To warn against tax avoidance schemes, we at HMRC are putting our money where our mouth is
We recently published our latest Measuring Tax Gaps report, which estimates the difference between the total amount of tax expected to be paid to us and the total amount of tax actually paid. At 4.8% (equating to £35.8billion out of £739.3billion), it is the joint-lowest tax gap as a percentage since our department started publishing the data in the mid-2000s, writes Jonathan Smith, director of HMRC’s Counter Avoidance directorate.
Shrinking, persistent, abusive
The tax gap has shrunk since that time. But many of the behaviours which contribute to the gap have persisted -- including tax avoidance. Marketed avoidance schemes equate to around £500million of the gap according to the most recent publication.
Stats from the Office of National Statistics show there are around 1.7m temporary workers in the UK, many of whom use employment intermediaries to source and secure job roles, and we know that many ContractorUK readers are likely to use an umbrella company for their payroll.
But we also know that some non-compliant umbrella companies abuse their position in the labour supply chain to enable disguised remuneration tax avoidance schemes. These involve individuals being paid partly by amounts claimed to be non-taxable, such as loans.
Given this context, our efforts to warn contractors about avoidance scheme use have stepped up significantly.
HMRC versus schemes, promoters and directors
We are using much more real-time information to warn people. If we suspect that they have entered an avoidance scheme, we contact them as soon as we can to relay our concerns and explain what they risk if they stay in the avoidance scheme.
We are using the powers given to us in recent Finance Acts to name tax avoidance schemes on .gov, a power which we did not have before, and which has already had a disruptive effect on the companies which promote schemes. At the time of writing, we have published the names of 39 promoters, 8 directors and the details of 43 tax avoidance schemes, with plenty more in the pipeline.
We are challenging promoters in the courts using our legal powers. We have issued 14 legal notices to promoters that require them to stop promoting arrangements that we suspect are tax avoidance schemes. Penalties of up to £1m can be issued if they don’t comply with the notice.
The government is also committed to tackling avoidance scheme promoters and launched a consultation on imposing a criminal sanction for promoters who don’t comply with a legal notice to stop selling their scheme – and we’re expediting the disqualification of directors of companies involved in promoting tax avoidance. The proposals will ensure that they face tough consequences for their actions.
But we know that promoters will continue to take steps to try to obscure their existence, hiding behind companies, or finding other ways to sidestep the tax rules. We’re taking a multi-pronged approach to tackling them as outlined above, but as part of that, we also need informed contractors who can see through their claims.
Putting our money where our mouth is
To help with this, we have recently refreshed our Don’t Get Caught Out campaign, which is aimed at warning contractors about avoidance schemes. If you are starting a new contract or want to double-check your current contract, the campaign website details how to check your pay slip, how to report a suspected scheme to HMRC, case studies from those who have exited avoidance, and most importantly, how to get out of a scheme.
We have ambitious aims for the campaign and want it to be far-reaching so that we can effectively get the message out to those who are most susceptible to being targeted. And we’re putting our money where our mouth is -- literally.
In fact, we are using paid search and paid social media, including Reddit for the first time, which we know the contractor community uses.
And we’re redoubling our stakeholder work to ensure that representative and trade bodies for high-risk sectors are warning their members as trusted third-party advocates. We’re exploring our options for podcasts, and welcome informed views on which podcasts contractors might listen to. Plus as you can see, we are engaging with specialist media, like ContractorUK, to keep them aware of developments in this space; successes we have had, and hopefully earn contractors’ support.
As HMRC, we’re getting explicit
This campaign is the kind of intervention that stakeholders have called for to warn people about the perils of avoidance use. Coupled with the new naming powers in particular, we are being far more explicit than we previously were, and could be under the law.
We recognise and acknowledge that there are strong feelings about what HMRC has been doing to tackle tax avoidance in recent years. We want to reset and be collaborative partners with contractors, and for our Don’t Get Caught Out campaign to be a part of this.
We also want to appeal to the readers of ContractorUK for their help, in warning their peers if they suspect that they might be entering into an avoidance scheme -- and by reporting schemes to us so that we can use our powers to intervene quickly and protect other contractors.
Finally, it's over to you…
This article is the first of two which we’re prioritising publishing with ContractorUK -- we would like to respond to comments or questions about this piece, so please do come forward with your thoughts. We look forward to responding in due course.