Freelancers and contractors urged to withdraw from Peak PAYE Ltd
HMRC has identified a London-based firm as a tax avoidance scheme, urging freelancers and contractors to withdraw from it and contact the tax office to understand how they are affected.
Peak PAYE Ltd, registered address 86-90 Paul Street, London, EC2A 4NE, was named by HMRC on 8th June 2022 as a promoter of tax avoidance. It is only the third scheme called out publicly by the tax office.
This scheme gave participants access to between 80-85% of the expected gross contract earnings by paying contractors through an ‘Option Grant’, which claims it is not subject to tax deductions.
It leaves the contractors who have worked through Peak PAYE Ltd exposed to retrospective tax bills to cover the amount owed, via HMRC’s Loan Charge.
The Loan Charge – once described as a “scandal” by IPSE’s Andy Chamberlain – looks to recover revenue lost to tax avoidance through ‘disguised remuneration’, schemes, such as the avoidance mechanism used by Peak PAYE Ltd.
The controversial Loan Charge has impacted tens of thousands of contractors, many of whom started working via these schemes under the impression they were compliant.
Scheme advertises itself as an ‘umbrella payroll company’
These schemes – which often operate under the guise of an umbrella company – are typically characterised by payments which look like loans, but without an obligation to repay. This is considered tax avoidance by HMRC.
Many promise too-good-to-be-true take-home pay for contractors, which is often impossible to achieve compliantly.
Instead, contractors who are paid through schemes like Peak PAYE Ltd could owe HMRC a significant retrospective tax bill.
Tax avoidance risk lies with contractors
Mary Aiston, HMRC’s Director of Counter Avoidance, has made it clear that the risk lies with contractors.
“Tax avoidance schemes are advertised as clever ways to pay less tax when in reality, they rarely work as the promoters promise, and it is the users that end up with big tax bills,” she explained.
This is despite lobbying bodies regularly calling on the government to do more to stop the proliferation of such schemes and hold their promoters accountable, rather than unsuspecting contractors.
Contracting due diligence
HMRC holds a list of companies that are engaged in, promoting, enabling or supplying tax avoidance schemes. The list is available online.
While the list only names schemes known to HMRC, freelancers and contractors have been encouraged to check it before appointing an umbrella company.
If you believe you are involved in a tax avoidance scheme, you are advised to contact HMRC as soon as possible.
You can also take HMRC’s interactive risk checking tool if you think your employment arrangements could involve tax avoidance.
Why is tax avoidance deemed as not legal? We are encouraged to complete self assessments to make sure we pay only the tax that is due and avoid paying more tax than is required. Surely if a scheme is not within the law then it should be called tax evasion.