Misleading Contractor Loan Scheme Advert Banned

HMRC spares freelancers from sleepwalking into tax avoidance

The occasions on which HMRC are congratulated are usually rare, but when they step in to ensure that contractors are not seduced by the extravagant claims of tax avoidance scheme promoters, then some gratitude should be afforded the department.

HMRC recently successfully challenged advertisements which appeared on the website of Williams Gordon Ltd, offering financial advice to contractors. The headline claims on the home page stated, “Take home up to 92% of your home pay. Your legally robust solution”. Various other statements and claims were made under several headings as follows:


“We are fully compliant with the necessary HMRC legislation and with all current IR35 policies. We also ensure that you remain tax compliant for the duration of the Contract.”

Our Experts

“We will recommend the most suitable programme for your individual needs. The most robust solution. Not only providing the highest return, but doing so in a legal, robust, documented and defendable way”.

Corporation Tax

“Tax strategies for business owners. In conjunction with our Finance Company partner, we can help if you have an overdrawn Directors Loan account and want to negate the tax liability on this. We can also help if your current years profits will be liable to Corporation Tax and you want to reduce/not incur the tax. Our product combines Corporation Tax relief and non-taxable personal payment”.

Monthly Pay (Features web page)

“You receive a monthly market rate gross salary equivalent payment, that will be subject to tax and NI deductions”.

How the Scheme Worked

HMRC’s understanding of Williams Gordon’s scheme was that a contractor was engaged by an umbrella company who, in turn, invoiced the end client for whom the freelancer was working for and retained its 10% (or relevant amount) and paid the freelancer a salary below the income tax threshold and N.I lower earnings limit, so that no tax or NIC was payable by the umbrella company. The balance was then paid to the contractor in the form of a loan on such terms that HMRC understood was unlikely ever to be repaid.

HMRC raised three complaints of misleading the public, with the Advertising Standards Authority (ASA), as follows:

92% Take Home Pay

HMRC believed that Williams Gordon’s arrangement did not comply with standard income tax and national insurance payments and could therefore be challenged by them. This was refuted by Williams Gordon who stated that loans that were repaid, exactly one year after being issued, and were not connected with employment or a trade/profession, were not taxable and that this was borne out by various judgments. However, they failed to provide sufficient information to explain the nature of their arrangement and why it was income tax and NIC compliant, and why it would not leave users of the scheme exposed to a challenge from HMRC. Furthermore, Williams Gordon also failed to name or provide the judgments, or explain their relevance to their own scheme or their advertising claims.

Disguised Remuneration (DR)

No reference was made on Williams Gordon’s website to relevant schemes or charges which might apply if HMRC challenged the arrangement. The Revenue believed this was a DR scheme and that the advert appeared at the time the proposed loan charge would have applied to outstanding DR loan balances from April 2019. HMRC could also consider if the General Anti Abuse Rule (GAAR) would apply, which might also involve a penalty or charge.

Williams Gordon maintained that the DR scheme did not apply in the absence of employment and the loan charge was not applicable to their product. They also boldly stated that they would welcome HMRC enquiries as they were compliant with UK legislation. Insufficient detail, however, was provided about the way in which the scheme worked, nor evidence provided to support the position that omitting information about the DR scheme, loan charge and/or GAAR would not mislead contractors.

The ASA would have expected Williams Gordon to provide relevant information to scheme users about the tax implications and risks of entering into the scheme. Whilst Williams Gordon said that they would amend their website to read “compliant with all UK tax legislation”, this did not go far enough.

Non-Taxable Personal Payment

Criticism here was that the advertisement did not make clear there was a scheme of avoidance and that users would be challenged by HMRC to establish that the “non-taxable personal payment” was taxable.

Williams Gordon did not believe that their scheme fell under the Disclosure of Tax Avoidance Schemes (DOTAS) and was now a defunct product. This, however, would not stop HMRC from making enquiries into whether the scheme should have been disclosed under DOTAS.

Again, Williams Gordon failed to provide sufficient evidence, this time to show that the scheme did not involve tax avoidance.

The ASA upheld each of HMRC’s challenges and banned the advertisement in its current form. They also told Williams Gordon to ensure that they held sufficient evidence for their claims and to disclose any relevant information in their advertising, such as the implications of entering into a financial arrangement, including a challenge to a user’s tax arrangements by HMRC and the charges which might apply.

HMRC have recently added this ruling to their Spotlights guidance on tax avoidance.

For those tempted by the fantastic rewards promised by tax avoidance scheme promoters, it is worth remembering the adage that if something sounds too good to be true, then it probably is.

The government and HMRC’s official guidance defines tax avoidance as “bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit of the law.” 

Before committing to any avoidance scheme, contractors should consider this guidance, obtain the full facts about how the scheme works and seek third party advice. It could save them a lot of future pain and loss.


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