umbrella company should make certain they know what they are entering into – and that they are not at risk of a large and unwelcome bill years later.

Alison Moore is a freelance journalist

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