Money won’t create success, the freedom to make it will.
Nelson Mandela
Many of you may recall that back in April HMRC named and shamed tax avoidance schemes used by umbrella companies for the first time. There was even a video (see below) to accompany a press release highlighting the “experience” of a critical care nurse who unknowingly joined a tax avoidance scheme through her agency.
The video explains the risks of becoming involved in a tax avoidance scheme and the warning signs customers should look out for. It also relays that the nurse would be lobbed with a big tax bill left by the umbrella company.
What it fails to do is tell the whole story – the financial fate of the nurse.
For example, what happened after the umbrella company disappeared in the night and the nurse ended up with that large tax bill? How did HMRC naming and shaming the umbrella “help” her?
Without legal recourse or even financial compensation for hard-working essential workers-cum-victims, such as nurses and construction workers, the bad guys will come back time and time again.
The cases of loan charge-related financial hardship are leading to reports of successful and attempted suicides. It’s leaving children either father and/or motherless. That is the ultimate injustice in all of this.
The Loan Charge & Taxpayer Fairness APPG see current tax clawback in these cases as draconian. And as such, people are dying.
Naming and shaming: it only works on those with scruples
When that HMRC press release came out, it advised anyone involved in the said outfits, Absolute Outsourcing’s or Purple Pay Limited’s Equity Participation Scheme, to “withdraw from them as soon as possible to prevent building up a large tax bill”.
It also said that HMRC will also regularly update the list by publishing the details of other tax avoidance schemes and their promoters.
Surely the government wouldn’t knowingly have these companies keep running if they were in fact uncompliant or tricking workers?
Where are the reports of HMRC stating that such umbrella companies are being brought to justice on behalf of the victims?
What the press statement did say was that if a tax avoidance scheme is not shown on the list, this does not mean that the scheme works or is in any way “approved” by HMRC. But when did the HMRC ever “approve” umbrella companies if they are in fact part of an unregulated industry?
HMRC admits umbrella workers end up the victims
Perhaps it was something that Mary Aiston, HMRC’s Director of Counter Avoidance, stated/admitted in the press release that reiterates the injustice of the current and historic way that the Treasury has gone after the victims of such loan charge schemes.
These schemes are cynically marketed as clever ways to pay less tax. The truth is they rarely work in the way the promoters claim and it’s the users that end up with big tax bills.
Mary Aiston, HMRC’s Director of Counter Avoidance
However, it was the second half of Aiston’s statement that raised a red flag about the slow call to action of going after the umbrella companies that bring people into these salary loans in the first place.
“This is the first time HMRC has used new powers to name tax avoidance schemes and their promoters as part of a campaign to warn the public not to get caught up in tax avoidance,” said Aiston.
“New legal powers allow us to name promoters and the schemes they peddle much faster…But we need the public to be vigilant, and that’s why we’re also helping people identify, and steer clear, of these schemes through our Tax Avoidance – Don’t Get Caught Out campaign.”
Both schemes named in the April HMRC press release involve individuals agreeing on an employment contract and working as a contractor. The schemes pay contractors the National Minimum Wage with the remainder of their wage paid through a loan to “try to avoid National Insurance and Income Tax.”
A lot of these schemes are marketed as a way for agency workers to get a cash advance that they will have to pay back. There are invoice funding companies out there so why would a worker think this was any different, especially if it could be a financial lifeline for their family to help them pay the bills? How could an employment agency place them in the lion’s den? What’s in it for them?
If workers are prepared to pay their agency recommended umbrella company a weekly admin fee in to handle their tax affairs, surely they must have been reassured that everything was to be above board.
Should we believe that thousands if not hundreds of thousands of people would knowingly sign up to an agency or umbrella company if they knew they were doing something in some way illegal?
They probably didn’t think their sick or holiday pay would be siphoned or held back by the umbrella company either, did they? Are contractors to be liable for that, too?
If on the whole these schemes and their directors were financially penalised and shut down by a more vigilant HMRC rather than leaving the onus on workers, then we might be getting somewhere.
What would happen if HMRC embraced freelancing?
Umbrella companies serve a purpose – a good one – when they are upstanding and offer brilliant must-have services at competitive rates, such as legitimate tax planning, pension plans, skills training, legitimate sick and holiday pay and private medical insurance.
But for that to happen en masse, HMRC would need more hands-on-deck to track down the bad guys (i.e., SEISS fraudsters and dodgy umbrella companies), with the regulatory backing to do so.
It also needs a radically changed mindset about embracing freelancing and solo self-employment rather than stifling it through unregulated umbrella companies and unfair taxpayer obligations without any benefits.
In an ideal world, I picture a squad of pro-contractor and self-employed financial experts at HMRC creating an optimal national insurance solution that is not only fair but uncomplicated and drives freelancing to new levels. The more tax incentives and flexibility as to how someone can work, the more growth for the economy and the taxman.
And sure, it may be a pipedream (for now), but isn’t it a dream worth fighting for if it means people don’t have to contemplate pulling the plug on their career, financial security or worse, their life?
