HMRC have today launched a new education programme “Tax avoidance – don’t get caught out” which aims to help people spot tax avoidance and make sure they understand the risks. Their campaign is particularly aimed at helping contractors and agency workers.
In their report “Use of marketed tax avoidance schemes in the UK”, HMRC state that 98% of tax avoidance in 2018-19 was due to disguised remuneration schemes. By comparison, in 2013 to 2014, disguised remuneration accounted for 60% of tax avoidance in the UK. The data states that approx one fifth of the people who used avoidance schemes during 2018 to 2019 had an employment categorised as “Bookkeeping activities”. The report goes on to confirm that most of the employers in this group have been identified as umbrella companies.
Furthermore, there is increasing evidence of employment agencies directing people to companies that operate avoidance schemes. Whilst many of us with an interest in the supply chain for temporary workers know that this takes place, it is rarely mentioned in an official government report. It may have been included as a warning to the agencies which direct people towards schemes that HMRC are aware of this dynamic, and that action might be taken.
However, if there are plans to tackle the practice, then surely the financial incentives that go alongside such referrals must also be tackled. It is not unusual for significant sums of money to be exchanged for referrals, and the highest fees can only be afforded by the scheme providers due to the savings they make on tax and NICs. The fact is, compliant umbrellas cannot sustainably afford to pay large volumes of cash for referrals.
Whether or not there is an underlying reason for mentioning some agencies’ involvement in directing people towards schemes, HMRC’s education campaign is very positive. Alongside their report, they have also issued some case studies which outline exactly how damaging the schemes are for the individuals that become involved with them.
For example, a nurse has ended up having to pay a bill of £7,500 after being duped by an umbrella company. She paid very high fees for them to set up the scheme, and she is unlikely to receive any of that back as the “umbrella” company is now seeking voluntary liquidation.
In another example, an IT contractor ended up in a scheme after finding it on a comparison website. Again, high fees totalling £7,600 were charged for the scheme which cannot be recovered because the contractor willingly signed up to their model. Duncan also had to pay the outstanding Tax of just over £12,000, plus interest because the tax was late.
These are two real-life examples of the possible financial implications of schemes on individuals caught up in them, and it is extremely positive to see HMRC taking such proactive action to educate people. We are aware of the forthcoming off-payroll changes in April 2021 which is likely to reduce some people’s take home pay, and these people could inadvertently end up in tax avoidance schemes as they seek to minimise any reduction in their income. For that reason the timing of HMRC’s campaign is particularly helpful in educating people, and we hope that HMRC will step up their campaign as we get closer to April 2021.