How to Identify a Tax Avoidance Scheme
As a compliant provider of accountancy and payroll services, we believe it is our duty to help your recruitment consultants identify tax avoidance schemes and to help ensure they do not refer any of their candidates to them. By referring a candidate to an offshore intermediary (tax avoidance scheme), your consultants and your recruitment agency could be held accountable by HMRC and the penalties could be severe (Criminal Finances Act 2017).
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 a 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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