HM Revenue and Customs (HMRC) have added more tax avoidance schemes that don’t work.
Bluestar Financial Solutions Limited
The scheme user enters an employment contract with Bluestar Financial Solutions Limited who make composite payments to the scheme users for services provided by the user. The first element is a salary with tax and National Insurance contributions (NICs) deducted, and a secondary element described as a ‘propelled payment’ with no tax and NICs deducted.
Buckingham Wealth Ltd
Under the Umbrella Remuneration Trust (URT) arrangements, a scheme user contributes to an offshore remuneration trust and claims the contribution as a deductible Corporation Tax or Income Tax expense. The money claimed to have been contributed to the trust is subsequently transferred, typically via another company, to the company’s director or back to the self-employed person. The director claims the funds received this way are held as ‘loans’ or held in a fiduciary capacity. HMRC has determined that these amounts are subject to tax, and recent tribunal decisions for the corporate users support this.
Excala Solutions Limited
The scheme user enters an employment contract with Excala Solutions Limited (ESL). ESL then makes a single payment to the scheme user, but this is artificially separated into two elements. The first element is a salary paid at or around National Minimum Wage or National Living Wage with tax and National Insurance Contributions (NICs) deducted. The secondary element is described as a ‘propelled payment’ with no tax and NICsdeducted.
HMRC’s view is that both elements of the payment should be treated as ‘normal income’/’as the user’s salary’, and therefore subject to tax and NICs.
Griffith Anderson Limited / Umbrella Contracts Kimited
Scheme user signs an employment contract with Umbrella Contracts Limited (UCL). The UCL contract states the user will be paid a salary equivalent to the National Minimum Wage (NMW) along with any commission to be paid under the ‘Commission Plan’ referred to in Schedule 1 of the contract. UCL invoices the end client. The scheme user is later provided with a copy of the ‘remittance note’ that the agency/end client sent to UCL. This confirms the scheme user’s rate of pay and hours worked. In accordance with the employment contract, UCL pays the user a NMW salary with tax and National Insurance contributions (NICs) deducted. Griffith Anderson Limited also makes a payment, but this is made without deductions for tax or NICs.
Rainbowpay Ltd / Flexen Ltd
The arrangements involve individuals providing their services to end clients or agencies through Rainbowpay Ltd who operate the payroll. The individuals also enter into an agreement with Flexen Ltd where individuals grant Flexen Ltd the option to enter an Annuity Agreement in exchange for payments (the ‘Grantee Payments’). The individuals receive a payslip from Rainbowpay Ltd showing Income and Deductions including tax and National Insurance contributions (NICs). This amount is subsequently reported to HMRC. However, the amount actually paid into the individual’s bank account is greater than the amount shown on the payslip and the difference between these two amounts has not been subjected to tax or NIC. It is HMRC’s view that the amount paid without tax and NIC deductions represents the ‘Grantee Payments’ but paid by Rainbowpay Ltd on behalf of Flexen Ltd. It is also HMRC’s view that the ‘Grantee Payments’ are also income for the services provided by individuals through Rainbowpay Ltd, and therefore the entire payment should be subject to tax and NIC deductions.
Involved in a tax avoidance scheme
If you’re worried about being involved in a tax avoidance scheme and want to get out, HMRC say they are there to help.
If you’re using any of the schemes or anything similar, HMRC strongly advises those involved to withdraw from them and settle their tax affairs to prevent building up a large tax bill.
If you want to get out of a tax avoidance scheme, contact HMRC
Guidance for those working through an umbrella company
To find out about how and what you’ll be paid and how to check your pay when you’re employed by an umbrella company as a temporary worker see:
If the umbrella company makes you an offer that sounds too good to be true, take time to consider it and ask for full details. Read personal stories from those who have been caught up in tax avoidance schemes.
You can check if you may be involved in a tax avoidance scheme by using the check if you are at risk of tax avoidance tool. This will tell you how to report the umbrella company and get help to sort out your tax.
You can contact HMRC for help to get out of a tax avoidance scheme and put your tax affairs right.
Report concerns
You can report tax fraud and avoidance by a person or business to HMRC online or call the HMRC fraud hotline.
You can report concerns about pay and work rights including National Minimum Wage, employment agencies, gang masters, or working hours.
PAYadvice.UK 4/12/2023