HMRC is keen to raise awareness of schemes that claim to increase take-home pay by paying less Income Tax and National Insurance contributions that facilitate tax
avoidance and don’t work.
How such schemes work
Most umbrella arrangements for contractors and agency workers operate within the tax rules, and correctly deduct tax and National Insurance contributions from all your earnings using PAYE.
Some promoters of tax avoidance schemes set up umbrella companies and use them to convert income into something else (sometimes described as a ‘loan’). These schemes promise better take-home pay as a result of avoiding tax. The promoters of these schemes also charge fees which are often 10% or more of gross income.
Tax avoidance schemes do not work and can result in unintended tax consequences. Users of the schemes could end up paying much more than they were trying to avoid in the first place. If something looks too good to be true, then it almost certainly is.
Before signing up to a scheme
Anyone considering signing up to a scheme should do their own research to find out more about the adviser and the scheme on offer before signing up to it.
If a promoter says their scheme is legal or that they have legal opinion, it does not mean it works. A lawyer may have given an opinion on a scheme, but often it’s heavily dependent on a list of circumstances that may not be relevant. It’s inadvisable to rely on an opinion given to somebody else. It’s also only one opinion and may not be correct.
If someone signs up to a scheme that does not work, they may end up with a higher tax bill than expected at first.
Take advice
An independent, qualified, accountant or tax adviser such as Bedrock Tax who are members of a professional body that regulates its members’ standards and behaviour can offer a view.
If the scheme is recommended by someone claiming to be an adviser it’s possible to research:
- what qualifications and experience the adviser has
- whether they are a member of a professional body in the UK that has a code of conduct to regulate its members
- If they are guilty of bad advice such as mis-selling, the professional body can investigate your complaint.
However, ultimately the individuals are responsible for their own tax affairs and paying any taxes owed.
You can read HMRC’s full guidance on the .Gov website.
