Spotting a Tax Avoidance Scheme

What is a tax avoidance scheme?

A tax avoidance scheme or an offshore intermediary is a company which is set up to increase take home pay by avoiding tax – whether it is via an offshore loan scheme, trust or job board. The companies that are offering these schemes help workers avoid paying the right amount of National Insurance (NI) or tax by claiming the payment options that they are using are non-taxable. However, these payments are no different to normal income, and therefore tax and NI contributions still apply.

Why offshore intermediaries are not compliant

If you are using a compliant umbrella company or agency PAYE, the basic rate of Income Tax is 20%, plus National Insurance Contributions are due on all earnings over £8,632 per year. Therefore, you can expect to retain around 65-70% of your earning after the required deductions have been made.

Therefore, companies advertising take home pay projections of up to 90% are likely to be promoting a tax avoidance scheme.

How to spot a tax avoidance scheme

The good news is that there are some easy indicators to help you spot a tax avoidance scheme:

• They advertise 90% take home pay
• They advertise solutions that claim to be ‘better than PAYE’
• They claim to be approved by HMRC
• They have been assigned a Scheme Reference Number (SRN) by HMRC

What are the penalties for using these schemes?

If HMRC finds that you have been using a tax avoidance scheme, you will be required to pay back all of the money they believe you owe, as well as an undefined fine. Ultimately, it is your choice which payroll provider you use but HMRC will always challenge tax avoidance schemes and we strongly advise you against using one.

The importance of using a compliant payroll provider

As a contractor, it is vital that you use a compliant and trustworthy accountancy and payroll provider to ensure you pay the correct amount of tax. We have compiled a short checklist for you to follow when deciding which provider to go with:

• Do they offer realistic take home pay projections which are in line with UK tax law?
• Do they have a good reputation within the industry?
• Do they have a good compliance record with HMRC and have not been assigned a Scheme Reference Number (SRN)?
• Are they knowledgeable about UK tax law and can they provide you with important information?
• Are they based in the UK and are all of their activities in the UK?
• Are they accredited by an independent industry body such as Professional Passport or FCSA?

Umbrella Company UK

Umbrella Company UK operates in full compliance with all HMRC legislation and UK tax law, so you can count on our expert team to support you through your contract work. We have been providing compliant accountancy and payroll services to contractors for over 20 years’ and we will help you to find the right payroll service for your circumstances.