As part of its campaign to close down or at least hamstring tax avoidance schemes, HMRC has named two schemes that it considers particularly abusive. Their main aim is to send a crystal-clear message that it will not tolerate these cynical schemes and their promoters.
HMRC are being true to their promise of more aggressive enforcement and shaming of wrongdoers, and for the first time have posted details of two schemes on their website, Absolute Outsourcing and Purple Pay’s Equity Participation Scheme. The tax office also posted a public message that anyone involved with either scheme should exit as soon as possible or risk a large tax bill.
This is the first time HMRC has used brand new legal powers to publicly name tax avoidance schemes and their promoters after promising to do so in a recent campaign. “New legal powers allow us to name promoters and the schemes they peddle much faster, and this announcement is just the first step,” said Mary Aiston, HMRC’s director of counter avoidance.
Tax Avoidance Schemes: Basis of the schemes
Both schemes involve individuals agreeing an employment contract and working as a contractor, HMRC said. The schemes pay contractors the National Minimum Wage, with the remainder of their wage paid through a loan to try to avoid National Insurance and Income Tax.
The Absolute Outsourcing scheme involved users completing an advance or loan deed along with their employment contract. This advance deed is intended to justify the user receiving non-taxable advance payments along with a National Minimum Wage salary. The aggregate payments amount to around 82% of their gross contract earnings.
In the second scheme, Purple Pay (PP) invoice and receive payment from the end user. PP pay the user around 5% of this amount as wages, which is taxed under Pay As You Earn (PAYE). PPL pay around 75% of this amount as an advance to the user under the employee cash flow facility. This amount is not taxed under PAYE, and PPL retain around 20% of the amount as their fee.
Tax Avoidance Schemes: Tax liabilities
“These schemes are cynically marketed as clever ways to pay less tax,” said Aiston. “The truth is they rarely work in the way the promoters claim and it’s the users that end up with big tax bills.” HMRC said it intends to name further schemes and will regularly update the public list of other tax avoidance schemes and their promoters.
HMRC was granted the power to name the tax avoidance schemes under new legislation passed by the government recently. “It will allow HMRC to challenge misleading information that promoters of tax avoidance communicate to taxpayers and release into the public domain,” Mary Aiston said.
Publicising avoidance promoters is one of a number of measures that HMRC is using to help people identify avoidance schemes as a part of the Tax Avoidance – Don’t Get Caught Out campaign. Last month, a company that “aggressively promoted” tax avoidance schemes in the UK for years was fined £150,000 for failing to provide HM Revenue and Customs (HMRC) with legally required information. The company is now potentially also on the hook for a £3m tax bill.
Tax Avoidance Schemes: Taxpayer assistance
“This is a very positive step from HMRC,” said Rebecca Seeley Harris, a tax expert. Now the taxpayer can find out if the scheme they are joining is legitimate or not. “The taxpayer is the person who will ultimately foot the bill if HMRC decides it is a tax avoidance scheme so, forewarned is forearmed.” “This will also potentially help with the Fair Umbrella campaign as there are many unscrupulous umbrella schemes that could be named and shamed,” said Harris.
HMRC’s tax avoidance campaign also has some very useful tools, including a payslip checker, to assist the unwitting taxpayer to avoid these scams. Unfortunately though, HMRC has not yet set up the promised ‘Single Enforcement Body’ to assist in the policing of these schemes. This is something the ‘Fair Umbrella Campaign’ as well as most accountants have been calling for, for some time.
Tax Avoidance Schemes: What else are HMRC doing?
A video highlighting the experience of a critical-care nurse, who was recommended a completely illegal tax avoidance scheme through her agency, has also been published by HMRC on its website and on YouTube. The video explains the risks of becoming involved in a tax avoidance scheme and highlights the large tax bill facing the gullible nurse. The video ends with a warning of what taxpayers should look out for.
HMRC have made it clear that their published list is not a complete list of all tax avoidance schemes currently being marketed or of all promoters, enablers and suppliers. They warn that there may be other schemes, promoters, enablers and suppliers that HMRC cannot publish information about because of delays in the legal process.
For more detailed information go to: https://www.gov.uk/government/publications/named-tax-avoidance-schemes-promoters-enablers-and-suppliers
Tax Accountant’s view
I have been warning clients for years about these dubious ‘minimise your tax bill’ schemes, which are particularly prevalent in the construction industry and in agencies that provide staff of various kinds.
As I’ve said before, if you’re approached by any such scheme, check with your accountant first. You know it makes sense!