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Warning from HMRC: Don’t get caught up in a tax avoidance scheme

Last updated on Thursday, December 15, 2016

Written by Andrew Trodden

Contractors are being tempted to increase their take-home pay by using tax avoidance schemes. These promoters market themselves as being compliant and reliable but this is contrary to the truth.

It’s a fair assumption that we would all like to be paid more money. Whether we wish to save for a holiday, move to a new house or purchase a new wardrobe, increasing our take-home pay would make life more comfortable. It’s no wonder that so many contractors are attracted to companies offering them the opportunity to increase their monthly take home pay by paying less tax and National Insurance contributions. 

However, these companies have a lot to answer for. The way they market themselves is clever - stating they are compliant and that you can legally reduce a large portion of your tax burden. HMRC have hit back recently, issuing the guide ‘Ten things a promoter of tax avoidance schemes won’t always tell you’, and we have summed it up below. The key point to keep in mind is, don’t be tempted to use a scheme that could potentially land you in a whole world of trouble.

1. It’ll probably let you down

A majority of these schemes simply don’t work. You will end up paying for a service that leaves your finances in a mess. You will probably find yourself no better off and will still be required to pay tax!

2. It might cost you a bundle

Remember, just like everyone else, you’re expected and legally required to pay the right amount of tax. Whilst some providers of Tax Avoidance Schemes will charge fees lower than your normal contractor accountant, when these schemes fail you will be left with a huge tax bill having already paid fees to the tax avoidance scheme.

3. Legal fees are expensive

If HMRC targets the tax avoidance scheme you are using, you could face considerable legal fees without warning. Going to court is not a cheap experience and is also exceptionally time-consuming.

4. You could be criminally convicted

If HMRC decides you have deliberately paid less tax than what is expected, you could find yourself being prosecuted and convicted with a criminal record. The consequences could have a devastating effect on your personal life and professional career.

5. The word will spread

There is every chance word will get out that you’re in trouble with the law and have not paid your taxes. Your name may appear in public registers and court documents, leaving it open for the general public to get their hands on.

6. HMRC will never approve your scheme

If you’re considering using a scheme that offers to reduce your tax obligation through tax avoidance, it is common sense to assume HMRC will not have approved it. HMRC issues a ‘Scheme Reference Number’ when they suspect a setup is being used to avoid tax. They use this system to inform users of a scheme when they may receive a notice to pay the backdated tax they owe. If a promoter of a tax avoidance scheme states that their scheme doesn’t need to be disclosed to HMRC, they’re lying and contractors must be diligent to avoid this.

7. You’ll be permanently branded ‘high-risk’

There is no second chance when you are found guilty of tax avoidance. Once you have been under HMRC investigation, your future tax affairs will be heavily monitored because you will always be considered a high-risk taxpayer.

8. You stand very little chance in court

HMRC wins 8 out of every 10 tax avoidance cases that go to court; you are unlikely to win a case of tax avoidance against you. Furthermore, many who are caught using a tax avoidance scheme don’t go to court because they know there is no way they will win the case.

9. You’re responsible for your own actions

Ignorance of the law is not an excuse and if HMRC investigates you; there won’t be anybody to defend you as the tax avoidance scheme provider will be focused on their own protection.

10. You could owe a fortune

HMRC could issue you with an ‘Accelerated Payment Notice’. For example, if you’re deemed to owe £10,000 in unpaid taxes, you will be required to pay £10,000 immediately. There are no payment plans in place to make your life easier if found guilty of using a tax avoidance scheme.

HMRC are relentlessly working to clamp down on companies who are encouraging contractors to deliberately pay less tax. One thing is for sure, if you decide to use one of these tax avoidance promoters, you’ll constantly be looking over your shoulder.

There are many accountancy providers with perfect HMRC compliance records that can legally reduce your tax burden. If you wish to increase your take home pay and avoid the possibility of a sudden and heavy tax bill, call us on 01707 871622 to discover your options.

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