HMRC has recently named and shamed two tax avoidance schemes: Peak PAYE Ltd and Best Employment Services, which have both been exposed as exploiting the tax system, leaving customers footing the accumulation of tax bills.
Director of Counter Avoidance at HMRC, Mary Aiston, said: “Tax avoidance schemes are advertised as clever ways to pay less tax when in reality, they rarely work as the promoters promise, and it is the users that end up with big tax bills.”
Always keep in mind that if something sounds too good to be true – it probably is! We’re sharing some of HMRC’s tips for spotting tax avoidance to help you ensure you don’t get caught by these illicit schemes.
What Is A Tax Avoidance Scheme?
A tax avoidance scheme is one that exploits the tax system by seeking to reduce the amount of tax owed using illegal methods. These schemes are usually set up as an umbrella company, however the majority of umbrella companies are fully compliant with HMRC and will process your pay legally, so it’s important that if you do use such services you fully understand how they work and what is involved in order to minimise the risk of falling victim to a tax avoidance scheme.
Other types of tax avoidance schemes are Loan and Job Board Schemes.
Not only do these schemes promise to reduce your tax bill, they also tend to offer incentives such as cash bonuses and other benefits for signing up. However enticing they may sound, these schemes rarely work and actually end up leaving customers with huge backdated tax bills – including interest and penalty fees.
How To Spot Tax Avoidance
HMRC is running a tax avoidance awareness campaign to educate tax payers about the warning signs of tax avoidance schemes. The campaign has an abundance of handy information guides, tips and advice on how to spot tax avoidance.
It also has a really useful ‘Stop, challenge, protect’ guide, which seeks to help individuals spot and report these schemes:
Take the time to really understand what you’re signing up for. If the information is confusing or complicated, this is often a warning sign. You can always seek professional advice if you’re unsure.
Here are some of the warning signs of a tax avoidance scheme:
- Does the scheme promise that you’ll pay less tax than expected?
- Are any of your payments ‘non-taxable’?
- Has the company said they’re ‘approved’ by HMRC? (Approved schemes don’t exist!)
- They claim to be fully legal
- Are you only getting taxed on part of your income?
- Are you being offered an ‘enhanced’ version?
- Have you been asked to sign an additional contract?
- Is it unclear how you’ll be paid or what will be deducted?
- Have you been offered a cash bonus?
The best way you can protect yourself and others from tax avoidance schemes is by reporting your suspicions to HMRC. There are several ways you can report schemes or get help if you think you’ve already signed up to a scheme – please visit the HMRC guide page for more information.
Who pays any tax due?
If the government is unable to find those responsible for setting up and operating the scheme to collect any tax not paid , HMRC will go after the person who engaged with it; that’s you!
What’s The Best Way To Be Tax-Efficient?
Tax avoidance is different to being tax-efficient! Using a chartered accountant is always your best option to ensure that your finances are as tax-efficient as possible (using the correct and legal methods!). If you’d like more information about hiring an accountant for the first time, take a look at our information page. You can also book a free initial consultation with one of our experienced accountants who will talk you through the accountancy process and offer tailored advice and recommendations to improve your tax-efficiency, based solely on your business and/or requirements.