HMRC are going to tax agency workers back 20 years

[Pirie]

So it appears many of us working through agencies are going to get life changing bills from the revenue:

How can this be real. Anyone had a brown envelope about this yet?

BarbaraofSeville, thanks for that about the employment conditions of construction workers. Very interesting.

Your first link seems out of date but it does link to the full report, which is here:
The Umbrella Company Con-Trick
www.ucatt.org.uk/files/publications/141023%20Umbrella%20Company%20Con-Trick%20Report.pdf

This sounds distinctly like the sort of thing anyone looking for an umbrella company to use for contracting would have run in to a few years ago.

I contracted around 2013 and I knew it would only be for a few months so didn't want the hassle of setting up my own limited company so chose to use an umbrella company instead. When I was looking for one I had several (very pushy) calls from companies who pushed these loan type arrangements as a way to get higher earnings/pay less tax, claimed it was totally legal and so on.

I work in finance so I gave it a large bodyswerve and went for a traditional PAYE umbrella set up. It was pretty obvious to me it wasn't clean and was likely to come back to bite in future.

I'd be surprised if these were targeting your typical agency worker though, it seemed to be more aimed at people contracting on reasonably high day rates.

Xposted with Xenia (watched stupid video then got distracted) - this is exactly the sort of schemes that were being pushed quite aggressively.

Thought I'd pipe up with a couple of points:

1. When HMRC makes claims of an individual / company owing £x, their estimates are usually wildly over-estimated. Having seen a few tax investigations, they assume worst case scenario on everything (I've seen individuals where HMRC claims they owe £tens of thousands, and when the numbers are actually unpicked, it's a £few hundred).

1. Where directors take loans from their companies, if they're unpaid within a certain timescale after the year end (think it's 9 months), the company must pay corporation tax on the loan. This corporation tax is repayable to the company once the director has repaid the loan.

And agree about large corporations and tax structures, they're doing absolutely nothing wrong, and actually, remember the UK has a very low rate of corporation tax at the moment, to entice companies to be based here. So the very thing some are villifying the likes of Amazon, Starbucks etc is what we're actually trying to encourage (because having a large corporation based here will usually raise other revenues - income tax, VAT etc). It's just not that simple. Much like Brexit [hollow laugh]

Trying to put some numbers to the issue, HMRC estimate 60 000 people were part of umbrella loan schemes. It's difficult to find figures on how much each participant saved in tax, but at a conservative estimate of £30k (which would be an average salary of around £85k - the actual figure is likely higher), this means tax lost to HMRC is around £1.8bn. Amazon's sales revenue from the UK - reported in Luxembourg- was £8.6bn, so the tax payable would have been around £1.6bn had there been no legal avoidance scheme.

Amazon's arrangements are legal if unethical. Umbrella loan schemes have never been legal, but have caused a similar amount of revenue to be lost. I can't see why the lost tax shouldn't be pursued.

I never understand people bringing Amazon and Google into these tax avoidance arguments. If people stopped buying from them, they might actually get the message that people disapprove of their tax arrangements and cough up more tax (iirc Starbucks actually did up their tax payments after sales dropped after the tax avoidance schemes were revealed) but most people are hypocrites - they'll slag off Amazon in public but then buy from the company because it's easier/cheaper than other options.

Closer to 100% I would say, they don't pay for accountants for nothing.

Setting yourself up as a limited company is fine though - that's not changing and it's not people who had that sort of arragement and invoiced for their services who are affected.

It's people who set themselves up as limited companies, AND then accepted loans rather than salary.

Presumably, on the other foot, DWP are repaying underpaid benefits going back to 1999 ?

