Contractors tempted to use schemes being marketed to them as a way of getting around new disguised remuneration rules have been given the clearest possible warning by HMRC that they will come under scrutiny.
However, as Dave Chaplin, CEO of ContractorCalculator points out: “The way HMRC has gone about this is another direct attack on contractors, and shows how the contracting community is seen as ‘easy pickings’ by revenue collectors facing a tax loss crisis.”
The schemes mentioned in HMRC’s new ‘Spotlight 12’ have arrangements that “may involve payments passing through a series of companies, loans from a third party or an offshore alleged employer, a deed of covenant, secondments from one employer company to another or claims of self employment, etc”.
HMRC says that it will not only challenge such schemes, but will also target contractors who use them to recover unpaid tax and National Insurance. There is also a warning that using such schemes may have longer-term implications for inheritance and trust taxes.
In its latest statement, the taxman says: “Current ... legislation applies whether the rewards are routed through employee benefit trusts, employer funded retirement benefit schemes or through any other intermediaries, either as loans, transfers of assets or other payments. The legislation will also apply to such third party arrangements where an employment is disguised as self employment or a contractual arrangement.”
Chaplin is scathing: “This is typical of their approach to scaring contractors into potentially paying more tax and National Insurance than they should. HMRC is deliberately muddying the waters with its choice of language. For example, the phrase ‘tax avoidance’ is used when what might be going on is ‘tax evasion’ in some cases. Then they list a whole bunch of things that might be perfectly legal in legislative terms, but that they just don’t like and want to scare contractors into not even considering.”
Such an approach could backfire, believes Chaplin. “HMRC is of course quite right to be targeting those who try to evade paying tax and National Insurance,” he notes. “But by using ‘catch-all’ terminology that implies that legal tax avoidance and illegal tax evasion are one and the same thing, they risk pushing taxpayers towards the illegal.”