HMRC regularly publicise failed tax avoidance schemes on their spotlight page. The latest schemes all relate to disguised remuneration, i.e. paying individuals in a way which would normally not be subject to PAYE.
When individuals sign up to scheme number 35 they agree to receive small salary which has little or no tax deducted. The rest of the money they receive from the scheme promotor is characterised as a capital payment to acquire a deferred annuity, which will be payable to the promoter of the scheme at a future date. The individual has received a non-taxable capital payment in return for promising to pay an annuity at some date at the promotor’s choosing.
This is in effect another version of the contractor’s loan scheme, as the annuity is never actually paid by the individual to the scheme promotor. HMRC’s view is that schemes using annuities as a form of investment, where a person pays a lump sum in return for a guaranteed income, do not work.
In our newsletter on 31 March 2016 we outlined the new tax charge which will apply to outstanding contractors’ loans from 6 April 2019. Spotlight number 36 explains that HMRC are aware of attempts to side-step that tax charge, and they are convinced that such moves to avoid the tax won’t work.
Individuals who sign up to scheme number 37 are employed by an umbrella company, who hires out their services to third parties. The workers are also required to advertise their skills on a connected jobs board.
The umbrella company pays the workers a small wage with little or no tax deducted, and pays the majority of the fees earned to the owner of a jobs board. The workers are awarded loyalty points for the time their advert remains on the jobs board. They can then exchange those loyalty points for cash which is paid without tax or NIC deducted.
HMRC believe the exchange of loyalty points for cash is taxable income. What’s more, the workers should be taxed on the full amount paid out by the umbrella company, including the fee diverted to the promotor of the jobs board. Any employment agency using such a scheme may be liable for penalties for failing to deduct the correct amount of tax and NIC.
If you are offered similar schemes, we need to warn you that the promised tax savings are a mirage, as HMRC will collect any tax apparently avoided, plus interest and penalties.