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We are committed to delivering the highest level of professional competence and expertise at a cost effective price. Whether you are a company, partnership, sole trader or a sub-contractor, we are here to help you with your accounts, self assessment, etc.

• Corporation Tax
• Personal Tax
• RTI Payroll
• Self Assessment
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352 Herringthorpe Valley Rd

Stag, Rotherham

S60 4LA

e: info@branagans.co.uk

t: 01709 327 215

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© 2024 Branagans Accountancy Services Ltd | Company Number: 5965462 | VAT Number: 917 8490 87

BRANAGANS

Accountancy Services Ltd

01709 327 215 | info@branagans.co.uk

October 2023 | Identifying Tax Avoidance Schemes: A Comprehensive Guide

In a significant number of cases, individuals were ensnared in the complexities of IR35 tax avoidance, a situation where freelancers, operating under limited companies to manage their earnings, were retroactively accused by HMRC of engaging in tax avoidance. To simplify, if the bulk or entirety of their income originated from a single organisation, HMRC contended that they should have been classified as direct employees of that organisation. This would have prevented them from paying themselves through their own companies in dividends, resulting in lower tax payments compared to traditional employment.

While the fallout from IR35 continues - many are paying back huge sums to the taxman, while some have seen marriages fall apart and have even taken their own lives because of the pressure they have been under - there are many other tax avoidance schemes that HMRC has already shutdown.

Now, HMRC is running a campaign designed to help you spot a tax avoidance scheme to help prevent you getting into similar difficulties.

Is HMRC really trying to be helpful?

The campaign is specifically asking if you think you might be involved in a tax avoidance scheme, and is offering you the option of getting in touch directly with HMRC by email if you feel you might be.

The taxman goes on to say: "We'll support you. We can help you get out of the scheme and settle your tax affairs. Ignoring the problem is not the answer. The longer you leave it the bigger the tax bill.

Our aim is to get you back on the right track. No judgement. Simply offer you the support you need. And if you can't afford to pay everything in one go, we may be able to offer you an instalment arrangement."

If you are paid by a single employer through PAYE, then you are probably not in a tax avoidance scheme, but check the money put into your account is the same as the net amount on your payslip. If there is any difference, then question this and find out exactly why it has happened.

You should also check if you receive any additional payments, such as untaxed loans or capital advances. This could potentially be another red flag.

Is there a list of schemes I should avoid?

HMRC does produce a list of schemes it has identified as tax avoidance schemes, but makes clear this list is not a full list of the schemes in operation.

You may think only higher earners are in these schemes, but you would be wrong. Even though some of the biggest names that have been involved in tribunals with HMRC include the likes of Gary Lineker and Eamonn Holmes, everyone from doctors, nurses, and teachers have been touched by the IR35 net. So, it is best not to be complacent.

What is an umbrella company and how do they work?

If you do temporary or contract work through a recruitment agency, you may find yourself working for what is known as an 'umbrella company'. Usually, this is a company that employs you to do the work for clients you're connected with through the recruitment agency.

The umbrella company will be your 'employer', even though the work you do will be carried out for a client of the agency that sourced the work for you. Typically, you will sign up with the agency, contracted to work for the umbrella company, and then do the work for the recruitment agency's client. In this arrangement, you must receive at least the national minimum wage and holiday allowance in this arrangement.

You will send your work sheet to the recruitment agency, which charges the client for the hours you have worked, and this money is paid to the umbrella company which then pays you. The structure is quite complex. Remember to always check that any payments made into your account match the net pay on your payslip, and if there is any difference - higher or lower - then you should query this with the recruitment agency.

Not every umbrella company is a tax avoidance scheme, but HMRC says it could be a tax avoidance scheme if you get:

• A separate payment which you are told is not taxable, such as a loan.
• More money paid into your bank account than is shown on your payslip.
• A payment from someone other than your umbrella company, which has not been taxed.
• Asked to sign another agreement in addition to your employment contract.

Source: HMRC

If you aren't sure whether you are working for an umbrella company or not, then you can use the online risk checker tool to get more information.

Contact us

If you want to be sure you are staying on the right side of the law when it comes to your tax affairs, then please get in touch with us at Branagans and we will be happy to help you. Email us info@branagans.co.uk or call today: 01709 327 215.

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