HMRC blacklists SmartPay, Payeworx, Dalespay, Prime Umbrella Services and Pay Rec

Advisers are breathing a sigh of relief at HMRC finally ‘naming and shaming’ an avoidance scheme that ‘preyed’ on a great deal of contractors for a long time.

SmartPay Limited, company number 05618472 was added by HMRC to its “Current list of named tax avoidance schemes, promoters, enablers and suppliers,” on August 24th.

The chief executive of payroll auditor PayePass, Julia Kermode, told ContractorUK that she’s relieved at the inclusion.

“It’s reassuring to see HMRC update its blacklist, especially with the long-awaited addition of SmartPay Ltd…[whose SmartPay Third Party Loan scheme] many contractors fell prey to.”

'Not so smart'

Despite its registered office being in Blackpool, Lancashire, SmartPay is Isle of Man-incorporated -- as is another scheme which HMRC blacklisted last month, Payeworx Ltd.

But it is SmartPay which appears to stand out to advisers -- and not for the right reasons.

“Those [companies] HMRC suspect of promoting or facilitating avoidance in the contractor market…[now includes] SmartPay. [Maybe] not so smart,” says ex-taxman Graham Webber.

“This entity appears to be connected to the AML entities described in published First Tier Tribunal cases as an ‘informal group’.

“And that informal group certainly has links to Knox House Trust and others in the Isle of Man as well as some entities in Malta.”

'Abandoned'

Currently a director at Revenue dispute advisory WTT Consulting, Mr Webber continued: “HMRC is active in looking to bring some earlier iterations of these schemes to tribunal.

“[But] these cases, which were originally being helped by AML Tax IOM Ltd, have been abandoned by that adviser. Yes, ‘abandoned,’ with email accounts closed overnight with no alternative contact address.

“[Nevertheless] this whole group of ‘informally’ linked entities is clearly in HMRC's sights and the original designers of their schemes appear to have given up. We continue to defend them, but not on the original grounds.”

'Get in touch'

For its part, HMRC says contractors should “get in touch” if they used SmartPay, Payeworx or three other schemes recently blacklisted, so we can “provide help to exit the schemes.”

The three are; Dalespay Limted (incorporated in Cyprus); Pay Rec Limited and Prime Umbrella Services Limited -- both ‘named and shamed’ by HMRC on August 31st.

Formerly of HMRC, Tom Wallace took to LinkedIn to try to demystify the two separate schemes’ complex arrangements, which he hinted were easier to get “caught up in” than work out.

'Bonus scheme'

Out of Pay Rec Ltd, company number 13700579, and Prime Umbrella Services, company number 12256064, it is the former, PRL, which has the less convoluted set-up.

“[Contractors entered] into an employment contract with PRL which also invites them into a ‘bonus scheme,’" began Wallace, also of WTT Consulting.

“PRL [then paid] the scheme users a salary around the NMW or NLW with income tax and NICs deducted.

“At, or around the same time, the scheme users also receive a second payment, described as an ‘advance against future bonus payments.’ This is paid without income tax and NICs deducted.”

'Are your wages being circulated?'

In blacklisting Pay Rec Ltd, HMRC said it is its view that the ‘advances’, paid against future bonus payments, are no different to normal income, and are therefore taxable.

An advisory firm on Revenue investigations, Tax Resolute UK, agrees -- but suggests contractors needn’t get bogged down in terms, jargon or provider blurb.

Instead, to work out if an umbrella company is really just a scheme, contractors can simply ask themselves two quick questions.

“These schemes can be confusing but essentially [just ask yourself], ‘Is this your wages being circulated?’ ‘Has the tax been paid for it?’” the firm’s Jesminara Rahman told ContractorUK.

“If not, then there’s a high risk that there should be tax paid on it. Regardless of how it is disguised, as a bonus, as a second tax free payment or as a loan.”

If in doubt, contractors should seek advice from an independent specialist that is “not connected with the tax scheme provider,” Rahman recommended.

'Visibility of the fee-payer'

Asking a question of his own, online, is Alex Gosney, CEO of temporary workforce supply chain management firm Nutral.

Pointing to HMRC’s August list update, and sounding aware of corporate evasion offences, Gosney asked: “Do YOU have visibility of the fee-payer in your labour supply chain?”

But the visibility issue is with the HMRC list itself, and the firms it blacklists only temporarily due to HMRC rules, according to independent work champion IWORK, founded by Ms Kermode.

She told ContractorUK: “I’m still incredulous that HMRC removes named companies after they have been listed for 12 months, which makes the whole list a farce. It means that the list is never going to be comprehensive, minimising its effectiveness for an audience that barely knows it exists in the first place.”