Advisers to contractors back HMRC finally ‘naming and shaming’ avoidance promoters

A new power for HMRC which was unveiled at Autumn Budget 2021 – ‘naming and shaming’ avoidance promoters -- has finally come to fruition.

In what most advisers appear to welcome, the taxman is for the first time naming names, effectively saying ‘use either Absolute Outsourcing or Purple Pay, and risk large tax bills.’

But according to Brookson, there’s little surprise in the make-up of the two schemes so far blacklisted, run out of Bury, Greater Manchester, and Gracechurch Street, London, respectively.

The accountancy firm observes that offering take-home pay of a conventionally unachievable 82%, the schemes start seemingly innocuously, as individuals are given an employment contract to work as a contractor.

'Not a surprise contractors are the targets'

But the contractors then get paid the National Minimum Wage, with the rest of their wages paid through a loan, with a view to avoiding National Insurance and income tax payments to HMRC.

“It is not a surprise that the first two promoters to be named target their schemes at contractors and recruitment agencies,” said Brookson’s compliance director Matt Fryer.

“There are similar schemes in the market with different promoters, so it will be interesting to see the next instalment from HMRC.”

'Avoidance schemes in the medical sector are rife'

Those next instalments, or additions to the new HMRC page “Current list of named tax avoidance schemes, promoters, enablers and suppliers” might be in the medical market because there, tax ruses are “rife”.

Rob Sharp of Orca Pay Group reflected on his assessment: “[In the medical market], many contractors get duped into arrangements… so this new [naming and shaming] move by HMRC is certainly welcome.

“[But] it is still not enough [for HMRC] to simply pursue the contractor and not go after the promotors of these schemes.”

'This naming & shaming comes 15 years too late'

It also not enough to pursue promoters -- albeit just by naming two of them and how they operate – so very late in the day, according to WTT Consulting.

“HMRC [now] has the power to name and shame promoters of suspected avoidance. It's a shame -- it's come 15 years too late,” the tax dispute advisory says.

“[And while] it may not stop promoters from defending their products… at least there are now fewer excuses for using one without being aware of the consequences.”

At the time of writing it is not clear whether a successful defence of a product by a promoter would result in their name being removed from the new HMRC ‘list’ of promoters, which currently features only Absolute Outsourcing Ltd, and Purple Pay Ltd (and specifically, PPL’s Equity Participation Scheme).

'Taxman legitimises their business'

But a former solicitor for HMRC, Osita Mba, worries that court appearances already grant promoters an unhelpful air of validity.

Now a chartered tax adviser, Mr Mba tweeted: “Instead of using the criminal law to prosecute the promoters of tax schemes to demonstrate the illegality of their business[es] and indeed shut them down, HMRC effectively legitimise their business[es] by pursuing them in the civil tax tribunals for not disclosing their schemes.”

At Orca Pay Group, there is a similar feeling that HMRC should be doing more against promoters -- actually “cutting off the head of the snake”.

“It is these promotors of tax avoidance schemes that should be making up the shortfall in unpaid taxes, not the contractors,” the group said.

'Exit either scheme as quickly as possible'

Orca’s chief executive Mr Sharp added: “[Nevertheless] for any contractors that may currently be engaged in these schemes with the tax avoidance promoters [AOL and/or PPL] you are advised…to exit these as quickly as possible, to prevent building up a large tax bill.”

Also with contractors in mind, including those contractors for whom a list of two names and adjoining details comes too late, is WTT Consulting’s Graham Webber.

“[This new ‘naming and shaming’ power won’t now see] HMRC admit that in 2007, they knew of schemes, but took no action to stop them and instead waited a further number of years, before making enquiries and eventually,” he said, “had to resort to a retrospective law in the form of the loan charge.”

As well as contractors, contractor recruitment agencies are also being advised by HMRC to withdraw from avoidance promoters like PPL and AOL, although of the two, only AOL was specified by the Revenue as using agencies as part of its operation.