Job board tax avoidance scheme via umbrellas undone
An avoidance scheme that exploits the hallmarks of contracting to disguise remuneration has been quickly undone by the taxman.
Under the scheme, users join an umbrella company to get the first part of their wage at a low tax rate, before the second part is used to advertise their professional services on a temporary job board.
The user receives “loyalty points” for keeping their details on the board and, crucially, the points can be cashed-in shortly afterwards, with absolutely no tax or NIC deductions.
The user must pay a fee to the party behind the board, but the convertible “loyalty points” are what attracted both users (“contractors” says HMRC), and disguised remuneration officers.
The Revenue confirmed: “Receiving and redeeming the ‘loyalty points’ is taxable income, which forms part of the contractor’s employment income from the umbrella company.”
‘Changing the label’
Tax dispute experts say that attempts to “change the label” attached to the flow of funds earned for work, in the hope of claiming that it is not taxable income, are increasingly difficult to pull off.
Alluding to the ‘loyalty points,’ WTT Consulting added: “Without a lot of structuring -- which in itself calls into question why it is needed -- diverting money earned for work done into a non-taxable pot is very hard.”
In this instance, which inspired edition 37 of HMRC’s Spotlight publication, it was an “easy scheme” for the Revenue to come to firm a view upon, according to WTT’s Graham Webber.
He explained: “Clearly the ability of the contractor to benefit from the posting of her/his credentials on a job board has no intrinsic value, but the ability to convert that into cash is very much a valuable -- and therefore taxable -- benefit.”
But the tax authority took its stance rapidly, taking less time than it usually does to say that, in its view, the scheme does not work and that users of such arrangements will be investigated.
“[HMRC] have reacted with more speed than is customary,” Mr Webber said.
“This is to be applauded and one can only wonder at how much better the present position would be if HMRC had been equally swift when they first started looking at schemes.”
Like all the schemes featured in its Spotlight publication however, HMRC told users to contact its officers with a view to making arrangements about the outstanding tax and NICs.
‘Contractors worse off’
To encourage affected parties to come forward, the department said: “Contractors could end up worse off because they’ll still owe the tax and NICs, plus interest and any fees charged by the promoter.
“Employment agencies and businesses who are involved in this scheme may also be liable for failing to deduct the correct amount of tax and NICs.”
Penalties for non-compliance, penalties under GAAR and penalties (from July 2017) for anyone who “constructs, markets, sells or otherwise enables the use of” this scheme – and its variants – were also threatened by HMRC.
And despite their chances of not being challenged by the Revenue seeming to be slim, imitations cannot be ruled out and so should be guarded against.
WTT Consulting said: “These arrangements as described, whilst innovative, were probably always going to struggle.
“Contractors are already facing a hostile future with a government seemingly determined to remove the benefits but not the risks of freelancing. Attempts at reinventing the sort of arrangement that has already attracted years of enquiry should always therefore be viewed with a high level of doubt as to their efficacy.”