HMRC has issued Spotlight 42, Contractor loan schemes: misleading advertising. This followed a ruling by the Advertising Standards Authority (ASA) that a promoted contractor loan scheme was misleading.

Following on from HMRCs successful use of the ASA in a previous ruling, see Spotlight 40: Income trust schemes: misleading advertising, HMRC have again successfully obtained an ASA warning against a specific scheme being promoted by a specific advisor.

Under the scheme, advertised as a contractor loan scheme which could enable someone to “take home up to 92% of your pay”:

  • Contractors are employed by an umbrella company
  • The umbrella supplies the contractor to the end client
  • The umbrella invoices the end client and retains a 10% fee
  • The umbrella pays the contractor a salary at or just above the National Living Wage
  • The salary is below the tax and NIC thresholds
  • The balance is paid to the contractor in the form of a loan which HMRC understood was unlikely to ever be repaid.

HMRC advise in the spotlight, that loans like this are to be treated as normal income. See Disguised Remuneration.

The ASA ruled that the claims made around the scheme are misleading and must be withdrawn:

In the ASA hearing the advisor insisted that HMRC do not understand the scheme and that there were supporting judgements. The ASA concluded that there was not enough evidence provided to support this contention.

  • The claim that traders could legally “take home up to 92% of your pay” along with the other claims, made it seems as though it would be in line with HMRCs tax and NIC requirements.
  • The ASA considered that the website should have provided more information about the tax implications and risks of entering the scheme.
  • The ASA have stated that those specific claims must not be used without also providing evidence and information on risks.

HMRC deem this ruling to set an example for other promoters about similar schemes.

An email address is provided for taxpayers who wish to get out of such schemes and do not already have a contact at HMRC.


Our guides:

Anti-avoidance: HMRC's spotlights

Disguised remuneration

External link: HMRC's spotlight