Tax avoidance promoters are targeting returning NHS staff for their schemes. HMRC announced that they are aware of “unscrupulous promoters of tax avoidance schemes are targeting workers returning to the National Health Service (NHS) to help respond to the coronavirus (COVID-19) outbreak.”
HMRC warned returning staff to avoid signing up to such schemes, which they deem to be tax avoidance. The consequences of signing up could result in an unwanted investigation and the possibility of penalties on unpaid tax further down the line.
What to look out for
Promoters will describe the schemes in different ways however, they seem to have common features. The scheme splits a worker’s pay into 2 payments:
- A payment into an umbrella company payroll. This is often at around National Minimum Wage levels or a flat rate payment for example, £100 per week
- The umbrella company will claim the second payment is not taxable – this payment may be described as a loan, annuity, shares, a capital advance involving mutual, joint or co-ownership, or a payment derived from a revolving line of credit facility, or some other non-taxable form
The aim of the scheme is to disguise the true level of your earnings. This would result in a reduced amount of Income Tax and National Insurance contributions payable. This could be via misleading payslips produced by the umbrella company. The payslips will not show the full details of your payments, usually just one payment or inaccurate deductions.
A promoters vague explanation on how the schemes works is also something to be aware of. This could be an explanation of using a personal allowance more efficiently, and often claiming that a worker can take home 80% to 85% of their pay, without going into the detail of how it works.
If asked to sign documents other than a contract of employment, workers should think very carefully before signing up. Challenge the position if asked to sign separate agreements to receive loans, advances, shares, annuities or anything else not relevant to their work. Signing up to a scheme, could result in the worker owing tax and interest, as well as incurring the fees paid to the umbrella company.
Further guidance can be found on HMRC’s website here.