HMRC’s list of tax avoidance schemes is merely “papering over the cracks”, say experts
Another tax avoidance scheme has been named and shamed by HMRC, but experts have continued to criticise the government and the tax office for failing to regulate the umbrella industry.
Alpha Republic Ltd – registered address 85 Great Portland Street, London, W1W 7LT – has been identified as a disguised remuneration scheme. HMRC has now identified 33 tax avoidance schemes on its list of known schemes and operators.
Disguised remuneration schemes typically pay workers two amounts. The first payment may be made at or slightly above the National Minimum Wage. However, the second payment is often in the form of a loan, which tax avoidance schemes claim is non-taxable. This is untrue, however.
Despite the illegality of these schemes, HMRC has been criticised for recovering taxes from workers rather than scheme operators, leaving self-employed workers to foot the tax bill. Among its critics is Carol Vorderman, who just recently condemned HMRC on national radio over the Loan Charge scandal.
Abandoned SEB leaves self-employed at risk
With no government oversight of the umbrella industry, contractors and the self-employed remain at risk of falling victim to these schemes and incurring significant tax liabilities as a result.
Commenting on the latest addition to HMRC’s list of known tax avoidance schemes, Fred Dures – founder of specialist payroll auditor, PayePass – suggested that the current approach is simply “papering over the cracks”.
Dures also called for a more comprehensive approach from the government to “stop this illegality once and for all” and criticised a government which “hasn’t delivered on its promise to regulate the umbrella industry”. Dures continued:
“The fewer tax avoidance schemes there are, the better – that’s a given. But the government could and should do a lot more.
Regulating the umbrella industry wouldn’t just protect workers and the businesses engaging them, it would raise billions in tax revenue at a time when it’s needed more than ever.”
The government has recently abandoned its promise to establish a single enforcement body (SEB) which would have overseen compliance with employment laws and introduced regulation to the umbrella industry.
How to spot a tax avoidance scheme
With no regulatory reform of the sector on the horizon, self-employed workers must conduct their own due diligence before choosing an umbrella company.
Doing so is paramount to avoid the risk of getting caught up in a tax avoidance scheme, which carries significant financial penalties.
As well as checking HMRC’s known list of tax avoidance schemes, workers should be wary of any promises of high take-home pay or any umbrella company advertising them.
If you think you might be involved in tax avoidance, you can use HMRC’s online risk-checking tool or report tax avoidance online.
How does the freelancer even know what their umbrella company is doing?
Seemed to be plenty of freelancers caught up with mini-umbrella company avoidance scam who were completely powerless once there assignment was placed through the umbrella company provider.
It seems that the freelancer assumes all the liability while having having no control over the actions of the umbrella company beyond ending their assignment.
If the government won’t regulate umbrella companies then the tax situation should be changed, either PAYE direct to the client or outside IR35.
I’m growing quite concerned that the focus is on tax avoidance when multinational companies and billionaires legally (I stress again… legally) use them. There was once a time I recall that tax EVASION was what was illegal. While HM R&C may catch some carrying out questionable practices to fill the coffers, many are being treated like criminals and tarred with a brush by the over zealous practices. Millions, if not billions, are ignored and lost from huge companies while small businesses who do not have the wherewithal or men’s to do so can and will suffer, close or be afraid to operate.
I might have missed it, as I’m 76 and on morphine while I wait for back surgery.
I had my own Accountancy Practice for 40 years and find your site very informative, as it helps me keep my son, who has his own practice, but is having to work from home, on his own, until he finds another office, having to leave his office, as his Landlord decided that he would make more money, converting his floor of 3 offices into flats. Having to leave earlier than he had to, as it was flooded when the flats on the floor above were being refurbished. Due to all the new unproductive Regulations, especially AML, I do my best to keep him updated on Tax matters and find your site the most helpful. Living in Cornwall there are a large number of Self Employed, as in most Rural Areas, several who use this Umbrella system.
One thing he picked up, was that any expenses they claimed from the Umbrella Co. was not being passed on and was therefore coming out of the Umbrella Co. and as the Income of the Umbrella Co. came from the Sub-Contractor, any expenses claimed, were in fact coming out of their own money, therefore wiping out their expenses claim. My son only picking it up when a client felt something was wrong and gave him all the paperwork and he realised what they were being paid, was less the expenses claimed on his Invoice. Technically that was correct, but surely the umbrella Co. not claiming the Expenses on top of their Invoice from the Contractor isn’t.