In recent weeks, HMRC has updated their Don’t get caught out campaign website, which is aimed at helping contractors, agency workers and those working through an umbrella company ensure they don’t end up in a tax avoidance scheme. The campaign website explains how workers can spot tax avoidance schemes, the consequences of using one and how to get help.

While the campaign is not specifically aimed at engagers and employers, it can be helpful to be aware of these materials in case you get questions from staff or contractors about the arrangements you offer, or if you are approached by promoters suggesting that you might wish to offer similar schemes to your workers.    

Earlier this year, a challenge by HMRC resulted in one promoter of a tax avoidance scheme being fined over one million pounds for failing to disclose the nature of the scheme.

Tax avoidance schemes often make attractive promises, such as allowing workers to keep more of their pay. Schemes typically work by splitting payments into a small element subject to PAYE with the rest of the earnings paid via a loan or similar transfer which is not taxed. When HMRC identifies that such a scheme is being used, this can create tax problems for both the engager/employer who should have deducted the correct tax and national insurance contributions and potentially their employee or worker too. If HMRC cannot recover any underpaid tax from the engager, they then can seek to recover it from the worker or employee.

HMRC has also published a specific ‘spotlight’ document aimed at agency workers and contractors warning them about the potential tax avoidance arrangements used by some umbrella companies which can leave workers at risk of unexpected tax liabilities, interest and fines.