HMRC adds three AML schemes to its tax avoidance blacklist

The taxman has made what’s being mooted as his most significant update yet to his list of avoidance schemes, because three of the five new additions are promoted by AML.

Innocuously listed as a “business support service” company, AML is part of the Knox Group whose director is Doug Barrowman -- the husband of Tory peer Michelle Mone.

Officially known as AML Tax (UK) Ltd, the company is notorious among contractors, as two of the ten taxpayers to have committed suicide over HMRC’s loan charge were AML clients.

HMRC last year took AML to court over its failure to provide legally required information to tax officials -- and won, landing the Manchester-registered company a penalty of £150,000.

'HMRC avoidance blacklist doesn't reach a wide audience'

These three facts about AML afford it an unenviably high-profile in the schemes space, but it now joining a list derided as low-profile may be just the lift which the HMRC resource needs.

As IWORK founder Julia Kermode put it yesterday, the Revenue’s list of tax avoidance schemes, enablers, promoters and suppliers simply “doesn’t reach a wide audience.”

But other experts say that some of the tactics that AML and other scheme promoters used (and still use) to get contractors to sign-up, aren’t circulated enough either.

And so, as more taxpayers threaten suicide due to the loan charge’s financial ramifications, advisers are going beyond warning ‘If it looks too good to be true..’ in citing red flags.

'Preying on the needy and greedy'

“Looking for ‘clever ways to avoid tax’? That’s what the promoters of dodgy tax schemes claim they offer,” warns Tax Advice Network.

Reflecting after the three AML-linked schemes joined the HMRC list (the three are Annuity Arrangements, AML Prefunded EBT and AML Split Contract), the network added:

“[But] are they ‘clever,’ or are they preying on the needy and greedy?”

A tax dispute specialist says contractors should watch out for “convoluted and opaque ownership structure,” as it is a sign that “something untoward is possibly afoot.”

'Always investigate'

The specialist, WTT Group further advises: “Always investigate the ownership and resident status of any entity you are entrusting your money to.

“[And remember], those who design and market tax products rely upon two issues.

“One is the complexity, real or imagined, of the tax system. The other is the unwillingness of those buying schemes to admit to not understanding the tax system”.

Writing about the loan charge -- exclusively today for ContractorUK, WTT’s Graham Webber says getting led astray by those you trust, where even the trusted party believes they are doing a favour, is also a problem.

“A potential scheme user who has been recommended by a friend -- who probably also doesn't understand the scheme -- is a delight [to promoters],” he says. “No questions, no probing, just ‘give me the same as my friend.’”

'Reality of how contractors were mis-sold schemes'

The 2021 court judgment against AML exposed “the reality of how contractors were mis-sold” Disguised Remuneration schemes, Steve Packham, a campaigner against the Loan Charge told ContractorUK last night.

“The services were marketed to specific industry sectors such as healthcare, IT and property through websites; internet forums, professional publications, at industry conferences and using direct mailshots,” said Mr Packham, quoting the judgment.

The campaigner continued: “In the case of some contractor loan schemes, the services were even marketed to intermediaries such as accountants or tax advisers.”

Also according to the ruling, AML paid “introducer commissions” to accountants and tax advisers, at the generous rate of four per cent of a scheme user’s gross contract value.

'Huge kickbacks to agencies'

Today, IWORK is warning contractors offered ‘arrangements’ (featured on HMRC’s list or not) that agents are in on it too.

“It is very easy to find yourself in a scheme without realising.

“Don't assume that recommendations made by your recruitment consultant are automatically safe -- the dodgy schemes can afford to pay huge kickbacks to agencies for referrals,” says Kermode.

Meredith McCammond of the Low Incomes Tax Reform Group (LITRG) confirmed yesterday that not all workers who end up being paid via DR “have been actively seeking out an advantage.”

