HMRC has shared another press release with the umbrellacompanies.org.uk team about a recent case where a £900,000 penalty was imposed on a tax avoidance scheme promoter. Please keep reading for more information.
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A tax avoidance promoter whose schemes were used by locum doctors and nurses faces a £900,000 penalty for failing to co-operate with HM Revenue & Customs.
IPS Progression Limited (IPS) paid their 1,593 scheme users largely with tax-free loans between April 2016 and April 2018. Some of the workers were locum doctors and nurses whose services were made available by recruitment agencies to hospitals and other healthcare providers.
HMRC brought the legal action against IPS for failing to notify HMRC of its arrangement until April 2022 and a judge at First-Tier Tribunal has determined they must now pay a penalty.
The tribunal judgment said the hourly rate for the contractors’ services went to IPS who took a 15% cut. IPS issued payslips to the workers showing the remainder was split in three parts:
- “Salary paid”: This part equalled the national minimum wage for the hours worked
- “Rolled-up holiday pay”: This was 12.07% of the “salary paid” amount.
- “ILO bonus”: This was whatever was left of the payment.
IPS would only deduct Income Tax (IT) and National Insurance Contributions (NICs) from the “salary paid” and “rolled-up holiday pay” portions, but not the “ILO bonus” part.
IPS claimed they ’envisaged’ the employees would eventually repay the ’ILO bonus’ loans and these would have been subject to IT and NICs.
Judge Christopher Staker disagreed, saying: “The Respondent never intended to establish a genuine bonus scheme and never intended that the loans would be repaid. The practical effect was that employees were paid part of their taxable earning tax-free”.
Jonathan Smith, HMRC’s Director of Counter Avoidance, said:
“This penalty underlines how IPS were prepared to ignore their legal obligations and we are pleased the tribunal agree a significant penalty is due in this case.
“We use all powers available to ensure penalties are collected. This can include making company directors liable.
“We would urge anyone who thinks they have entered a tax avoidance scheme to contact us as soon as possible to get help.”
Nigel Huddleston MP, Financial Secretary to the Treasury, said:
“These schemes can cause life-changing damage to people who get involved with them, so I am making it my priority to support HMRC in using all powers available to clamp down on avoidance promoters: whether it’s through fines, legal challenges or stop notices.
“HMRC now has the powers to seek disqualification and pursue new criminal sanctions through the courts.”
Directors and other connected individuals can also be made liable for a company’s penalties from failing to disclose a tax avoidance scheme, if the company goes insolvent or there’s a serious possibility of it becoming insolvent.
HMRC urges taxpayers to be vigilant and to stay away from tax avoidance. The Don’t Get Caught Out campaign reveals the consequences of using tax avoidance schemes which could be unexpected tax bills, interest and penalties.
If anyone thinks they have used a tax avoidance scheme promoted by any firm, please contact HMRC by emailing: CAGetHelpOutOfTaxAvoidance@hmrc.gov.uk.
Additional Notes:
- IPS have 56 days, starting from the date of decision, to appeal the judgment.
- A new criminal offence now applies to promoters of tax avoidance who fail to comply with a Stop Notice under the Promoters of Tax Avoidance Schemes (POTAS) regime in respect of tax avoidance arrangements. The legislation received Royal Assent on Thursday 22 February 2024 and came into effect immediately. This legislation also introduced a new power to allow HMRC to act more swiftly to disqualify directors of companies involved in promoting tax avoidance.
- HMRC regularly updates a list of named tax avoidance schemes, promoters, enablers and suppliers on GOV.UK which includes other arrangements similar to IPS’s bonus scheme that are also tax avoidance. In total, we have publicly named 71 tax avoidance schemes and 66 companies promoting avoidance. Publishing the details online means people can make more informed decisions and steer clear of avoidance schemes and the firms that promote them. Promoters themselves have said in court that this action causes them significant damage and often forces them to stop selling their schemes. All of these publications relate to disguised remuneration tax avoidance.
- Follow HMRC’s Press Office on Twitter @HMRCpressoffice.
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Searching for a compliant umbrella company
You must use a compliant umbrella company for your payroll to avoid any risks associated with an HMRC investigation. With over 500 umbrellas to choose from, this can be challenging. However, to make your search easier, we highly recommend you engage with umbrella companies accredited by the FCSA or those with SafeRec Certification.
The FCSA is the UK’s leading professional body that sets out to ensure the supply chain of temporary workers is ethical and compliant with HMRC’s rules and regulations. To achieve FCSA accreditation, an umbrella must undergo a series of audits and assessments to ensure they adhere to the FCSA’s publicly available Codes of Compliance. And, once an umbrella is awarded FCSA accreditation, it must undergo an annual assessment to verify it still adheres to the highest compliance standards.
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