Disguised remuneration schemes: HMRC is changing its angle of attack, and they may need your help

In an unusual appeal, HMRC has asked for the assistance of organisations and workers in gathering evidence to help tackle unethical disguised remuneration schemes. More precisely, HMRC is looking for stakeholders to help them understand why people are continuing to engage with disguised remuneration schemes, how they can identify new schemes, and where they can take further action to close schemes and reclaim unpaid tax fairly.

Tackling disguised remuneration tax avoidance

In a 42-page PDF released on 21^st July 2020 entitled ‘Tackling disguised remuneration tax avoidance’, HMRC states it is looking for evidence and “views on ways to tackle future use of disguised remuneration tax avoidance, beyond our planned approach.”

In an unusual admission, the government “recognises that improvements are needed” in their current attempts to reclaim underpaid tax. As a result, they are running a 10-week consultation where they’ll hear from stakeholders and will look to design a new angle of attack against disguised remuneration schemes.

21 questions

Running from the 21^st July to the 30^th September 2020, HMRC’s consultation will be open to stakeholders and will look for answers to 21 questions, including:

• What DR schemes are you aware of being marketed currently, and how are these being marketed? Are these being targeted specifically at your profession or sector? How did you come across these schemes?
• What more might HMRC do to encourage people to report a scheme or promoter?
• Should the government explore further options to require engagers to assure themselves of the tax compliance of their flexible workforce? How should HMRC check that assurance? Would this be effective? If not, what would be?
• Do you have any evidence of different types of labour market supply chain noncompliance taking place together?

Please click here to view the full list of questions, available on pages 34-36 of the PDF.

The government’s new approach to fighting disguised remuneration schemes is likely to be welcomed by many – especially those who have been deceitfully targeted in the past. However, it also highlights the government’s failings so far. And, by asking for the publics help, is the government admitting they simply do not have the resources to carry out an internal investigation themselves?

Will we see a similar approach to off-payroll legislation?

As things stand, several workers have been forced to declare bankruptcy in response to the tax bills presented to them by the government. Meanwhile, unethical schemes and their promoters are getting away without punishment. To stop this questionable approach, experts are suggesting HMRC will start trying to reclaim underpaid tax through the supply chain – much like what they are doing in regards to off-payroll (IR35) in the public sector, and soon to be the private sector.

Reiterating the point above, Tom Wallace, Head of Tax Investigations at WTT Consulting, said that he would not be surprised if the government decides to “push the burden back on to the supply chain, much like they have done with IR35“. He also added that doing so ” will cause further uncertainty and risk in the contractor market at a time IR35 reforms are also bedding in”.

Amendments to the Loan Charge

In another move, HMRC has recently made amendments to the controversial Loan Charge. In response to an independent review carried out by Sir Amyas Morse, a number of changes have been unveiled – many of which will be welcomed by contractors and freelancers.

When it was first introduced in 2016 (but rolled out in 2019), the Loan Charge enabled the government to retrospectively reclaim underpaid tax from workers who had engaged with disguised remuneration schemes as far back as 1999. Now, this date has been brought forward to 2010, but that’s not all that has changed.

Here is a summary of the government’s amendments to the Loan Charge,

• The legislation now applies to loans that have been taken out since 9th December 2010, rather than the original date of 6th April 1999.
• The Loan Charge will no longer apply to “outstanding loans made in any tax years before 6 April 2016 where a reasonable disclosure of the use of the tax avoidance scheme was made to HMRC and HMRC did not take action”.
• Payment plans have been put in place to try and ensure people do not face financial ruin if found guilty of tax avoidance.
• Voluntary payments made since March 2016 will be repaid (subject to circumstance. If you think you may be entitled to a refund, please contact HMRC).

If you work in recruitment, please visit our Recruiters Guide to the Loan Charge (2019) for more information on the Loan Charge, and how it may impact your agency and candidates.

“Too many honest workers have faced financial ruin”

In response to the latest developments, Ciaran Woodcock, Head of Field Sales and Marketing at Churchill Knight, said:

“Disguised remuneration schemes have been targeting vulnerable workers for decades. It’s no secret that some workers knew what they were getting involved with and deliberately chose to pay less than their fair share of tax. However, a significant number of contractors were either forced down the route of a loan scheme, or were mis-sold an unethical solution that they believed was legitimate.

If HMRC is going to start going after the supply chain and the parties responsible for promoting the use of disguised remuneration schemes – it’s certainly no bad thing. Even during the coronavirus pandemic, we’ve seen malicious tax avoidance schemes targeting key workers. It’s shocking.

Too many honest workers have faced financial ruin due to disguised remuneration schemes. And, by trying to eliminate the number of workers who potentially face bankruptcy, it appears HMRC is finally standing up for contractors.

Frustratingly, history shows how difficult it can be to identify the people involved in running disguised remunerations schemes – because of their shady nature and difficult traceability. However, I wish HMRC all the best, and by including the entire supply chain, hopefully it’ll be easier to catch payroll criminals now, compared to the past.

As a compliant payroll provider with over 20 years’ experience, Churchill Knight is dedicated to ensuring our clients receive dependable accountancy and payroll services that abide by HMRC’s rules and regulations. With so many rouge providers out there, contractors and freelancers will continue to be targeted. All we can do is continue to operate compliantly and provide our clients with services that will never result in an unexpected tax bill from HMRC in the future.”

Do you have any information to share with HMRC?

If you have any information or evidence that might help the government in their fight against disguised remuneration schemes, please send them an email at tacklingdravoidance@hmrc.gov.uk. HMRC have stated they’re open to evidence from:

• Workers who have historically engage with schemes
• Accountants
• Recruiters
• Legal professionals
• Financial advisers
• And more.

Please be aware that all correspondence must be sent to HMRC by 30^th September 2020.

Churchill Knight is committed to compliance

Founded in 1998, our focus has always been to provide excellent customer service and to operate compliantly with HMRC rules and regulations. We have helped over 20,000 contractors with our leading contractor accountancy and umbrella payroll services, and we look forward to helping many more.

To showcase our dedication to compliance, we’re proud to be an accredited member of the FCSA – the UK’s leading professional body. The FCSA is devoted to ensuring the supply chain of temporary workers is ethical and compliant. To achieve the FCSA’s prestigious accreditation, Churchill Knight has undergone a thorough audit process and a number of assessments from independent professionals.

For more information on Churchill Knight and our specialist contractor services (limited company accountancy and PAYE umbrella payroll), please click here.