On 23 March 2021 the UK government published a summary of responses to a call for evidence on tackling disguised remuneration tax avoidance.

The consultation which ran from 21 July 2020 to 30 September 2020 asked for information on the drivers of the use of disguised remuneration tax avoidance; any variations of disguised remuneration schemes not yet covered by the rules; and areas where the government can take further action to tackle disguised remuneration tax avoidance in addition to the planned approach.

Commentators supplied details of schemes they were aware of, generally highlighting schemes involving payment of wages at the level of the national minimum wage with the balance of remuneration paid through a third-party loan from an offshore entity (which is not repaid). Promoters of such schemes sometimes argue that interest is charged on the loan at the official rate and the scheme is therefore outside the disguised remuneration rules. Also used in the schemes are annuities, shares, capital advances involving co-ownership, or other income marketed by the promoter as non-taxable.

Commentators identified a number of sectors where disguised remuneration schemes are being used including IT, construction, healthcare, education, media, professions, life sciences, social work and sales.

Respondents to the call for evidence acknowledged that disguised remuneration schemes do not achieve the tax outcome claimed by the promoters. The respondents generally thought that HMRC should do more to stop the schemes and the tax advisers who responded emphasised that the promoters of disguised remuneration schemes are not regular tax advisers.

Respondents saw an important role for HMRC in combating this tax avoidance and in educating taxpayers in language clear enough to be understood by people who are not tax experts.

The commentators put forward a number of different views on drivers of behaviour in contingent labour supply chains and suggested different solutions. Contingent workers are independent contractors, freelancers or consultants hired for particular projects.

A number of the comments were in support of greater regulation of umbrella companies, including employment rights. Commentators also suggested that more responsibility should be placed on people engaging workers to check that workers engaged via third parties are taxed properly. Some commentators however suggested that further checks should only be imposed if there is strong evidence of a problem, as the sector would otherwise be subject to a large compliance burden.

Next Steps

The UK government is increasing taxpayer education on the issues, and an awareness campaign was launched in November 2020, aimed at particular sectors that are vulnerable to these schemes.

A package of amendments to the existing promoters regimes has been included in the Finance Bill 2021, and there are consultations on further measures.

HMRC is preparing measures to deal with people in the contingent labour supply chain who facilitate non-compliance and already has powers to apply a penalty under the enablers legislation. The government is consulting interested parties on a proposal for UK entities to be liable if they facilitate the whole structure of tax avoidance arrangements of an offshore promoter. The UK government will continue to monitor the use of disguised remuneration schemes in contingent labour supply chains.