COMPLIANCE
HMRC urges businesses not to get caught up in the supply chain of tax avoidance schemes
HM Revenue and Customs’ (HMRC’s) counter avoidance directorate is advising businesses on the best ways to ensure they don’t get caught up in the supply chain of tax avoidance schemes
T ax avoidance is when people bend the rules of the tax system to try to pay less tax than they should. But those who join avoidance schemes then end up having to pay the tax due in the first place, as well as interest and, potentially, penalties. That’s on top of the fees they’ve already paid for joining the scheme. These tax avoidance schemes often involve an umbrella company giving a worker some or all of their pay in the form of a loan, salary advance, grant, annuity or any other payment they’re told they’re not expected to pay back. These payments are claimed to be non-taxable, often without explanation, with the promise of higher take home pay. Most of these schemes don’t work and are successfully challenged by HMRC in the courts and tribunals. If you use a worker employed by an umbrella company involved in an avoidance scheme, you put yourself at risk of: l tax compliance checks l penalties l tax liabilities l reputational damage and loss of business. You should ensure you’re undertaking robust supply chain due diligence, and information regarding this can be found here: https://ow.ly/TlfW50OPeac. This will help protect your business from using non-compliant umbrella companies and becoming involved in the supply chain of a tax avoidance scheme. Signs to watch out for HMRC wants to stop people being drawn into such schemes, as well as help them
You can also ask your temporary workers to check out HMRC’s list of named tax avoidance scheme promoters, which is available here: https://ow.ly/ YTTt50OPwHO. If you or your workers are approached by a named umbrella company, steer well clear. The list isn’t exhaustive so if an umbrella company isn’t shown, this doesn’t mean they’re not operating a tax avoidance scheme, or the scheme is in any way approved by HMRC. HMRC doesn’t approve tax avoidance schemes for use. You may also share HMRC’s ‘Tax avoidance – don’t get caught out’ out campaign with your temporary workers, which educates them on: l how to spot the signs of an avoidance scheme l reporting avoidance l getting help leaving or reporting a tax avoidance scheme. More information is available here: https://ow.ly/mhBs50OPyjL. The campaign includes an interactive risk checker to allow workers to check whether their current contract could involve tax avoidance. This can be used here: https://ow.ly/Q14C50OPzRj. If you become aware of a tax avoidance scheme or an agency or umbrella company that isn’t following the tax rules, you should take action to report this to HMRC. Reports can be made here: https://ow.ly/zEwR50OPAp8. Helping workers to steer clear of tax avoidance will help reduce reputational risks for your business, and remember, if it sounds too good to be true it almost certainly is! n
to leave tax avoidance schemes if they believe they might be caught up in one. One of the best ways to do this is to educate your temporary workers about the risks of tax avoidance schemes operated by non-compliant umbrella companies and the warning signs to watch out for. Here are some things your temporary workers should watch out for: l any scheme which allows your workers to keep more of their income than they’d expect, with little or no deductions for income tax and National Insurance contributions (NICs) l some, or all of the payments your workers get are said to be ‘non-taxable.’ These could be described as loans, annuities, bonuses or shares. These payments are no different to normal income and your workers still need to pay income tax and NICs on them l schemes your workers are told are safe and compliant or approved by HMRC. This is not true – HMRC never approves avoidance schemes l only part of the total payments your workers receive may be taxed as income. If they’re employed, this is usually a national minimum wage amount l being offered a choice between a standard or ‘enhanced’ pay scheme. The enhanced version is likely to be tax avoidance l being asked to sign more than one contract or agreement l an employment contract or agreement which doesn’t state how their income will be paid, or provide them with a breakdown of all your deductions l being offered a ‘cash bonus’ if they recommend the scheme to a friend.
| Professional in Payroll, Pensions and Reward | May 2023 | Issue 90 22
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