HMRC have shared stories of contractors who have been caught up in tax avoidance schemes. They were promised higher take-home pay, lower tax bills and less paperwork. Instead, it cost them time, money and stress.
Tanya is a single parent. She works as a critical care nurse at her local hospital. She found her job through an agency, and they recommended an umbrella company that provided payroll services. Tanya chose an umbrella company that gave her the highest take-home pay. They offered her a tax avoidance scheme which she joined This left her with an unexpected tax bill, on top of the high fees she had paid to the umbrella company for using the scheme.
I was sold on the benefits of higher pay
As a nurse I trust my patients and they trust me, that is the relationship of care. I trusted my agency and umbrella company and I feel like they lied to me and scammed me, I thought my umbrella company would care but they didn’t. My agency and umbrella company sold me the benefits of higher pay through what they described as their Tax Plan model. This has now left me owing HMRC money and my umbrella company has washed their hands of me, they just disappeared and left me with the tax bills.
My agency and umbrella company told me not to worry and that they take care of all my legal taxes and that I just have to work and not worry about such matters. I felt cheated about this. I decided to contact an accountant and showed him my contracts and he advised me to contact HMRC immediately.
When I realised that my umbrella had got me into a tax-avoidance scheme, I changed to another agency, who was compliant, and all my earnings are now correctly taxed.
The warning signs
Tanya wished she had taken more time to consider what she was signing up to and had asked more questions. If she had, she would have spotted the warning signs of tax avoidance. These were:
- the offer that she could take home 82% of her full pay when signing up to the umbrella company
- signing more than one contract or agreement
- paying a hefty fee on her gross pay for the umbrella company to set up her new employment scheme and deal with her employer
- a £500 incentive to get others to join as part of a ‘refer a friend scheme’
- a complex pay arrangement that split her monthly salary into two payments: one at the basic National Minimum Wage rate with the correct Income Tax and National Insurance contributions (NICs) paid; the other as a loan with no Income Tax or NICs paid
HMRC wrote to me so soon after using my umbrella company, which I am happy about, otherwise, I would have built-up a larger tax bill. This has helped me look at things differently as I am more aware of tax-avoidance because HMRChelped steer me away from my continued use of my tax-avoidance umbrella company.
What happened next?
It is unlikely that Tanya will be able to recover the high fees charged by her umbrella company, as they are now seeking voluntary liquidation. She must also pay tax of nearly £7,500 and some interest.
Tanya contacted HMRC and wanted to sort everything out. If she can’t pay the tax she owes in one go, she will be offered time to pay her tax bill by instalments.
Even if a contractor appoints someone else to handle their tax affairs, they are legally responsible for making sure the correct amount of Income Tax and NICs is paid.
Remember, if it sounds too good to be true it almost certainly is. Don’t get caught out by tax avoidance, so:
- Stop – don’t sign anything that you are uncomfortable with or don’t understand
- Challenge – check for warning signs, challenge what you see, ask questions
- Protect yourself, protect others – report tax avoidance schemes to HMRC
These personal stories are published to support HMRC’s Tax avoidance – don’t get caught out campaign.