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Tax avoidance loophole sparks concern for employers

HM Revenue and Customs (HMRC) has removed seven tax avoidance schemes, including umbrella companies, from its online list due to legislation that prevents schemes from being named for more than 12 months.

Three new promoters of tax avoidance schemes were added to its online list in the past week, but concerns have been raised that the 12-month limit could expose employers to risk. 

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Julia Kermode, CEO of PayePass, said the rule poses a risk to workers and clients. 

Speaking to HR magazine, she said: “It’s absurd really. As part of the Finance Act 2021, as soon as a scheme has been on HMRC’s list for a year, it’s removed.  

“This is completely counterproductive and calls into question the very point of having a list of identified tax avoidance schemes.  

“What’s more, this poses a massive risk to workers, along with recruitment agencies and end-clients, each of whom could unknowingly fall into the trap of working through or with one of these dodgy operators.” 

Due to the bad practice of some errant umbrella companies, used to engaged contractors with less regulatory strain on the employer, the UK government launched a consultation into how the firms are run.  

In June this year, the response to the consultation suggested options to regulate umbrella companies and tackle non-compliance.  

It has since posted a warning to agency workers and contractors employed by umbrella schemes about how they can be used for tax avoidance. 

Kermode said tax avoidance schemes can have devastating effects on those who use them, citing Loan Charge schemes, otherwise known as ‘disguised remuneration’ schemes. 

Loan Charge schemes work by adding together all outstanding loans and taxing them as income in one year, yet HRMI has said they do not work. 

It argued the result is likely having to pay tax at higher rates than you would have done otherwise.  

Kermode said: “Thousands of innocent people were lured into working through tax avoidance schemes like the Loan Charge, only to be hit with devastating tax bills years later. The more that is done to put a stop to these unlawful, immoral schemes, the better.”