The government is inviting feedback on ways of dealing with the promoters of tax avoidance schemes. The emphasis appears to be on disguised remuneration schemes, often provided through umbrella companies. Many of these are now being promoted to unadvised taxpayers in relatively lower paid, often temporary, jobs. These taxpayers are often unaware of the issues which these schemes can generate. They may believe they have been fully tax compliant until HMRC contacts them. If a scheme has been going on for some years, the end result could be an unexpected tax bill far beyond the individuals’ means.
An HMRC ‘good list’?
The Low-Income Tax Reform Group (LITRG) offers an interesting suggestion in its consultation response: rather than issuing a list of unreliable schemes, HRMC should publish a list of ‘good’ avoidance scheme providers. While superficially attractive, this seems problematic on many levels, potentially leading followers into an ethical quagmire.
First, should HMRC effectively endorse companies offering tax avoidance schemes, and if they do, would they only select firms who follow HMRC’s interpretation of the law, rather than those which may be equally legitimate, but interpret the law differently?
Second, there is the issue of ’good’ providers who subsequently go bad. Who do taxpayers, who have chosen them based on an HMRC endorsed list, turn to? Similarly, if a provider were suddenly removed from the ‘good’ list and this damaged their business, would they have a right of appeal? The solution seems loaded with complex ramifications.
Who should be responsible?
LITRG acknowledges that the most important issue, as is often the case with tax, is education. Many people in avoidance structures do not understand how they work, or what obligations they are under. They may not even be sufficiently aware of matters to know to go and check any ’good’ list. This can be a particular problem when an individual enters a structure via one engagement, then moves to another without understanding the position is different, as we highlighted in this article earlier this year.
Temporary workers may be pushed into structures they don’t understand, as a condition of getting the work. Sometimes they are unaware that the way they are paid is part of a structure. These people need to be protected and here surely the entities to be targeted are the scheme providers and the engagers of the workers. People should not be entering into structures they do not understand which may have adverse consequences years in the future. Such structures should have a requirement for informed consent.
Whatever one’s view, an HMRC ‘good list’ would surely make it easier for promoters to persuade uninformed people to enter schemes. The enablers of these structures, including the engagers of the staff, must be required to take more responsibility.
The misery and financial chaos that can be caused for people entering tax structures they do not fully understand is exemplified by the continuing controversy about the loan charge. Due to changing working conditions and the gig economy, many of the people currently entering such structures are the most vulnerable in our society and they should be protected by education and legislation.