An important warning for key workers: Watch out for unethical and misleading tax avoidance schemes

The coronavirus pandemic has put monumental stress on key workers in the UK, including NHS staff, carers and emergency workers. To show their appreciation, businesses have been offering key workers special discounts and offers. However, HMRC has been made aware of multiple tax avoidance schemes that have been targeting key workers (especially NHS) and trying to mislead them into avoiding their legal tax responsibilities.

Using an unethical payroll provider, even by mistake, could land key workers in serious trouble with HMRC, and the financial implications could be devasting. If you are a key worker – please read the following article. It’s designed to help you identify misleading tax avoidances schemes, and provides easy to understand guidance about what you should do if you have accidentally engaged with one.

HMRC has issued a warning for NHS and key workers

HMRC has been made aware of tax avoidances schemes targeting NHS workers and offering them the chance to keep more of their money. While this may sound tempting, what the tax avoidance schemes fail to mention is the catastrophic consequences that could arise if you use them.

Guidance on the official HMRC website states:

“HMRC is aware that unscrupulous promoters of tax avoidance schemes are targeting workers returning to the National Health Service (NHS) to help respond to the coronavirus (COVID-19) outbreak.

If you are returning to work for the NHS, HMRC is warning you to be very careful not to sign up to these schemes, which HMRC considers to be tax avoidance.”

How do tax avoidance schemes work?

Tax avoidance schemes offer their clients a chance to retain more of their money when compared to traditional and compliant PAYE umbrella companies. But how do they do this?

Tax avoidance schemes find alternative ways to pay their clients, deliberately ignoring HMRC’s guidance. For example, one of the most common tax avoidance systems is loan schemes, where clients are paid a combination of minimum salary (PAYE) and the rest in a loan which they don’t need to pay back. As a result, workers retain upwards of 80% of their salary, while knowingly underpaying tax.

In many cases, tax avoidance schemes are not technically breaking the law. However, they’re unethically taking advantage of loopholes in legislation.

HMRC are retrospectively investigating people who have used tax avoidance schemes, and they are being held-accountable. In many cases, honest workers have been required to pay back thousands of pounds in underpaid tax – even though they had no bad-intentions in the first place.  More information is available in our article ‘5 Minute Contractor Guide: The 2019 Loan Charge’.

The BBC has gone undercover

The BBC has done some undercover investigating and has found a tax avoidance scheme that is actively targeting NHS staff. Posing as a worker, a BBC reporter was told they could keep 78% of their pay, which is significantly more than what they would be able to retain by using a compliant umbrella company. Interestingly, the scheme in question pays workers a combination of PAYE, and “an investment payment”. The investment payment is paid straight into the workers bank account, and without any tax implications.

When challenged, the unethical provider “insisted the scheme is tax compliant”. However, just because a scheme has not been identified by HMRC yet, it doesn’t mean that it won’t be retrospectively investigated and shut down.

An HMRC representative told the BBC:

“It is shocking that unscrupulous promoters of tax avoidance schemes are targeting returning NHS workers during this difficult time. HMRC published [advice] on 30 March warning returning workers about this very issue.

“Our advice has always been to steer well clear of such schemes, and to report them to us in confidence for investigation”.

How do compliant umbrella companies work?

As a UK worker, you are expected to pay the right amount of tax. By using a compliant umbrella, you will be paid in a very similar way to a permanent employee (PAYE). This means that your tax and National Insurance Contributions will be sent directly to HMRC and you will receive payslip that clearly shows the deductions that have been made to your pay. Realistically, you should expect to retain between 60% and 75% of your pay.

Also, it is worth noting that the unethical payroll provider identified by the BBC was charging upwards of £75 per week – considerably more than compliant umbrellas.

Where are the unethical payroll providers advertising?

Unfortunately, they’re everywhere, and a lot of them are specifically targeting vulnerable NHS workers. The most common places you will find these adverts are:

• Google Advertisements – These are the adverts that appear at the top of your “umbrella” or “payroll provider” search query. Typically, misleading phrases include “don’t underpay tax”, “keep 90% of your pay”, “you deserve more of your money” – you get the gist.
• On umbrella comparison websites – There are loads of “Money Supermarket” styled websites out there that compare umbrella companies. It is important to remember that all compliant umbrella companies will process your pay in the same way and the only thing that varies is the margin they charge for their service.
• Social media – Paid social media adverts are appearing on Facebook and Twitter. If you have previously searched for umbrella companies or associated phrases, you may be subjected to numerous adverts from unethical payroll providers. If you see any, mark them as spam (directly on the advert) and report the provider to HMRC.
• Recruitment agencies – unfortunately, there may be some agencies that are referring their candidates to tax avoidance schemes. This may be happening because appropriate due diligence has not been carried out, and it may not be a deliberate attempt to get you in trouble. However, if you have any concerns about the payroll companies you have been referred to by your Consultant, you must get in contact with them. And, it’s definitely worth trying to speak with the Recruitment Agency’s Director.

For more advice on identifying misleading schemes, please read our blog ‘How to Spot a Tax Avoidance Scheme’.

What should you do if you think you’ve accidentally used a tax avoidance scheme?

Firstly, don’t panic. A majority of these schemes have been created to deliberately mislead their clients, and regrettably, many people fall victim. To fix the situation, must act quickly. The official government websites asks you to email CA.CLscot@hmrc.gov.uk if you have recently started using an umbrella or payroll provider that you now believe may be a tax avoidance scheme.

Once you have made HMRC aware of your situation, you will be required to settle your tax affairs. This may involve paying back a substantial amount of underpaid tax. The quicker you contact HMRC, the less you will need to pay, and the more manageable the repayments will be.

Use a compliant umbrella and you have nothing to worry about

If you want to ensure your payroll is processed in accordance with HMRC rules and regulations, you should choose an FCSA accredited umbrella company.

The FCSA (The Freelancer and Contractor Services Association) is the leading professional body in the UK and is committed to ensuring the supply chain of temporary workers is compliant and ethical. By choosing an FCSA accredited provider, you can get paid knowing that your provider has undergone thorough assessments and audits. And, most importantly, the provider has successfully been able to prove they operate legally and in their clients’ best interests.

Get a free and quick take home pay projection

Churchill Knight Umbrella is proud to be a member of the FCSA and we help hundreds of key workers get paid every week. If you are interested in using our compliant umbrella service, please contact us. Alternatively, if you would like a free, tailored take home pay projection, please complete the short form here.