Friday, October 18, 2024

HMRC’s Roster of Identified Tax Avoidance Schemes and Non-Compliant Umbrella Companies Approaches 100 Entries

HM Revenue & Customs (HMRC) has expanded its publicly available list of non-compliant umbrella companies, now including details on nearly 100 firms involved in tax avoidance schemes.

As of September 12, 2024, HMRC added four new non-compliant umbrella companies to the list, increasing the total from 50 a year ago. Notable additions include 1st Choice Umbrella, based in Tamworth, which has been issued a “stop notice” under HMRC’s Promoters of Tax Avoidance Schemes (POTAS) due to irregularities in the tax treatment of its contractors’ payslips.

Additionally, Isle of Man-based Adapt and UK-based TGI Payday have received stop notices for offering a loan-based remuneration scheme to contractors. First-time entries on the list include AI Global Workforce in Birmingham, which allegedly provides “payment advances” to contractors without deducting income tax or National Insurance Contributions. Meanwhile, Solucionis from Liverpool has two entries on the list for violating the Finance Act 2022, having first appeared in April 2024. Its second entry is tied to POTAS regulations, detailing how the company splits remuneration into two parts—one subject to tax and National Insurance, and the other not.

Computer Weekly has extensively covered how IT contractors unknowingly get involved in tax avoidance schemes after joining non-compliant umbrella companies that entice them with the promise of exceptionally high take-home pay. These umbrella companies often employ artificial methods to minimize employment taxes, such as using non-taxable loans as substitutes for conventional salaries.

Recently, HMRC has intensified its efforts to clamp down on these practices and recover unpaid taxes through its controversial loan charge policy, which has led to severe tax bills for tens of thousands of IT contractors. A spokesperson for HMRC informed Computer Weekly that the list has doubled in size over the last year due to changes in legislation following the Finance Act 2022’s release in February 2022. This adjustment means that names of known tax avoidance schemes no longer need to be removed from the list after a year, a shift that has drawn criticism from industry stakeholders concerned about how contractors can avoid such schemes with limited information.

HMRC has also been empowered to republish the names of umbrella companies previously removed from the list if there is evidence of continued involvement in tax avoidance.

Seb Maley, CEO of contractor insurance firm Qdos, noted the significance of identifying four more avoidance schemes but emphasized that the nearly 100 companies listed highlights the widespread nature of the problem.

“While it’s encouraging to see four fewer tax non-compliant umbrella companies, the overall number underscores a serious issue,” he stated. “The lack of regulation in the umbrella sector over the past decade, along with IR35 reforms, has led to a dramatic increase in tax non-compliance. The off-payroll rules have also deterred businesses from hiring genuine contractors out of fear of misclassifying their IR35 status, resulting in a surge in demand for umbrella companies—creating a market ripe for unscrupulous operators.”

Maley called for urgent governmental action to implement statutory regulations for umbrella companies to protect flexible workers from rogue operators. He also highlighted that Labour’s election campaign had focused on ending exploitative work practices, making this situation particularly relevant and in need of attention, including rectifying the injustices faced by those affected by the Loan Charge scandal.