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.