Tax avoidance schemes remain a serious concern to stakeholders within the contractor payroll and staffing sector. While most umbrella companies operate compliantly, some unethically aim to boost take-home pay by reducing tax and National Insurance Contributions. Recently, the government has opened a consultation to review tougher consequences for promoters of tax avoidance, and they are looking for your help. Whether you’re a contractor, freelancer, recruitment professional, or represent an end-hirer or member of the supply chain (including those working for payroll providers such as umbrella companies), your input could be extremely valuable. Please keep reading for more information, including Professional Passport CEO Crawford Temple’s thoughts on the new consultation.
What is the government’s consultation about?
There is a proposal to make it a criminal offence to fail to comply with a Promoters of Tax Avoidance Schemes (POTAS) Stop Notice. The government is also interested in a proposal to “expedite the disqualification of directors of companies who are involved in the promotion of tax avoidance, including those who control or exercise influence over a company.”
Who is the government interested in hearing from?
The government wants to hear from any party within the contractor payroll and recruitment sector. Therefore, if any of the following apply to you, you might be interested in sharing your views by participating in the consultation:
- You have previously worked through an umbrella company.
- You are currently working through an umbrella company.
- You have been presented with the option of using an umbrella company in the past.
- You have engaged with a non-compliant tax avoidance scheme – by mistake or choice.
- You work in the recruitment sector, and umbrella companies are part of your supply chain or might be in the future.
- You represent an organisation that directly employs contractors and freelancers.
- You have received marketing material from a suspected promoter of tax avoidance.
- You work for a tax avoidance scheme, or company you suspect is unethical.
- You work for a legitimate umbrella company that values compliance and want to share your experiences.
- You represent a professional body interested in the contractor payroll sector.
How do you participate in the open consultation?
To participate in the open consultation, you can send your views to the following email address: email@example.com. Please be aware that the mailbox has a 10 MB limit, meaning you must ensure all attachments combined are no larger than 10 MB.
What is the duration of this consultation?
The government’s consultation, ‘Tougher consequences for promoters of tax avoidance’, will run from 27 April 2023 to 22 June 2023. The lead official is Tony Zagara (HMRC).
Background to the consultation
There is no question that the government is stepping up its efforts to clamp down on tax avoidance. At the same time, they are increasingly posting helpful content such as guides explaining how compliant and non-compliant umbrella companies work – to help educate the sector and to help workers make well-informed decisions about their payroll.
In the consultations foreword written by Victoria Atkins MP, Financial Secretary to the Treasure, she explains how the government has a decent record of tackling promoters of tax avoidance and summarises the proposals that are to be addressed in this open consultation:
“This government has a strong record of tackling promoters of tax avoidance. HMRC has worked vigorously to tackle promoters of tax avoidance and reduce their scope for selling avoidance schemes that damage the public finances and can leave taxpayers with unexpected tax bills. As a result of HMRC’s concerted action, the amount of revenue lost to marketed tax avoidance has fallen from an estimated £1.5 billion in the tax year 2005 to 2006 to £0.4 billion in the tax year 2020 to 2021.
In this time many promoters and enablers have left the avoidance market. But this government continues to take persistent action to deter, disrupt and otherwise frustrate promoters of tax avoidance. That is why the government introduced measures in Finance Acts 2021 and 2022 to strengthen HMRC’s ability to pursue promoters, including powers to publicly name promoters and their schemes, enabling taxpayers to be warned about the risks of getting involved in avoidance.
As announced at Spring Budget 2023, the government is consulting on two new measures which build upon and strengthen the robust action taken thus far. These measures will not only help HMRC to disrupt promoters but will also make it riskier for promoters to continue to promote tax avoidance arrangements particularly when they have been served with a legal notice telling them they must stop selling a particular scheme.
Clamping down on promoters is just one part of this government’s strategy to tackle the problem of marketed tax avoidance. In the coming weeks we will be publishing a response to the call for evidence on tackling non-compliance in the umbrella companies’ market, where corporate structures can be exploited to enable tax avoidance. We will also publish alongside the response to the call for evidence, a consultation on tackling non-compliance in the umbrella company market. This goes hand in hand with the government’s determination to crack down on all forms of non-compliant tax behaviour. At Spring Budget, the government closed a capital gains tax avoidance loophole and announced it would double the maximum sentences for the most serious examples of tax fraud, fulfilling a commitment to do so.
These proposals do not target legitimate tax advisers and taxpayers. They are instead targeted at a determined group of promoters who profit by attempting to sidestep the rules often leaving taxpayers with significant tax bills.”
To read more about the consultation, including an in-depth look at the proposals, please visit Open consultation: Tougher consequences for promoters of tax avoidance.
Crawford Temple, CEO at Professional Passport, shares his views on the open consultation
CEO Crawford Temple shares his views on the open consultation in an article posted on Professional Passport’s website. He said:
“Whilst HMRC and the Government are full of good intentions to clamp down on tax avoidance as they seek to introduce harsher prison sentences, opening another consultation simply delays action and enforcement. For far too long, a plethora of tax avoidance schemes have been allowed to thrive and the perpetrators have got away Scot-free whilst their victims have been punished. HMRC has all the data it needs to rid the industry of the bad eggs – its naming and shaming campaign has identified just the tip of the iceberg – there are many thousands of dodgy schemes operating in various guises and many masquerading as umbrella companies.
HMRC has failed to act quickly enough over the years and a consultation that looks to introduce more punitive measures for these criminals is simply a case of shutting the stable door after the proverbial horse has bolted. HMRC should be catching these criminals before they are allowed to cause financial and emotional damage in the first instance. A harsher sentence may not even be enough of a deterrent anyway – the people behind these dodgy schemes are ruthless and savvy – they have got away with pedalling these schemes for far too long and don’t think they will ever be caught, and some don’t care as the financial reward is too tempting. I have been banging the drum for some time now – HMRC needs to act quicker and catch the criminals sooner. Enforcement is the key.”
Top 10 umbrella companies
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