'Non-compliant umbrellas with no promoter'

But also, “not all DR these days is about mastermind overseas promoters, sophisticated planning, organised and networked avoidance supply chains, or financial ‘boutiques,’” the LITRG’s technical tax officer said.

“We have heard of some non-compliant umbrellas casually concocting such schemes in-house, without any real ‘promoter’ behind them,” McCammond told ContractorUK.

“These umbrella companies seem to simply be designating a portion of otherwise taxable earnings as a non-taxable payment.

“Some umbrella companies are not even attempting to hide what they are doing, and, in many cases, they simply refer to an element of a worker’s pay as an ‘advance’ or ‘loan’ or other ‘non-taxable’ element with little or no paperwork to support the ‘planning.’”

'Walk away'

Offering guidance if confronted with either ruse (a tiny stand-alone umbrella or a multi-company avoider conglomerate) is WTT’s Mr Webber.

“Sales persons, even those claiming tax qualifications. are not a substitute for doing your own research,” he insisted recently on LinkedIn. “They are also not a shield against HMRC enquiry.

“If you don't understand what you're offered, if you think you do but have even 5% doubt as to whether it will work -- walk away.”

'Promoters will have disappeared'

As to why to walk away, or “withdraw” in HMRC parlance, Tax Advice Network’s Mark Lee explained online: “The promoters of dodgy tax advice…fail to tell you that they will have disappeared by the time you end up having to pay HMRC.

“So in addition to paying a fee to hopefully avoid paying some tax, you end up still having to pay the tax. And as it’s now late, you also have to pay interest and potentially penalties too [to HMRC].”

Next to the three AML-linked schemes, HMRC added to its avoidance blacklist this month Enhanced Umbrella Ltd, and Able Ltd (also trading as Contractor Central Accounting Ltd).

Both schemes make one payment to users that is close to National Minimum Wage and then another disguised payment, which the promoters claim is non-taxable and Income Tax and National Insurance are not correctly deducted.

'Complex'

HMRC added that the three AML schemes make use of “complex” company structures and directors’ loan accounts to extract profit, “providing directors with income where corporation tax, income tax and NICs were not correctly paid.”

The LITRG’s Ms McCammond reflected to ContractorUK: “HMRC’s list, although useful to warn individuals and employers who are ‘in the market’ for tax avoidance of the risks, will do nothing for lower paid agency workers who are being exploited by some non-compliant umbrella companies for their own gain.

“The list will also do nothing for those who may have little choice to be paid by a non-compliant umbrella company if they want the work.” 

'Cynically marketed'

MPs on the Loan Charge and Taxpayer Fairness APPG are similarly critical of the HMRC list.

They tweeted on Tuesday: “HMRC naming well-known schemes/promoters years later is no help to victims.”

Online, the cross-party parliamentary group asked why there is “no meaningful action” being “taken against those who ‘cynically marketed’ schemes.”

The MPs were alluding to HMRC’s Mary Aiston who, announcing the new blacklisting of the three AML schemes and two others, said the five schemes were “cynically marketed as clever ways to pay less tax.”

'Ruin'

LCAG’s Steve Packham agrees with the MPs that it is wrong of HMRC to only make demands of the mis-sold.

He told ContractorUK: “It is high time that rather than pursue the victims of this mis-selling, who face ruin as a result, that HMRC goes after the huge profits of those who promoted and operated these arrangements.”

Yet this week, HMRC sounded quite content at its efforts.

'Good work'

Pointing to a press item on HMRC’s blacklist featuring three schemes linked to Lady Mone’s husband, Mr Barrowman, HMRC’s director of communications Andrew Pemberton wrote:

“Good work by our press office team drawing attention to the crucial work of HMRC Counter-avoidance colleagues, who continue to do all they can to tackle promoters of tax avoidance schemes.”

Pemberton didn’t reply but underneath, one of his connections wrote of the Tory peer: “She sits in the House of Lords. You couldn't make it up.”