Tax Avoidance Schemes

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Tax Avoidance Schemes

How to Identify a Tax Avoidance Scheme

There is a growing number of unethical tax avoidance schemes which are encouraging contractors and freelancers to retain more of their money by paying less than their fair share of tax and National Insurance Contributions (NICs). Unfortunately, these schemes advertise themselves as compliant, and they’ll often state that their clients “have nothing to worry about”. This simply is not the case, and HMRC are always stepping up their efforts to regain underpaid taxes – even if the offence was many years ago.

Churchill Knight is proud to be accredited by the FCSA. We are committed to keeping our recruitment agency partners up to date with the latest news and legislation. Did you know that we even have a dedicated Recruiters Blog?

For more information on how to spot a tax avoidance scheme, keep reading. Be warned – your agency could be in trouble for facilitating tax avoidance, even if it is done by mistake! Accidentally referring your candidates to a tax avoidance scheme could land your agency is serious trouble with HMRC.

Spotting Tax Avoidance Schemes

Below are some pointers to help you identify a tax avoidance scheme. Some of these tools that unethical providers use will be very familiar.

90 percent take home pay

There are companies out there who are offering freelancers and contractors the chance to retain up to 90 percent of their pay. With the basic rate of income tax in the UK being 20 percent, it goes without saying that 90 percent pay retention is unrealistic. If your candidates are able to keep this much of their pay, they are probably using a risky and unethical tax avoidance scheme.

Comparing a scheme as being better than PAYE

If you search on Google, it won’t take you long to find companies trying to promote their services as “better than PAYE”. In truth, the take home pay your candidates would receive by using this type of scheme will be better than PAYE. However, it does not mean that the scheme is legal and approved by HMRC.

Stating legality

Just because a scheme says it’s legal, it doesn’t mean it is! However, did you know that tax avoidance is technically legal? But, HMRC can retrospectively recuperate tax that has been underpaid by individuals and businesses who have engaged with tax avoidance schemes. Therefore, just because a scheme may technically be “legal”, it does not mean that your candidates will get away with using it. Did you know that HMRC wins over 8 out of 10 tax avoidance cases that go to court?

Thousands of contractors have used our service

Thousands of contractors may have used a particular tax avoidance scheme, but it does not mean the scheme is legitimate, compliant and HMRC approved.

Insurance included

No insurance can protect your candidates from using a tax avoidance scheme and no insurance can protect your recruitment agency from facilitating tax avoidance. Therefore, if a scheme provider promotes insurance, this is effectively meaningless.

Compliant with IR35

IR35 is a piece of legislation that affects limited company contractors working in the private sector. Legally speaking, contractors are either inside or outside IR35. Regardless of whether or not your candidates are inside or outside IR35, they will still be required to pay tax and National Insurance Contributions (NIC). As a result, if you see any companies promoting their services as being “IR35 compliant”, this is a clear indication that the company is not compliant and does not truly understand what IR35 is.

Experts

It is easy for any company to refer to themselves as experts, but do they have the accreditations and professional employees to back up this claim? The chances are that tax avoidance schemes do have experts working for them, but not the type of experts you want to interact with. These people will be able to unethically increase your candidates’ take home pay whilst bringing severe risk to them and your recruitment agency.

A friendly but misleading quote

If you have a look at some of the paid advertisements on Google when searching for “umbrella company” for example, many of the landing pages that offer your candidates the chance to keep up to 90 percent of their pay will include a quote from one of their employees. The quote, for example, will read something similar to – “Using our services will help you keep more of your pay compared to an umbrella company or UK contractor accountant”. Whilst this statement is true, it does not mean they are offering an ethical arrangement and therefore, your candidates and your recruitment agency would be at significant risk of an HMRC investigation.

Emotive language

Many tax avoidance schemes try to encourage freelancers and contractors to use them by including phrases such as “you deserve to be earning more” in their advertising. It is fair to assume that almost every freelancer and contractor in the UK would like to be earning more, but it does not mean it is okay to engage with a tax avoidance scheme that could in time, financially ruin them and the recruitment agencies that referred them to it.

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More useful recruiter resources

Did you know both Churchill Knight & Associates Ltd and Churchill Knight Umbrella are accredited by the Freelancer and Contractor Services Association (FCSA)? To become FCSA accredited, both companies underwent a rigorous assessment and audit – to ensure they adhere to the FCSA’s strict Codes of Compliance. Each company will continue to undergo thorough annual assessments to ensure they continue to operate in full compliance with UK tax law.

When you refer a candidate to us, you can rest assured knowing they’re in the very safest hands. For over 20 years, Churchill Knight has been setting the standards within the industry. We have helped over 20,000 temporary workers with their accountancy and payroll requirements, and we look forward to helping many, many more. To find out more information about our FCSA accreditations or refer a candidate to our accountancy or umbrella company, please call 0808 2525533.