HMRC have published a summary of responses to their call for evidence: ‘Tackling disguised remuneration tax avoidance’ where the government sought views on what drives the continuing use of Disguised Remuneration schemes, and what further action they might take to deal with them.
The Call for evidence was launched in July 2020 following the Independent review of the Loan charge in late 2019, and a call for evidence about raising standards in the tax advice market launched in early 2020.
HMRC received 34 written responses from individuals, businesses and professional bodies and held discussion calls with over 70 individuals from over 40 organisations. The respondents agreed that:
- Disguised Remuneration (DR) schemes do not work.
- The existing legislation is effective but clearer guidance on it would benefit taxpayers.
- HMRC should do more to clamp down on promoters.
- There should be greater regulation of umbrella companies.
- HMRC has an important role in educating taxpayers and tackling misinformation about these schemes: the message should be clearer so that non-tax experts can understand it and earlier, to warn taxpayers about risks before they get involved.
- The Off-Payroll Working rules have resulted in longer supply chains and more use of umbrella companies.
What types of schemes and who is still using them?
Respondents highlighted a number of active schemes they were aware of. Most involved the worker receiving a minimum wage plus interest-bearing loans, annuities, shares, capital advances, or something else the promoter marketed as 'non-taxable' income.
Sectors being targeted by promoters included IT, construction, medical, education, life sciences and sales. Several respondents raised concerns about public sector workers being targeted.
How can HMRC encourage the reporting of schemes and promoters?
When asked what more HMRC might do to encourage people to report a scheme or promoter, respondents suggested:
- Promoting the use of the tax fraud hotline.
- Providing financial rewards such as reduced penalties.
- Anonymous reporting to stop scheme users from being penalised.
How should promoters be dealt with?
Some respondents felt financial sanctions and penalties are not an effective deterrent to promoters and that HMRC should investigate them with a view to criminal prosecution for fraudulent conduct.
Other suggestions included:
- Engaging Trading Standards as promoters may be committing fraud by misrepresentation.
- The use of the Proceeds of Crime Act to target the assets of promoters.
- International arrest warrants to deal with promoters based overseas.
- A legal requirement that those advertising a Disclosure of Tax Avoidance (DOTAS) scheme must make clear that the purpose of DOTAS is to allow HMRC to identify liabilities and collect tax, not to grant HMRC’s approval for these schemes.
- Allowing individuals who have not financially benefitted to recoup funds from promoters.
What about umbrella companies?
Respondents proposed measures to tackle non-compliance by umbrella companies.
- Registration, regulation and approval by HMRC with a published list of approved companies.
- Naming or penalising non-compliant umbrella companies.
- Making umbrella companies involved in schemes face financial consequences, including joint and several liability for unpaid taxes or penalties.
- A withholding regime where there is an overseas entity providing contractors within the UK.
The Government has stated that it will continue to focus on taking action to tackle promoters of schemes and to educate taxpayers.
HMRC continues its ‘Promote, Prevent, Respond’ approach. It will look at ways to improve its guidance on these schemes and continue to work closely with professional bodies and regulatory authorities who can help by spreading avoidance messages and steering clients clear of avoidance.
HMRC are also consulting on making professional indemnity insurance compulsory for tax advisers and ways to tackle the high costs to taxpayers of claiming tax refunds.
HMRC consider there will be times when it is appropriate to reward individuals for providing information. This will continue to be on a discretionary basis dependent on the results achieved. Contractors are encouraged to report DR schemes and contact HMRC if they want to exit an avoidance scheme.
Draft Finance Bill 2021 already includes a package of measures to deal with promoters including:
- Allowing HMRC to issue stop notices to promoters much earlier than is currently possible.
- Removing the risk of promoters avoiding their obligations under Promoters of Tax Avoidance Schemes (POTAS) by hiding behind corporate entity structures
- Changing the time limits for conduct notices and ensuring that HMRC has the ability to withdraw and reissue conduct notices to promoters.
- Changing the DOTAS regime to introduce a new information power to allow HMRC to obtain information from promoters earlier about the schemes that they promote.
The government is also consulting on introducing an upfront security payment and asset freezing order for promoters. They believe there is insufficient evidence of a need to intervene in the labour supply chain and do not currently propose any new measures to deal with umbrella companies or other employment intermediaries. In particular, they do not favour measures that seek to move tax liabilities away from scheme users and consider the existing enablers legislation and their ongoing compliance check process sufficient to penalise any such entities who facilitate or enable the use of tax avoidance schemes.
Useful guides on this topic
Disguised remuneration loan charge (subscriber guide)
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
DOTAS: Disclosure of tax avoidance schemes
What are the rules on Disclosure of tax avoidance schemes (DOTAS)? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?
Promoters of Tax Avoidance Schemes (POTAS)
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules? What does this mean for promoters, intermediaries and clients?
A guide to penalties for failure to disclose under the DOTAS regulations.