Is ‘targeting’ contractors fair, or is HMRC talking up avoidance schemes?

There are signs people in the contractor sector are in the crosshairs. But for once, it may not always be contractors.

Another week another worrying crop of tax avoidance companies added to HMRC’s naughty list.

Or at least, that’s what it feels like even if the list; officially named – HMRC’s current list of named tax avoidance schemes, promoters, enablers and suppliers, is often updated bi-weekly.

And the newly blacklisted trio is…

The latest few avoidance schemes which contractors are being told by HMRC to exit from, as of October 3^rd 2024, are:

• GL Premium;
• Miwsa Management;
• Just Standard Ltd.

But I’d invite you to cast your mind back to the additions made by HMRC towards the close of August 2024, to get closer to what I wish to discuss here, exclusively for ITContracting.Com, writes Lucy Smith, founder of Clarity Umbrella.

Avoidance schemes which ‘targeted’ workers

Back then, HMRC added two other schemes to the list of avoiders to avoid — Pazepay, and Summit LED (trading as Adept Pay). What caught the eye of one limited company director who approached me with questions is HMRC saying: “We believe Pazepay targeted healthcare workers.”

The Revenue said the same just two weeks ago: “Burnsall Pay Ltd… appear to have targeted healthcare and local council workers”.

Questions about HMRC’s claims

Well, the director asked me, isn’t “targeted” overdoing it?

The sales teams of these schemes don’t actually look up contractors on LinkedIn or wherever and track them down, do they? They don’t trawl social media looking for contractors in the health care sector expressing an interest in maximising take-home pay, right?

In other words, and to paraphrase the concerned but slightly disbelieving director, is HMRC having us on with all this ‘targeted’ stuff? Or are contractors being specifically sought out, singled out, by avoidance schemes?

For Sale: contractor’s personal data

I know — for a fact — that there are companies operating today which are offering to sell contractors’ data; their personal details and identifying information.

So in one sense, at least, contractors are being targeted — by whoever purchases such personal data of contractors.

It’s highly likely that such sensitive and private information emerged in the fall out from cyber-attacks on a few large contractor services providers. These providers were penetrated over the last few years and have had their data shared (for a price)on the dark web.

Agencies, the truly targeted

But actually, when it comes to being ‘targeted,’ by the sales teams of tax avoidance schemes, there is a much bigger chance that it is not contractors who are first in the crosshairs, but recruiters.

We know contractor recruitment agents receive offers from dubious parties and these offers are usually ‘kickbacks’ not of the small kind. These substantial kickbacks are rife in the medical, care and education staffing sectors.

How is this possible, even viable? Well, as HMRC would tell you, these avoidance schemes ripping off the exchequer take significant percentage chunks out of contractors’ headline rates, leaving the scheme with much deeper pockets to entice recruiters to promote them as part of their Preferred Supplier List (PSL).

That said, I genuinely don’t think avoidance schemes are targeting specific contractors.

When avoidance schemes’ crosshairs lock-on…

Then again, it’s hard to discount a scheme’s salesperson from showing a LOT of interest in a temporary worker who should have never gone down (or been put down) the ‘umbrella company’ route in the first place.

I’m talking here of care workers for example, or supply teachers.

‘HMRC-Approved’ and other red flags of tax avoidance schemes

These workers may fall into the trap of being interested in ‘maximising’ their pay. These often trusting individuals might not have fully looked at what they are getting into, and instead get lulled into a sense of (false) security by the scheme salesperson citing an “HMRC-Approved” badge.

Other supply teachers or care workers, who do ignore the fact ‘it sounds too good to be true,’ may just feel that it is unlikely they will get found out.

The case for umbrella company regulation

To me, whether ‘targeted’ is a fair description or not, it all just underlines the need for clear, unambiguous, proportionate regulation of the umbrella company industry.

When I recently questioned officials at the department for business and trade on the number of prosecutions of recruiters promoting tax avoidance scheme – i.e. those who have definitely been targeted by a scheme, the answer was “none.”

So, there are seemingly no deterrents, and seemingly no substantial penalties for encouraging such behaviour.

Might Autumn Budget 2024 provide some answers?

Would a test-case provide warning to those recruitment agencies who are willing to turn a blind eye, or unwilling to do ‘due diligence’ on the companies they engage with?  Could umbrella company regulation, with debt transfer, put an end to this? Probably not in one foul swoop, but I will be looking at Autumn Budget 2024 to get us further up the path.

Another thing I hope isn’t lost on the chancellor on October 30^th is that guidance in this area from HMRC has, historically, been quite limited.

Rocket science or not, it’s a ‘due diligence’ facilitator…

More positively, while there are quibbles over its wording (HMRC didn’t use “targeted” when it took to social media to blacklist Connection Point on Sep 26^th or announce a scheme under a stop notice — 1^st Choice Umbrella on Sep 16^th), HMRC is coming forward more often.

While many in the industry may say some of the advice which HMRC posts is hardly rocket science, contractors, agencies and others can use it to build, reinforce or vindicate their own ‘due diligence’ checks.

Finally, here’s the structure you invariably used before HMRC targeted you

Perhaps the biggest ‘tell’ that you, the contractor, might one day be “targeted” by HMRC?

The avoidance schemes almost always follow the same pattern with the same make up.

Typically there’s an initially compliant payment — i.e. you get paid an amount equating to the NMW or NLW with income tax and NICs deducted, ahead of a second, non-compliant payment i.e. you’re paid an amount with no income tax and no NICs deducted. Currently appearing to be more of a regular feature on HMRC’s naughty list than the names which those feigning compliance come up with, this ‘same old same old’ structure means the line I’ve heard once or twice “I didn’t know what I was getting into” may not wash for much longer — if indeed it ever did.