The British tax authority updated its guidance Monday to warn people returning to work for the National Health Service, or NHS, about disguised remuneration schemes, which HMRC said constitute illegitimate tax avoidance.
The schemes target short-term workers who are often self-employed but contract to work for a business. The contractors are generally paid directly and expected to declare their income to HMRC so they can pay income tax and national insurance. Those returning to the NHS to respond to the novel coronavirus crisis will be contracted only for the duration of the crisis and are likely to be paid directly.
The schemes have several common features, including the use of umbrella companies, HMRC said. Wages are often split into two payments, one of which is a flat rate that might be set close to the national minimum wage and have social security taxes and income tax deducted. The second payment, which the promoters of the scheme will claim is not taxable, may be described as a loan, annuity, shares, a capital advance or some other form of capital transfer that normally wouldn't be taxed.
HMRC said it considered all of these schemes illegitimate attempts to disguise the true level of someone's earnings.
"We urge people to be very careful to not inadvertently sign up to such arrangements, as we consider them to be tax avoidance," a spokesperson for HMRC told Law360.
"It is shocking that unscrupulous promoters of tax avoidance schemes are targeting returning NHS workers during this difficult time," added the HMRC representative, speaking anonymously per convention.
In March, HMRC said it would use its full range of criminal powers and civil sanctions on those who fraudulently design, promote or market tax avoidance schemes.
The schemes have historically been used by some people to avoid tax in this way, and controversy has broken out over the government's recent attempts to claw this money back. Critics of the loan charge, as it is known, claim that government guidance was vague, with some even being told by HMRC that the schemes weren't illegal.
The tax authority announced in 2016 that it would be introducing a fee for loans of this type to make up for the lost back taxes, and there have been a number of inquiries and debates in Parliament over whether HMRC is justified in doing so.
Speaking in Parliament in March, the minister in charge of HMRC, Jesse Norman, said the U.K. government had concluded that disguised remuneration loan schemes were never legal and that their use was unfair to the 99.8% of taxpayers who do not use them and never have.
--Editing by Neil Cohen.
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