HMRC list of named tax avoiders is steadily growingIn April 2022, the HMRC announced new powers to name and shame providers and promoters of tax avoidance schemes in a bid to clamp down on unpaid tax and protect contractors from hefty tax bills and fines.
Since then, many schemes have appeared on the list, as known schemes are named to help spread awareness. But the initiative has been criticised as too little too late, with many not sure how tax avoidance can be prevented if the industry continues to be unregulated.
In this article, we look at the latest news regarding the list, and how some of the tax avoidance schemes work.
It’s been nearly a year since HMRC began its list of tax avoiders and promoters and the list is growing steadily, now featuring over 30 named companies.
The list includes both tax avoidance schemes (Disclosed Tax Avoidance Schemes, or DOTA’s) and promoters of tax avoidance schemes (POTA’s), but many industry speakers have criticised the list as doing too little to make a difference.
Named schemes can continue to operate, as evidenced by the fact that many of the schemes on the list still have active websites, up until being issued with a formal Stop Notice. The list serves simply as a warning, which many contractors won’t even be aware of.
Waving goodbye to the single enforcement bodyHaving shelved the idea of the highly anticipated single enforcement body, the umbrella industry remains unregulated, and continues to be attractive for people wanting to make money from exploiting contractors.
But it’s not just small unknown companies that might find themselves on the list of shame, some larger umbrella firms have also pushed the boundaries of what is deemed acceptable and are now beginning to filter onto the list.
This is likely to continue, as HMRC steadily works its way through the industry, picking out and naming non-compliant umbrellas who have questionable operational processes.
Interesting readingThe list includes the name, address of the company and a summary of how the scheme is claimed to work. This part is a real lesson in creativity.
Most schemes are based around paying the contractor minimum wage, which is subject to tax and NICs at the correct rate, with an additional payment disguised as something else to avoid paying tax. The methods that the different companies have used to hide that second payment are truly limitless.
Some of the ways the secondary payment is described include:
- Loan payments
- Employee Benefit Trust (EBT)
- Option agreement
- Making contractors shareholders and disguising the payment as growth in share value
- Advance drawn down
Most of these are an attempt to exploit a perceived loophole in tax guidance. But it doesn’t matter how it’s done; all these schemes leave contractors with an unpaid tax bill. Whichever way you describe it, income over the personal allowance is subject to tax.
A call for industry regulationCompliant umbrella firms have been asking for industry regulation for a very long time. Lack of regulation leaves the industry open to exploitation, and devalues the hard work that compliant umbrellas do to provide a reliable and useful service.
Contractors must be vigilant. If an umbrella firm advertises a higher than average rate, the promise of paying less tax, or the involvement of a complicated scheme to get paid, it is likely to be a tax avoidance scheme.
Only work with compliant umbrella companies who offer complete transparency and do check that the company does not appear on the list before agreeing to any terms or working with any umbrella.
We at Ship Shape work hard to maintain compliance. We are a fully accredited umbrella member of the FCSA and are IWORK and jobsaware partners. Looking after payroll for thousands of contractors, we ensure that they always pay the correct amount of tax.