A report published on the 26th November 2020 by HMRC discusses marketed tax avoidance schemes, and it makes for some fascinating reading. Entitled ‘Use of marketed tax avoidance schemes in the UK’, HMRC cover the size of the UK’s tax avoidance market, promoters of tax avoidance schemes, and what HMRC can do to help people separate themselves from marketed tax avoidance schemes. We summarise the report below.
HMRC deserve a hearty hand-shake
Firstly, we’d like to say a quick well done to HMRC for releasing this corporate report. Tax avoidance is an awful thing that has an extremely negative impact on society. Throughout the umbrellacompanies.org.uk website, we make it clear how important it is that you never engage with a tax avoidance scheme, and we do everything in our power to only promote and recommend umbrella companies who follow the government’s rules and regulations.
An introduction to the report
The report is introduced by Mary Aiston, Director of Counter-Avoidance. Here’s some of the key points to take away from her summary of marketed tax avoidance schemes:
- Over the last six years, the amount of tax the UK loses as a result of marketed tax avoidance schemes has halved.
- The market has shifted. Back in the day, it was the banks and accountancy firms that were offering tax avoidance schemes. Now, it’s internet-based companies looking to make a quick buck.
- Originally, schemes were usually targeted at the high-rollers. Now, they’re being aimed at medium to low earners.
- Contractors and agency workers are being especially targeted by tax avoidance schemes. We’ve seen incidences during the coronavirus pandemic, including the targeting of NHS and key workers.
- HMRC is doing everything possible to identify those who have engaged with tax avoidance schemes, and they know what they’re doing.
- The clear and obvious message is something that we have read before – “claims to cut your tax bill by 90 per cent is almost certainly too good to be true”.
- HMRC is keen for us (regular folk) to help them identify tax avoidance schemes, so that they can shut them down.
How big is the UK’s tax avoidance problem?
The report states over 95% of expected tax payments are made to the government without any problems (2018/19). However, the missing 5% adds up to a mind-blowing amount of money – over £30 billion. Out of the unclaimed tax, £1.7 billion is put down to deliberate tax avoidance.
HMRC “believe about 30,000 individuals and 2,000 employers were involved in avoidance schemes in 2018 to 2019”, and that “22,000 individuals and 6,000 employers were involved in avoidance schemes during 2013 to 2014”.
Quite remarkably, there has been a substantial increase in the number of contractors using disguised remuneration schemes (tax avoidance schemes). In 2013/14, 60% of lost cash due to tax avoidance was put down to contractor loan and disguised remuneration schemes. This percentage increased to 98% in 2018/19. If you’re a contractor – this should really concern you because it goes to show how targeted you and your colleagues are by these evil schemes. It also goes to show how many people are engaging with them. If you know anyone using a tax avoidance scheme, please ask them to contact HMRC and settle their tax affairs.
Spotting a tax avoidance scheme
Tax avoidance schemes are sometimes really obvious. However, it’s the ones that are quite subtle that worry us the most. Here are some clear indications that a scheme is tax avoidance:
- They promote inflated take home pay – often up to 90%.
- They advertise themselves as being able to help you pay less tax.
- They’re based outside the UK.
- They appear as an advert on search engines.
- They pretend they work with clients from major international corporations.
- They claim they’re legal, but it’s clear they’re offering something too good to be true.
- They do weird things with your pay, such as retain it all and pay you a “loan” that you’re not expected to pay back.
- They have pages and pages of complicated paperwork for you to sign.
- They do not mention PAYE.
- They ask you to sign multiple contracts.
- They include third-parties in their contractual terms.
- They try and manipulate you with the language on their website. Some companies say things like “you don’t deserve to pay so much tax”, etc.
In the report, HMRC say that they have “increasingly seen evidence that non-compliant employment agencies are directing their clients to umbrella companies who operate avoidance schemes. Where HMRC identifies arrangements of this kind we will take action against the promoter, and step in to warn people who are using them”.
While a significant majority of umbrella companies are compliant and exist to help you pay the legal amount of tax and National Insurance Contributions (NICs), some are out there to help you avoid paying your fair share of tax. Throughout our website, we reiterate the importance of using a compliant and accredited umbrella company for your payroll.
Interestingly, the report goes on to mention important things that scheme providers won’t tell their clients. These include:
- If you’re caught using a tax avoidance scheme, you could face a life-changing tax bill.
- As well as a tax bill, you may face huge legal fees.
- Most schemes actually don’t work.
- Using a tax avoidance scheme may result in a criminal conviction if certain criteria are met (e.g. signing false documents).
- HMRC is more than likely going to win in court (versus the tax avoidance scheme).
- Almost all of the risk with engaging with tax avoidance schemes falls on the people using them – not the schemes.
A few more things we learn from the report
The report is very insightful. Here are some more key pieces of information:
- Over 90% of people who engage with tax avoidance schemes report an annual earning lower than £50,000.
- Barking and Dagenham is the local authority with the highest number of people (UK) who used tax avoidance schemes during 2018 to 2019, with 229 per 100,000 inhabitants having engaged with one.
- Roughly one in five people who engaged with tax avoidance schemes during 2018 to 2019 categorised their employment as “Bookkeeping activities”.
- HMRC state: “We suspect that the majority of people who used avoidance schemes, particularly in recent years, didn’t look too deeply into the tax arrangements they were being offered. In part, this may simply be because they believed they had handed their affairs to someone they viewed as competent and professional. Few understood that tax advice is unregulated, and many were surprised to find they were personally responsible for ensuring they pay the right tax”.
- HMRC believe “20 to 30 promoters who are behind most of the tax avoidance schemes that are marketed to the UK public“.
- Since 2016, over 20 people have been convicted of marketing tax avoidance schemes. As a result, over 100 years of custodial sentences were handed out.
- HMRC claim they’re available and ready to support people that have engaged with tax avoidance schemes. Please visit their web page called: ‘Tax avoidance: getting out of an avoidance scheme’. They say they’ll help with debts and support those who are presently using a scheme.
The FCSA welcomes the report
The FCSA is the UK’s leading industry body committed to ensuring the supply chain of temporary workers is compliant. We respect their work and believe the most trustworthy and compliant umbrella companies in the marketplace are those that have achieved the prestigious FCSA accreditation.
In a recent blog on the FCSA’s website, FCSA Chief Executive Phil Pluck said: “I am delighted that HMRC has published this report. It highlights that tax avoidance schemes are still prolific. The report should be essential reading for every contingent worker in the country”.
“It shows in stark facts and figures how intelligent but vulnerable workers can easily become victims of these criminal elements. The lowest-paid are often the victims of these scams, and the criminal most commonly uses an umbrella company to initiate the fraud on both the worker and HMRC.”
We recommend you read the report
We highly recommend you read the full report, available here. It’s pretty long, but shouldn’t take you much longer than 10 minutes to read. There is plenty of additional information that’ll help you stay well clear of tax avoidance schemes. And, if you’re currently engaging with one (even by mistake), there is valuable guidance that’ll help you resolve your situation.
Looking for a compliant umbrella company you can trust?
If you’re looking for a compliant umbrella company, please take a look at our top 10 umbrella companies. All of our top 10 umbrella companies have obtained FCSA accreditation, and operate compliantly with HMRC’s rules and regulations. We cannot reiterate this message enough – please do not use a tax avoidance scheme.