Don’t get caught out by tax avoidance

Paying tax is something we all have to do – and making sure you are doing that properly is more important than ever.

In November HM Revenue and Customs launched a national campaign after it was revealed healthcare workers were being targeted by companies marketing tax avoidance schemes.

Mary Aiston, Director of Counter Avoidance HMRC explains Tax avoidance: don’t get caught out aims to help contractors, or those thinking of going freelance, understand the risks and spot the warning signs.

One of the major outcomes can be running up large tax bills, something which happened to critical care nurse Tanya who is telling her story as part of the campaign.

Choosing an umbrella company, and choosing the tax avoidance scheme they offered, resulted in a large tax bill. Read Tanya’s full story.

When someone uses such a scheme they take on all of the risk, as under UK law each of us is responsible for paying the correct tax.

Mary advises anyone realising they are in one to leave as soon as possible and settle their tax affairs or risk having to pay the original with interest and a possible penalty on top of joining fees already paid.

Tax avoidance means our vital public services including schools and hospitals don’t get all the money they should.

HMRC advises looking out for the following signs:

• A scheme that allows you to keep more of your income than you would expect, with little or no deductions for Income Tax and National Insurance contributions (NICs)
• Some, or all of the payments are said to be non-taxable. These could be described as loans, annuities, bonuses, or shares
• You may be told the schemes are safe and compliant or approved by HMRC. This is not true - they never approve such schemes
• Only a part of the total payments you receive are taxed as income. If you are employed, this is often close to the national minimum wage
• You are offered a choice between a standard or enhanced pay scheme – this is likely to be avoidance
• You have been asked to sign more than one contract or agreement
• Your employment contract or agreement does not state how your income will be paid, or provide you with a breakdown of all your deductions
• Being offered a cash bonus if you recommend the scheme to a friend.

If you think you have spotted a tax avoidance scheme report it using the Report tax fraud online form making sure you enter the words ‘contractor campaign’ in the ‘other information’ section. You can also phone HMRC on 0800 788 887.

If you think you are in a tax avoidance scheme, email the Exits team at HMRC. They won’t be judgemental and if you can’t afford to pay everything in one go may be able to offer an instalment arrangement. You can also read Tax avoidance: getting out of an avoidance scheme.