Tax office has stepped up anti-avoidance measures, but is still failing to protect contractors
HMRC has added another tax avoidance scheme to its list of known operators, promoters, enablers and suppliers, meaning the tax office has now named 22 of these operators, and 7 others linked to them – a total of 29.
Charteris Management – registered address at Manchester Business Park, 3000 Aviator Way, Manchester, M22 5TG – was added to the list on the 24th November 2022.
Like many of the schemes identified and listed by HMRC since the start of the year, Charteris Management operated a disguised remuneration scheme, under the guise of a compliant umbrella company.
In effect, this means structuring workers’ pay to avoid the income tax and national insurance payments that should be deducted.
Charteris Management achieved this by billing the end client for the full amount and, after deducting its fee, paying its participants a salary at (or marginally above) the National Minimum Wage.
The rest was then paid to a third party, which also deducted its fee, before ‘loaning’ the remainder to the scheme participant – therefore avoiding the taxes due on the wages.
As the schemes avoid tax, they’re able to promise participants – typically unsuspecting contractors – high take-home pay.
Schemes “pose a massive risk” to workers
While HMRC has successfully identified a number of schemes this year, it has attracted criticism across the industry for failing to take avoidance seriously.
Fred Dures, founder of specialist payroll auditor, PayePass, called for HMRC and the government to aim for “the big players” and to “shut down those doing the most harm”.
“Tax avoidance schemes operating under the guise of umbrella companies pose a massive risk to anyone working with them – whether contractors, recruitment agencies or the end client.”
“HMRC’s list of tax avoidance schemes is growing – which is a good thing – but given a number of these businesses no longer trade, in some cases the damage has already been done.”
Similarly, Julia Kermode, founder of IWORK – a body that champions the rights of independent workers – called for “proper action to eradicate these schemes once and for all”.
“Tax schemes have a reputation for being sought by well-off people who want to pay minimal tax and maximise the efficiency of their money – this is a misconception.
“The reality is, these schemes often target average earners, such as NHS workers, who are feeling the pinch of wages not keeping up with inflation. Worse still, it’s the workers that are left with a tax bill, not the scheme.
“I can see the temptation for people to join a scheme – some do so knowingly – but all too often they are hard-working people duped into it because they need the money. These schemes must be stamped out. HMRC’s list is a start, but it simply doesn’t go far enough.”
Contractors liable for backdated tax
With HMRC only just beginning to pursue tax avoidance schemes, there are many unknown and unidentified avoidance schemes in operation. This leaves contractors exposed to a significant degree of financial risk, as participants are liable for unpaid taxes, rather than the scheme operator.
As such, conducting research and due diligence before engaging an umbrella company is essential.
For more information, contractors can check HMRC’s online risk checking tool, which outlines hallmark signs of tax avoidance schemes.