HMRCs latest Spotlight on tax avoidance schemes
A recent unanimous ruling in The Supreme Court on a disguised remuneration scheme used by Rangers Football Club has set precedent for other tax avoidance schemes, say HMRC in Spotlight 41 on Disguised remuneration released yesterday.
As background, the court unanimously ruled that Rangers should have paid tax and NICs on payments made to an employee benefit trust. The key point from this ruling is that the court sets out the principle that employment income paid to a third party is still employment income, and therefore taxable.
The full release can be read here: (https://www.gov.uk/guidance/disguised-remuneration-a-supreme-court-decision-spotlight-41).
This is an important release and a signal from HMRC that they are upping the ante in terms of compliance activity against schemes that promote tax avoidance. The ruling gives HMRC further tools to challenge schemes that are openly funneling contractor income through loan schemes and EBTs, thus promoting and facilitating tax avoidance.
It is ultimately the contractor who suffers from use of such schemes, when HMRC ultimately catches up to them. Promises of 90% take home may sound good at the time, but 5 figure tax bills will soon snap contractors back to reality.
With the Criminal Finance Act also coming into force over the weekend, any agency that may still allow their contractors to operate through such schemes, knowingly or otherwise, may face prosecution as a result.
It is therefore critically important that agencies select their providers from those approved and audited by Professional Passport™ or FCSA. This ensures compliance and that the correct PAYE and NICs are being applied.