Revenue targets IT contractor tax saving scheme

Her Majesty’s Revenue & Customs has used its Spotlights publication to identify a tax avoidance scheme that it is being advertised to contractors and other highly paid workers who use recruiters.

Promoted as a get-out to HMRC’s disguised remuneration rules, the scheme seeks to avoid Income Tax and National Insurance Contributions through a variety of payment arrangements, made in relation to work at a UK-based outfit.

These may involve payments passing through a series of companies; loans from a third party or an offshore alleged employer, a deed of covenant, secondments from one employer company to another or claims of self-employment.

“In HMRC’s opinion, these arrangements do not succeed in avoiding the tax and NICs due,” the Revenue said updating Spotlights, which lists the types of mechanisms which HMRC is likely to challenge.

Confirming what its entry into the list means, the Revenue said it intends to challenge any scheme with such arrangements and “litigate where necessary” to recover the unpaid tax and NICs.

But another liability may also be due. “Those intent on avoiding Income Tax and NICs by using trust arrangements should also be aware that there could be adverse Inheritance Tax (IHT) and trust tax consequences regardless of whether they themselves set up the trust,” HMRC said.

“These include IHT charges when contributions are made to the trust, when funds are transferred from a trust to a sub-trust or removed from the sub-trust, when uncommercial [sic] loans are made by the trustees and at the ten-year anniversary of the trust.”

Elsewhere in its update, HMRC reminded that legislation has been put in place to prohibit such third party arrangements from disguising employment as self-employment or a contractual arrangement.

 

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