The question of big companies paying low rates of tax comes up time and time again. There is a single corporate tax rate in the UK - currently 19%. This applies to the taxable profits of all companies - i.e. profits after capital allowances or specific reliefs such as for research and development expenditure. This can give a company a lower "effective tax rate" because they pay tax on the "tax adjusted profits" figure and not the profit figure from their accounts.
The real issue with a large group is how much profit is "allocated" to each jurisdiction. Companies in a group are expected to charge each other for services rendered on an arm's length basis. This means they can't just decide to ensure that all the profit made by the group is allocated to a company based in a low/no tax country. It also makes sure that structures can't be used where a group obtains a tax deduction twice for the same expenditure.
The OCED's BEPS seeks to address this with a single set of rules that brings together over 115 countries. It's particularly key in a digital economy - now you expect all the prices charged between related companies to be backed up by substance (for example factories and people on the ground). The aim is to stop artificial manipulation of the profits/diversion of profits into low tax countries.
Sorry that might be a bit garbled! What I meant to say it's all of question of profit manipulation for tax benefit and not actual tax rate.

Oblomov18 So what exactly are these "things that could be done but aren't" by HMRC? There must be hundreds of tax specialists who spend their careers trying to unpick these types of arrangements - within the confines of legislation - but, you know, there might be something they've missed?

The only times I've heard people complain about HMRC going after 'the little guy' was when they were pissed off about having to pay the tax that was due.

Its worth noting that the video above is the product of a lobby group of contractors largely from the higher paying contract industries (IT and Finance).

As well as implying that HMRC are the legislators, which is plainly bollocks, much of the content is very disingenuous. It melds together the forced contract status for many low income workers (which I view as scandalous avoidance of employment protection) and the dubious tax avoidance schemes used by some contractors.

There is a simpler explanation of how this works here:

www.umbrella.co.uk/industry-news/2016/04/contractors-could-have-repay-tax-retrospectively-loans#sthash.GFL5SsDJ.dpbs

Basically as a higher end contractor the scheme gave you large loans, which are not subject to tax and NI, instead of taking all your money in regular taxed pay. You then don't pay the loans back to the company.

Hence this applies to contractors who took their pay as loans and never paid them back, thereby avoiding all taxes/NI on the money. If they are true loans paid back by next April there is no tax to pay.

Just had a dig through my emails and found one from a particular company who contacted me previously, based in the Isle of Man (a lot of them were...) about this sort of loan scheme.

They were promising an 82% take home on what would have been an annual income in excess of £100k

Here's some of their fluff...

"HOW IT WORKS

XXX maximises your income and can be more tax advantageous as well as more convenient than an umbrella company, PAYE or your own limited company. Once you join XXX as a member, we will work with your agency or client to arrange the contract for your services. We raise all invoices on either a weekly or monthly basis and we take full responsibility for debt collection. Once we receive the money from your agency or client, we immediately process and arrange for payment to be transferred to your bank account usually on the same day.

KEY BENEFITS

Our service ensures you take home more pay, whilst also saving time and money.

•   Take home over 80% of contract value
  

•   We handle all your paperwork from contract negotiation through to payment   process and debtor collection
  

•   Regular Payment Cycles
  

•   Fast and easy sign up process (can be done same day)
  

•   Tax return service completed at the year-end for you "
  

Plus it said
" * Supported by leading Tax and Employment Counsel Opinion confirming that the service is fully compliant with current UK legislation"

It was only over the phone that I ever got full info on the loan element.

It's this sort of thing that they're after, not your typical agency worker

Totally agree with posters who aren't so keen on video statements ... (boo hiss to the BBC for insisting that everything has to be a video these days). Especially when in a following 60 messages it seems the statement accompanying the video isn't quite accurate.

Anyway, caught this story yesterday

www.theregister.co.uk/2018/09/24/hmrc_ir35_case_settlement_thousands_cest/

A self-employed contractor has scooped thousands of pounds from HM Revenue and Customs after the British tax body used its controversial CEST online tool to wrongly determine her tax status.

(Contd)

Not quite sure why HMRC seems to run entirely on contractors and outsourced firms (Capita). Surely it should have it's own permanent staff ?

They were promising an 82% take home on what would have been an annual income in excess of £100k

Yes I remember getting those about ten years ago, even though I'd gone back into the corporate fold at that point.

