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HMRC names and shames two tax avoidance schemes

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As part of a campaign to raise public awareness, HMRC has named two tax avoidance schemes, sending a message that it will not tolerate these cynical schemes and their promoters.

20th Apr 2022
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True to its promise of more aggressive enforcement and shaming of wrongdoers, tax avoidance schemes have been named for the first time by HMRC.

In a post on the agency’s website, HMRC has advised anyone involved in Absolute Outsourcing’s or Purple Pay Ltd’s Equity Participation Scheme to exit as soon as possible or risk a large tax bill.

It is the first time HMRC has used its powers to publicly out tax avoidance schemes and their promoters after promising to name and shame them in a recent campaign.

“New legal powers allow us to name promoters and the schemes they peddle much faster, and this announcement is just the first step,” said Mary Aiston, HMRC’s director of counter avoidance. 

The two schemes are Absolute Outsourcing, of Foerster Chambers, Todd Street, Bury, Greater Manchester, and Equity Participation Scheme (EPS), promoted by Purple Pay Ltd (PPL), of Gracechurch Street, London. 

Minimum wage

Both schemes involve individuals agreeing an employment contract and working as a contractor, HMRC said. The schemes pay contractors the National Minimum Wage, with the remainder of their wage paid through a loan to try to avoid National Insurance and Income Tax.

The Absolute Outsourcing scheme involved users completing an advance deed along with their employment contract. This advance deed is intended to justify the user receiving non-taxable advance payments along with a National Minimum Wage salary. The aggregate payments amount to around 82% of their gross contract earnings.

In the second scheme, PPL invoice and receive payment from the end user. PPL pay the user around 5% of this amount as wages, which is taxed under Pay As You Earn (PAYE). PPL pay around 75% of this amount as an advance to the user under the employee cash flow facility. This amount is not taxed under PAYE, and PPL retain around 20% of the amount as their fee.

Big tax bills

“These schemes are cynically marketed as clever ways to pay less tax,” said Aiston. “The truth is they rarely work in the way the promoters claim and it’s the users that end up with big tax bills.”

HMRC said it intends to name further schemes, and will regularly update the public list of other tax avoidance schemes and their promoters. It was granted the power to name the tax avoidance schemes under new legislation passed by the government. 

“It will allow HMRC to challenge misleading information that promoters of tax avoidance communicate to taxpayers and release into the public domain,” the government said. 

Publicising avoidance promoters is one of a number of measures that HMRC is using to help people identify avoidance schemes as a part of the Tax Avoidance – Don’t Get Caught Out campaign.

Last month, a company that “aggressively promoted” tax avoidance schemes in the UK for years was fined £150,000 for failing to provide HM Revenue and Customs (HMRC) with legally required information. The company may be on the hook for a £3m tax bill.

Help for the taxpayer

“This is a very positive step from HMRC,” said Rebecca Seeley Harris, a tax expert. Now the taxpayer can find out if the scheme they are joining is legitimate or not.  

“The taxpayer is the person who will ultimately foot the bill if HMRC decides it is a tax avoidance scheme so, forewarned is forearmed,” Seeley Harris told AccountingWEB. “This will also potentially help with the Fair Umbrella campaign as there are many unscrupulous umbrella schemes that could be named and shamed.”

HMRC’s tax avoidance campaign also has “some very useful tools” including a payslip checker, she said, which will help the unwitting taxpayer to avoid these scams. 

“Ultimately, though, HMRC does need to set up the Single Enforcement Body to assist in the policing of these schemes and this is something our Fair Umbrella Campaign has been calling for for some time now,” Seeley Harris said.

A video highlighting the experience of a critical-care nurse, who was recommended a tax avoidance scheme through her agency, has also been published by HMRC. It explains the risks of becoming involved in a tax avoidance scheme and the warning signs customers should look out for.

HMRC has also warned its own workers not to get caught out.

Replies (6)

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By Hugo Fair
20th Apr 2022 20:07

Why does everyone go along with HMRC's 'interpretation' of Tax Avoidance?

Tax Avoidance (according to HMRC at https://www.gov.uk/guidance/tax-avoidance-an-introduction) = "Tax avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended."

Tax Avoidance (according to all other sources) = "the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law" (or similar wording depending on selected source).

Note 1: In both cases the phrase is recognised as applying to activities/treatments that comply with the law. Only HMRC attempt to twist this by suggesting it (always?) involves 'bending the rules' (which although IANAL is not a legal concept with which I'm familiar - and appears to be more an attempt to introduce a moral dimension of HMRC's choosing).

Note 2: In their communications with the wider public (via press releases etc), HMRC go even further and portray tax avoidance as synonymous with evasion ... which of course it isn't!

I know nothing of the two schemes mentioned (and hold no candle for others of their ilk), but IF they are deemed by HMRC to be tax evasion then say so - or at least test that accusation.
But if HMRC declares them to be mere tax avoidance schemes, then all they are really saying to the users (existing or potential) of such schemes is "Watch out ... we intend to challenge this as attempted evasion". In which case, fair enough but stop calling them avoidance schemes!

Thanks (4)
Replying to Hugo Fair:
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By Paul Crowley
20th Apr 2022 21:54

Always amazed that HMRC know exactly what Parliment intended

But in all fairness HMRC probably tried to tell them what HMRC wanted. Would it be better if HMRC bypassed Parliament and started writing the legislation?

Then all we need is a decision by the supreme court to finally know what the law really means.

Thanks (2)
Replying to Hugo Fair:
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By C Graham
21st Apr 2022 10:57

totally agree - it is HMRC bending the law!

Thanks (1)
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By Ian McTernan CTA
20th Apr 2022 22:34

I always find it surprising that people are willing to part with 20% of their money in fees to these types of schemes with all the dangers involved, rather than pay the (probable) 40% tax due...

You're only saving half the tax charge and the only people really safe are usually the promoters who disappear at the first sign of trouble, despite promising full cover in the event of any challenge, etc.

Buyer beware!

Thanks (3)
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By justsotax
21st Apr 2022 10:07

name and shame the advisers and barristers involved rather than a company.....dealing with the branches rather than the root will not resolve the problem....

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By Paul Crowley
21st Apr 2022 18:23

Is it just me?
Could there not be a simple solution to employee loans?
Something along the lines of s455
But with the exception of secured loans made by businesses in the trade of lending

These schemes cost the avoider basic rate tax as a fee in the vain hope of not paying the other 20% for income exceeding £50K
And in addition not paying NI

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