Last year saw the introduction of IR35 reforms to the public sector as the government declared zero tolerance on tax evasion. With the tightened rules scheduled for roll out to the private sector in April 2020, there’s been a sharp increase in the number of schemes advertising a quick fix for getting round them. Typically, these schemes claim to provide contractors with a fully compliant solution that also enables them to take home 80-90% of their earnings. If this claim sounds too good to be true, it’s because it is.
Nobody wants to hand over more money to the taxman, especially if they’re used to working tax efficiently through their own limited company. Many contractors who find themselves working inside IR35 think they can bend the rules while still staying within the law. Unfortunately, it’s precisely this kind of thinking that’s being used to hook contractors into schemes that are leaving them high and dry when the taxman comes knocking.
As the recent loan charge proves, with HMRC clamping down on non-compliance, it’s increasingly common for contractors to be investigated several years down the line. Around 50,000 contractors who thought they were acting within the law are being sent retrospective bills for unpaid tax, plus penalties if the charges haven’t been paid before 5th April 2019. This has resulted in crippling tax bills for many contractors, who are also facing the emotional strain and disruption of being investigated.
Contractors should also be aware that HMRC doesn’t just go after high earners. Many individuals affected by the loan charge and other disguised remuneration schemes are nurses, social workers and supply teachers who fall into the average salary bracket. It’s likely that these contractors won’t have the benefit of specialist tax advisors, making them especially vulnerable to firms who claim to be working in their interests.
As appealing as the sales pitch might sound, rather than looking after the contractor’s interests, companies who offer these schemes are turning a blind eye to the long term consequences of tax avoidance in order to look after their own. HMRC’s ability to apply charges retrospectively means that all tax avoidance schemes are subject to investigation, even if they claim to be ‘compliant’ with current legislation.
The opportunistic nature of many of these companies means that as fast as one disguised remuneration scheme comes under scrutiny, another is hatched with a different name. This can make it difficult for contractors to spot the warning signs. Only last week, the Financial Times reported on a fraudulent scheme offering contractors caught by the loan charge a get put clause. At RoQ, compliancy is right at the top of our priorities, which means that we only deal with a preferred list of suppliers who meet our rigorous compliancy assessments. Below are some warning signs of what to avoid if you’re looking for a compliant IR35 solution.
Claims that you can take home up to 90% of your earnings
This isn’t a realistic claim regardless of whether you’re operating inside or outside IR35 and could indicate that you’re dealing with a company that’s bending the rules.
No company can offer 100% guaranteed compliance since IR35 is notoriously subjective and open to interpretation.
QC or HMRC approved
These terms are misleading as HMRC would not directly endorse any scheme and could also overturn the subjective opinion of a QC.
Vague company information
Companies that deal in tax avoidance schemes tend to quickly disappear when HMRC starts investigating their activity. This often means that their websites have insubstantial content and company information.
Many disguised remuneration schemes operate from offshore locations that make it difficult to trace tax avoidance.
Complex payment processes
Payment via third party loans or offshore trusts is another clear warning sign of a disguised remuneration scheme.
No payslip provided
Your payroll provider should issues you with a payslip so that you can clearly see your tax and NI deductions. If they don’t, this could indicate they don’t want documentation of tax avoidance.
For contractors seeking a reliable, hassle free solution to IR35, joining a compliant umbrella company can provide a straightforward payroll provision with many added benefits. Our umbrella providers operate to the highest industry standards while streamlining all your financial and administrative needs from creating and chasing invoices to deducting tax and NI contributions. For more about how umbrella companies work, read our article here.
If you’re looking for competitive contract work or a permanent position, speak to a member of our team on 0800 971 7070Tags: Contracting, IR35, Tax Avoidance