HMRC has called for evidence from contractors, recruitment agencies and hiring organisations as it takes steps towards tackling non-compliant disguised remuneration schemes, along with the promoters and facilitators of this tax avoidance.
In a 42-page document, the Government outlined its aim to put a stop to these schemes, that seek to avoid Income Tax and National Insurance contributions by paying users income in the form of a loan.
The tax office has said it would like to gain a better understanding of what drives the use of these schemes, if there are any variations of this form of tax avoidance and whether the Government can do more to stop a feared increase in them - a trend linked to the now confirmed introduction of IR35 reform in the private sector next year.
While well received by some, this move made by HMRC may be seen as too little too late by the tens of thousands of contractors impacted by the controversial Loan Charge, which has left them with huge retrospective tax bills. This is despite many contractors being sold these schemes on the understanding that they were compliant.
We’ll now take a look at what the Government hopes to achieve as a result of this consultation.
Government compliance activity underway
In addition to outlining the objective of the exercise, the document provides a detailed background to disguised remuneration schemes and also referenced the fact that as many as 65% of contractors using them work in management consulting or IT consulting fields.
The steps already being taken by the Government to stop these schemes growing were then explained. This included but wasn’t limited to; “targeted and intensive enquiries into promoters and enablers of the schemes”, “work with regulatory bodies, such as the Advertising Standards Authority, to make sure that all Government and regulatory powers are used to tackle promoters” and “communication plans to better educate taxpayers so that they are less likely to be tempted to get involved in avoidance in the first place.”
Contractors, engagers, agencies and umbrellas to face scrutiny
To inform its work, HMRC wants to understand how intermediaries, such as umbrella companies, employment agencies and personal service companies influence the proliferation of disguised remuneration schemes. The question put to those contributing to the consultation is: “To what extent is tax avoidance a factor in determining the structure of the employment supply chain and why?”
HMRC said it recognises that hiring organisations, recruitment agencies and umbrella companies have an important role to play in ensuring the tax compliance of the workforce they engage. As a result, the Government wants to find out what, if anything, these businesses are doing to assure themselves that the intermediaries they engage are tax compliant.
Those providing evidence will be asked if the Government should make it a legal requirement for engagers to make sure disguised remuneration schemes are not used, and if so, how could this work in practice.
HMRC to help contractors “steer clear” of non-compliant schemes
Whilst firm about the fact that taxpayers are accountable for getting their tax right, the Government states it wants to do more to protect individuals, many of whom enter into disguised remuneration arrangements unknowingly and upon the advice of others - this is no doubt in reference to the Loan Charge.
Taking this into account, the Government is welcoming views on how it can improve its awareness campaign and provide better support and communications: “How could HMRC improve and target communications with taxpayers to warn them about DR (disguised remuneration) schemes, and what other approaches could HMRC and other organisations take to help taxpayers to recognise a DR scheme was being marketed to them?”
Early intervention to be explored
The Government would like to make it easier for taxpayers to remove themselves from disguised remuneration schemes before they build up large tax liabilities. From this call for evidence, HMRC wants to develop a plan for contacting individuals to “highlight the risks they face and provide advice on how they can leave the scheme.”
Those contributing to the consultation have therefore been asked what the barriers to exiting these schemes are and how HMRC could intervene earlier to safeguard taxpayers.
Support to be considered when settling tax liabilities
The Government has explained that it’s keen to review ways taxpayers can settle any outstanding tax liabilities owed as a result of participating in a disguised remuneration scheme. Having rightly faced criticism for its disastrous handling of the Loan Charge, views have been welcomed on further action the Government can take to effectively collect tax due.
HMRC has compiled a number of questions which respondents to the consultation are encouraged to answer, with the Government to then review the evidence before presumably publishing or implementing its findings. For more information and to contribute, please click here.
For assistance regarding your IR35 status and to hear how Qdos can help ensure your compliance, please contact our IR35 experts on 0116 269 0999 or email [email protected]
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