The tax office is using its legal powers to name and shame tax avoidance schemes and their promoters for the first time
HMRC has warned contractors involved in tax avoidance schemes – Absolute Outsourcing or Purple Pay Limited’s Equity Participation Scheme – to withdraw from them in order to avoid building up a large tax bill.
This is the first time the taxman has used its powers to name and shame promoters of tax avoidance schemes.
It comes as part of the government’s campaign to make people more aware of such schemes, which resulted in tens of thousands of contractors being left with huge tax bills as part of the Loan Charge.
According to HMRC, both Absolute Outsourcing – an employment and recruitment agency based in Greater Manchester; and the Equity Participation Scheme promoted by Purple Pay Limited – a management consultancy firm in London, are falling foul when it comes to paying contractors.
The schemes involve individuals agreeing to an employment contract but effectively working as a contractor.
The contractor is paid the national minimum wage with the remainder of their wages paid through a loan, which avoids any national insurance and income tax.
Cynical tax avoidance schemes leave contractors exposed
Mary Aiston, director of counter avoidance at HMRC, said: “These schemes are cynically marketed as clever ways to pay less tax. The truth is they rarely work in the way the promoters claim and it’s the users that end up with big tax bills.
“New legal powers allow us to name promoters and the schemes they peddle much faster, and this announcement is just the first step.
“But we need the public to be vigilant, and that’s why we’re also helping people identify, and steer clear, of these schemes through our Tax Avoidance – Don’t Get Caught Out campaign.”
While the move has been welcomed by industry professionals, many argue that this is what should have been done with the Loan Charge.
Too little too late? Not nearly enough?
Rebecca Seeley Harris, employment status and IR35 legal expert, said: “The fact that HMRC are naming and shaming these companies won’t mean that the contractor will be let off the hook, it will just mean that they will be forewarned.
“I think this is a good move by HMRC and hopefully, it will deter some of the promoters and make the unwitting public more aware.”
For a list of the latest tax avoidance schemes recognised by HMRC, please visit the government website here.
Forcing contractors away from their own Ltd Company’s will inevitably lead to underhand schemes popping and to some contractors being tempted into those schemes.
Avoidance vs evasion has been a hot topic. As already noted, when you push a limited company into practices that reduce their income they will look for the most attractive options. Companies offering the services to the contractors being reviewed should not burdon the contractor. The “risk averse” decisions on ill-informed end-clients have made a mess of and undue burdon to many contractors and, in my humble opinion, solely to grab lost and additional coffers for HMRC.