Umbrella Payroll Schemes (the Dodgy Kind)
Umbrella payroll schemes are one of the most common failed tax avoidance schemes. Your pay from the umbrella company is divided into a small payment which goes through the payroll and is subject to PAYE (indicating that you are only paying tax on some of your income) and a much larger payment without any tax or national insurance deducted.
This larger payment comes from a different account than the first payment and usually from overseas.
Your payslip, however, shows the larger payment separately and refers to it as something other than pay such as a loan, credit or investment payment – and this is what poses an issue.
The scheme promoter promises the users of these failed tax avoidance schemes that they can keep up to 95% of your pay without tax or national insurance (and some promoters even claim that HMRC is aware of and have approved the arrangement – even though this is seldom the case). The payment may have even been sent through various companies before it comes to you.
Risk rating: very high risk; these schemes may involve professional negligence, dishonesty and non-disclosure and therefore can cross the line from tax avoidance into tax evasion, at least as far as the scheme promoter is concerned. Many users may have been deceived by the promoter into thinking it was above board and legal, but HMRC are likely to consider that as the scheme was “too good to be true” the user must in some way have been complicit leading at least to civil penalties for careless or deliberate behaviour.
Disguised Remuneration Schemes
Disguised remuneration schemes can come in many different forms, but what they have in common is that the promoters claim that the schemes replace (taxable) income with (non-taxable) payments such as loans out of an employee benefit trust. The Supreme Court decided last year in the Rangers case that many of these schemes do not work as a technical matter and that the tax avoided is still payable.
If you have used one of these schemes HMRC have put the matter beyond doubt by the loan charge that will apply to all disguised remuneration loans. This will apply to outstanding loans on 5 April 2019 and will charge tax on all outstanding disguised remuneration loans made since 1999 at your highest marginal rate i.e. up to 45% in one go.
If you’ve used a disguised remuneration scheme, settling with HMRC before the 5th April 2019 might be the best course of action. It’ll give you certainty and peace of mind, and also means that you:
- Do not have to pay the loan charge that comes into effect on 5 April 2019
- Will pay a lower rate of tax on your disguised remuneration loans – the loan charge will add all your loans together and tax them in one year
- Can negotiate a “time to pay” arrangement over 2 to 5 years
Do not be distracted by some promoters claiming that the April 2019 loan charge is unlawful retrospective taxation that is open to a judicial review: it is not retrospective and only seeks payment of tax that was due at the time the loans were made or will be due on loans remaining outstanding in April 2019.
Should you require advice and representation to settle with HMRC, click here to instruct Patrick Cannon today. Patrick also advises users of failed tax avoidance schemes about settlement with HMRC and also on claims for professional negligence.