Here’s one way contractors can put HMRC’s avoidance blacklist to better use

Busy contractors may not have noticed, but HMRC’s list of named tax avoidance schemes and providers is fast-becoming a ‘wall of shame,’ rather than just a ‘naughty list,’ as the announcement of avoidance suppliers, enablers, promoters and crucially, their arrangements, now features more than 60 companies.

These are companies which contractors and other entities in contractor supply chains should be wary of, or, in HMRC parlance, “should withdraw from,” writes David Harmer, associate director at Markel.

Quite a few well-connected individuals in the contractor industry follow the list’s updates avidly, sharing with their online network the latest names to be added – and, if you’re one of those, another list-update seems due, as no new names have been announced since Hamilton Bradbury, Edge Umbrella and Olympus Contracting were blacklisted in September.

'Shame'

The online effort to spread and circulate the new names on the Revenue’s avoidance list has become as much of a regular event in the calendar as the updates themselves. The modern-day, real-world, tax equivalent of that scene in Game of Thrones of a ringing a bell, making its way through crowds of people with the shout of “SHAME” seemingly getting louder and louder? Probably.   

Certainly, ‘naming and shaming’ is a useful tool in HMRC’s arsenal. No longer can active tax avoidance vehicles, or their curators, slip quietly into the shadows. The list is probably a mild deterrent, too, for anyone who may be tempted to stray from the compliant tax path.

Is HMRC's list of avoidance companies known to contractors?

But just how useful is the blacklist to the everyday contractor? Well, if you don’t know the online resource exists, it’s of no use at all! Contractor industry providers, tax professionals, and umbrella companies clearly know where to find it.

And for contracting service providers it certainly serves as a deterrent. But also perhaps, the list has been heard providing some comfort to providers when they note a competitor of theirs -- who they might have been losing business to -- is identified as a tax avoidance scheme.

For contractors, however, the list seems to be an underutilised resource. It should be noted -- actually more than that, it should be shouted from the rooftops -- that in many cases, depending on the set-up of the scheme, it is the contractor (and not the scheme provider) who will be hit with HMRC liabilities. Equally upending, it can then take years of enquiry time to resolve the issue, leaving contractors in limbo and facing an escalating rate of interest from HMRC.

Limited resource(s)

While the length of time between initial HMRC investigation and then naming providers is far too long, this can only be addressed by investing significant resource (people), into HMRC to allow policing of the current legislation.

Positively, the recently closed umbrella company compliance consultation may introduce legislative measures which could go some way to regulating umbrella companies. But again, without resource to police the legislation, it may not be fully effective.

For contractors, while HMRC’s list may be a limited resource (“This is not a complete list of all tax avoidance schemes currently being marketed; neither is it a complete list of all promoters, enablers and suppliers” -- HMRC), it is still a resource. Which should be used.

So, if you are engaged by or contracting with an entity named on the list, then their naming is an obvious red flag. Despite the inevitable denials and claims from those named, their users like contractors would be wise to take immediate action while bearing in mind that by the time HMRC blacklists the scheme, it might be too late for them as individuals.

Here's our recommendation -- look at the individual bricks, and their make-up

What we would like to suggest to contractors and what can be helpful, even though it will admittedly take time, is to look and go through the detail of the arrangements being identified. HMRC provides quite a lot of information on the particulars of each scheme, offering or product, outlining it all in, ‘How the scheme is claimed to work.’

It is worthwhile reading through each scheme’s operations, particularly if you have any nagging doubts about how you are currently engaged. Or if you are about to engage a new provider.

Does any of the detail sound familiar to your current or proposed engagement method? Are the same payment structures referenced? Is the terminology similar?

Chances are; if what you’re reading sounds all too familiar then you likely have a problem on your hands. You’ll need to act -- and while HMRC says get in touch with them, we suggest you go straight to an independent specialist to get advice. A specialist, or HMRC will do, but never, never the engager. Avoiding reality when outed as an avoider is a tactic avoiders themselves too often can’t avoid!