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U.K. Tax Avoidance Scheme Sellers Target Returning NHS Workers

Posted on Apr. 1, 2020

“Unscrupulous” tax avoidance scheme promoters are targeting workers returning to the National Health Service to help tackle the United Kingdom’s coronavirus outbreak, HM Revenue & Customs has warned.

In an alert published March 30, HMRC said it was “aware that unscrupulous promoters of tax avoidance schemes” were operating, and urged those returning to the NHS in response to the outbreak to “be very careful not to sign up to these schemes.” HMRC published the note after Prime Minister Boris Johnson announced that about 20,000 former NHS staff had returned.

According to the alert, all of the schemes being offered have some common features, including the use of an umbrella company, and consist of two payments to the worker. The first is declared as earnings and goes through the umbrella company payroll — often at levels near the national minimum wage, or as a flat-rate payment (such as £100 per week). The second payment, which the umbrella company will claim is not taxable, may be described as “a loan, annuity, shares, a capital advance involving mutual, joint or co-ownership, or a payment derived from a revolving line of credit facility, or some other non-taxable form,” the alert says.

HMRC warned that all the schemes aim to disguise the true level of the workers’ earnings, which would ordinarily be subject to income tax and National Insurance contributions. Any NHS worker asked to sign documents other than their employment contract “should think very carefully” before signing and should especially challenge any request to sign “separate agreements to receive loans, advances, shares, annuities or anything else not relevant to your work,” the alert says. HMRC also recommended that workers use its online tax calculator to check how much tax should be paid on income earned, and ask the person offering the arrangement for a breakdown of deductions being made so that it can be compared to HMRC’s calculations.

To the agency’s knowledge, the schemes are not targeting a particular type of returning NHS worker, an HMRC spokesperson told Tax Notes March 31. The promoters’ approach “is more likely to be, ‘Throw it far and wide and see who bites,’” the spokesperson said.

“It is shocking that unscrupulous promoters of tax avoidance schemes are targeting returning NHS workers during this difficult time,” the spokesperson added. “We urge people to be very careful to not inadvertently sign up to such arrangements, as we consider them to be tax avoidance.”

Tina Riches, a volunteer with British tax advice charity TaxAid, agreed with HMRC that new and returning NHS workers should “watch out.” She tweeted March 30 that “incorrigible ‘tax promoters’ [are] trying to put people into yet more loan schemes that almost certainly won’t work.” She added that “one of the key problems was the supply chain itself — not individual workers trying to avoid tax.”

The HMRC alert explains that umbrella companies may offer NHS workers vague explanations of how the schemes function, such as claiming to use the personal allowance “more efficiently,” and may claim that workers can take home 80 to 85 percent of their pay. Umbrella company may also provide misleading pay-slips showing only the first payment or inaccurate deductions, HMRC said.

Even if an individual does not realize it, HMRC added, “these schemes are very likely to involve tax avoidance and you could end up owing tax and interest, as well as incurring the fees paid to the umbrella company.” It urged anyone using one of these schemes to leave it as soon as possible and settle their tax affairs. Anyone who becomes aware of or thinks they may have signed up for a scheme should contact HMRC, the agency said.

On March 27 HMRC warned of an increasing number of COVID-19 tax refund scams being marketed in emails and text messages claiming to be from HMRC. Mike Fell, the agency’s head of cyber-operations appeared on BBC News March 31 to reiterate that HMRC would never text, email, or phone to ask for bank details, PINs, or passwords. He said 600,000 scams had been reported over the past year.

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