Contractors - avoid these latest tax avoidance schemes
Contractors have often been left to pick up the pieces when they have signed up to schemes promising them a way of keeping more of their earnings. Many of these schemes may be specifically designed to avoid paying Income Tax and National Insurance contributions and fall foul of HMRC rules, so how can you make sure you avoid falling prey to these schemes which can often use deceptive marketing tactics?
How to spot the signs of a tax avoidance
scheme
Look out for any of the following signs:
A scheme that allows you to keep more of your income than you would expect
Be wary as you could be avoiding tax and not paying the full amount of Income Tax and National Insurance contributions (NICs) on your income. When you see such offers, bear in mind the basic rate of Income Tax is 20% and you also need to pay NICs on top.
Some or all the payments you get are said to be non-taxable
These payments may not appear on your payslip and could be described as loans, annuities, bonuses, shares, fiduciary receipts, credit facility, capital payments/advances or something similar. These payments are no different to normal income, so you need to pay Income Tax and NICs on them.
The scheme is ‘approved’ by HMRC
You may be told the schemes are safe and compliant or approved by HMRC. This is not true, as HMRC does not approve schemes.
Only part of the total payments you received are taxed as income
If you are employed this is often close to the national minimum wage, even though you are actually receiving much more than that for the work you do.
Being offered an ‘enhanced’ scheme
You may be offered a choice between a standard or an ‘enhanced’ scheme, which may be described as more tax efficient. The enhanced version is likely to be tax avoidance.
Being asked to sign more than one contract
You may be asked to sign more than one contract or agreement - this is sometimes a sign of a tax avoidance scheme.
If you can’t see how your income will be paid
If your employment contract or agreement does not state how your income will be paid, or provide a breakdown of all deductions to be taken from your income, this could be a sign of a tax avoidance scheme.
Being offered a cash bonus
You may even be offered a ‘cash bonus’ if you recommend the scheme to a friend. Consider why you are being offered this incentive; it may not be as it seems.
How to report a tax avoidance scheme
Report a scheme, or the person or the business offering you the scheme.
You can do this anonymously if you prefer. Use the Report Tax Fraud Online form and make sure you enter the code ‘COCA’ in the ‘Other information’ section.
You can also phone HMRC on 0800 788 887 - if you’re outside the UK, phone +44 (0)203 080 0871.
How to get help leaving a tax avoidance scheme
For further information you can read tax avoidance: getting out of an avoidance scheme on GOV.UK.
If you think you are in a tax avoidance scheme and want to leave it, email HMRC at counteravoidancecampaign@hmrc.gov.uk.
Current list of named tax avoidance schemes
The current list is available on the government website here;