HMRC frequently publishes a list of named tax avoidance schemes, promotors, enablers and suppliers and on 11 May 2023, HMRC updated its list to include a number of additional schemes. Much like HMRC's naming scheme for breaches of National Minimum Wage, the naming list intends to act as a deterrent, warning taxpayers who might be tempted to participate that HMRC will challenge them and detailing the nature of the schemes. In addition to HMRC's ability to publicly list defaulters, under Section 86 of the Finance Act 2022, HMRC can also publish information (including documents) which they consider are appropriate to inform taxpayers about the risks associated with a tax avoidance scheme. In its latest corporate report of 11 May, HMRC published a document which identified Buckingham Wealth Limited and Minerva Services Limited (both incorporated in Belize) as promoting and marketing a tax avoidance scheme.
The scheme in question was known as the Umbrella Remuneration Trust (URT) which was used to avoid income tax and NICs HMRC had identified that the "promotors" were encouraging URT users to sign a declaration claiming that the URT contributions were void (and therefore indicating that HMRC ought to close its enquiries as they were invalid). The promoters had suggested that URT users should make a "replacement" contribution to a new trust, called the Nova Trust, however, HMRC established that the Nova Trust arrangements were a continuation of the original URT. The arrangement had intended that contributions from scheme users, (typically UK companies and self-employed individuals) being made to the trust and when monies were distributed back to the users, no UK taxes were paid.
In addition, HMRC added further additional promoters/schemes to the list (including Collect Consulting Limited, Connections Limited, First Step Consulting Limited, Simply Consulting Limited and Total Recruitment Services Limited). Notably, all 5 companies are incorporated in the Isle of Man and the underlying connection between the schemes added to the list involve obtaining a tax advantage under section 62 of ITEPA (i.e., earnings in relation to employment). The schemes in question all broadly adhered to the same structure:
- Asking scheme users to enter into a contract of employment and loan agreement with the Promoter.
- The Promoter engaging with a UK umbrella company.
- The UK umbrella company contracting the user's services to a UK agency, which then contracts the scheme user's services to the end client.
- The end client pays the UK agent for the users' services (which in turn is transferred to the umbrella company and then the Promoter).
- The Promoter pays National Minimum Wage to the scheme users and a payment described as a loan, which is made without any deductions for NICs, PAYE or income tax.
It is evident from HMRC's recent list that there has been a resurgence of avoidance schemes specifically related to employment taxes in which payments made by the scheme users are not being, in HMRC's view, properly taxed. In matters involving complex chains (including umbrella companies and/or agents and intermediaries), it is essential to remain diligent and not be lured by the promise of paying little or no tax, as HMRC have powers to issue hefty assessments and penalties to any entity engaging in a non-compliant scheme (not just the promoter). Last year, HMRC issued a warning to taxpayers who fall prey to contrived arrangements that allow agency workers and contractors to keep more of their earnings and pay less tax. It is evident from this year's list of promoters (and HMRC's subsequent update) that HMRC will not hold back in investigating such schemes and will use its powers to publish information and raise awareness, to prevent taxpayers from inadvertently getting caught out.