A total of 14 firms have now been named and shamed by the tax office as it clamps down on rogue operators.
HMRC has named another three firms as tax avoidance schemes, adding them to its published list of known schemes and operators.
The latest update, issued on 18th August, brings the total number of known tax avoidance schemes to 14 – with 12 of them added this year. It also closely follows a £1m fine issued by a First-Tier Tribunal after a legal challenge mounted by HMRC.
The three companies named by HMRC operated tax avoidance in a similar way, with contractors using the illegal scheme – often unknowingly – paid the National Minimum Wage or National Living Wage, with the rest of their pay disguised as a loan, avoiding National Insurance Contributions and Income Tax payments.
Two of the three schemes are located in the North of England; PAYEme Ltd is registered in Liverpool, with Gateway Outsource Solutions Ltd registered in Stockport. The third company, Contractor Care Ltd, is registered in London.
“Just the tip of the iceberg”
While HMRC continues to investigate and pursue non-compliant companies, experts from across the industry have highlighted the scale of the issue and level of risk that contractors currently face. Fred Dures, Director at umbrella company payroll and auditing firm, PayePass, called the list of known tax avoidance schemes “the tip of the iceberg”.
“There are lots of tax avoidance schemes around now putting contractors at risk”, he continued. “What is also concerning is the ease by which an umbrella can intentionally withhold pay or regularly skim funds without a contractor even realising”.
Julia Kermode, founder of IWORK – a membership body championing independent workers – agrees that it’s “too easy to become embroiled in a tax avoidance scheme without even realising it”.
Ms Kermode believes that “not enough is being done to protect contractors” from unscrupulous operators. She added: “There should be more scrutiny of financial processes rather than relying on accreditation badges which don’t adequately confirm that no tax avoidance is taking place.”
Due diligence for contractors
The published list of known tax avoidance schemes is updated when HMRC identifies a new scheme.
However, it’s not a comprehensive list. As such, contractors and freelancers are encouraged to conduct research before choosing an umbrella company.
Fred Dures of PayePass says that it’s “essential to thoroughly research any umbrella and read the small print before you trust them with your hard earnt income” before joining them. He also encouraged contractors to “regularly check your personal tax record with HMRC to ensure that everything is in order. If you find anything that does not look right, always question it”.
Julia Kermode agreed, urging recruitment agencies to “improve their due diligence on the umbrellas they recommend to contractors”, calling into question the model of “financial incentives in exchange for referrals”.
If you believe you may be 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 arrangements could involve tax avoidance.
This government deliberately created a space for Umbrella companies which has led to tax avoidance schemes on an industrial level by the umbrella companies not the individual freelancers. HMRC needs to be challenged on whether the IR35 changes resulted in a net gain or loss in tax revenue. The answer seems pretty obvious and the changes should be reversed if it’s not resulted in a net gain.
It used to be that tax avoidance was okay… It was the tax evasion that was frowned upon. But with the flow of easy money dwindling, eyes will look elsewhere to keep the pockets full. I ask the question… When will those who are supposed to lead by example but yet use tax avoidance from the gains of both tax payers and corporate lobbying be turned upside down and pockets shaken out? We (most small limited businesses) acted in good faith and the rules were changed. We then tried to follow new rules, even though we were penalised, to find umbrella companies (forced upon us through HMRC manipulation of end-clients) are accused of tax “avoidance”.
So hmrc forced legitimate businesses to operate under umbrella schemes by making Ir35 too difficult to comply with and no clients wanted the burden…..now umbrellas fall foul….. Noone could see this coming eh?!
Forcing contractors to pay their own employer NI was what curtailed many businesses…its all wrong and needs sorting.