I also followed up with the odd conversation and was told a similar tale but verbally they were quite blunt about being aggressively clever tax avoidance wheezes. At worst case, you pay corporation tax (19%) on your income rather than higher rates of tax and NI.

Occasionally when our people leave to go freelance for a while I talk through their proposed contract company set up with them and these schemes were still be sold quite recently.

That was my understanding too, still being pushed recently and fairly aggressively and were often referred through websites who advertised that they would quote you for traditional umbrella services.

Realistically I can see how people were tempted - god knows I paid a mountain of tax in those few months - but it really was a case of "this is too good to be true" and fairly obvious that it would come crumbling down

I used to work as a contractor via an umbrella company but I was on a paye system and know this doesn't affect me however my ex husband is up to his neck in this stuff. He is or rather was one of the companies offering this scheme from the isle of man. He's made himself very rich from people's greed. I feel very sorry for people caught up in this but it's the old maxim if something seems too good to be true it probably is. His contracts were drawn up watertight and included warning that this could happen in the small print while verbally assuring people it wouldn't. Before anyone says anything he set the company up after we separated but I've been following the progress of the HMRC claims via a contractor forum.

The people who owe this money know full well that they owe it, the bills will be no surprise to them.

The agencies which did not use these schemes also rightly felt it was unfair on them too that they followed the law and these other agencies promising very low tax with thes loan arrangements. The email quoted above does not mention loans at all. A financially unsophisticated nurse getting one of those might not read the contract (although everyone always should) and not notice the loan element so perhaps has some kind of mis-selling claim against the companies who sold the scheme although I suppose they will go bust without insurance so the claim won't be worth much even if you can get beyond terms wihch almost certainly did warn in writing that they cannot guarantee it works and you should take your own legal advice before signing up to it.

I can definitely see how people could have got caught - IME these guys were targeting higher earners (where it would be more tempting due to tax rates) but they were far from upfront with the loan element and going through my emails I can't actually find paperwork mentioning it.

There are probably a group of people who were caught innocently and will get a shock. I'd imagine it will be especially true for people who maybe only contracted fairly briefly so haven't kept up with developments - I contracted for a few months five years ago then have been FT employed since so IF I'd gone for this scheme then I might not have known it had since fallen down. But most people doing this were long term serial contractors who knew fine bloody well, the forums were full of them

OP???

There was an active push towards these Agenciesin the IT contractor forums/networks. There will be a few who didn't understand the details but a lot specifically chose them because of the benefits and knew what they was getting themselves into.

'Whatbout' multi nationals doesn't change the situation, nobody has to focus on only one thing at a time.

But most people doing this were long term serial contractors who knew fine bloody well, the forums were full of them

I largely agree with this. I was a contractor for quite a while, about ten years when my kids were young, before returning to the fold.

There are strong contractor networks in the higher end skills sectors and minimising the tax bill was a common topic of conversation. I struggle with the idea that these people were not savvy enough to understand what they were doing.

If they didn't check the small print on their contracts with these dodgy agencies they should have done - the money in IT and FS contracting is entirely enough to pay for independent advice when setting up.

PP description of putting the risk in the contract whilst verbally insisting it would never happen is totally consistent with my experience. Plenty of contractors in the networks were advising others to avoid it unless they put the guarantees in writing (which they never will).

I don't see the problem with protecting ones earnings from the tax man. If I wasn't on PAYE I would!

And if you (theoretical you) choose to engage in dodgy schemes to try and avoid the tax man then that's your choice - but don't be surprised when they come back and bite you in the arse at some stage!

Lib, That is fine but this is not like using a legitimate tax break. It was never likely to work and peoples hould not have got involved, whereas some other things like claiming lawful expenses against pay, using your ISA allowance are tax planning which is not likely to be unlawful.

People chose to take a risk and now pay the price.

It has been the same with the footballers and TV people who went with dodgy schemes that were far too good to be true and then came unstuck.