On 21 July 2020 the UK published a call for evidence on tackling disguised remuneration tax avoidance. Comments are requested by 30 September 2020. The document asks for views on the drivers of the continuing use of disguised remuneration tax avoidance; any types of disguised remuneration schemes not covered under the current legislation; and any further action that could be taken to tackle disguised remuneration tax avoidance.

Currently most disguised remuneration schemes are used by contractors in sectors such as management consulting or healthcare, or sometimes by small and medium enterprises to pay their employees and directors. A scheme may involve the creation of an offshore employment set up artificially for the purpose of the scheme. Schemes often involve the use of a chain of companies, trusts or partnerships through which the money is channelled.

HMRC is already tackling avoidance schemes by enforcing the legal obligations of the promoters; making enquiries into promoters, enablers and their legal entities; and working with regulatory bodies to ensure that all government regulatory powers are used. This is backed up by taxpayer education on the pitfalls of using schemes and by real-time intervention where employment-based avoidance is detected.

Some scheme promoters still adapt their schemes and argue that they fall outside the relevant legislation. Schemes have also been adapted to target particular sectors such as healthcare. The document asks for information on schemes currently being marketed and sectors targeted. Information is also requested on any variants on disguised remuneration schemes that are not covered by the legislation.

Disrupting the Business Model of Promoters

The promoters of schemes maintain secrecy on challenges to their schemes and use misleading advertising. The UK government is looking at ways to ensure HMRC has the power to name a promoter or enabler of tax avoidance schemes and to work with bodies such as the Advertising Standards Authority to prevent misleading advertising of schemes. The document requests information on any further actions that could be taken.

Increasing Financial Risk for Promoters

Promoters charge high fees but leave scheme users without support when the scheme is challenged. The government is looking at ways to increase the financial risk for promoters; disrupt the money flows between the scheme user and the promoter; and ensure that all parties in the supply chain, including promoters and enablers, satisfy their tax obligations and pay penalties as well as the tax if they do not comply. The document requests information on further action that could be taken to increase the financial risk for promoters.

Promoters of avoidance schemes may attempt to keep their tax avoidance schemes out of sight and do their best to delay any investigation. They may hide their identity behind different entities, including offshore entities; move their clients from one entity to another; not comply with legal obligations to disclose schemes; ignore or only partially reply to enquiries; settle a case before it goes to court, to avoid further publicity; or go into insolvency to avoid further action. HMRC can combat offshore promoters by exchanging information with other tax authorities but is looking for further information on how to combat the offshore promoters or deal with other aspects of their business models.

Intermediaries

There may be one or more intermediaries between the contractor and the end engager of staff, or there may be multiple intermediaries with more complex supply chains. The document asks for information on the extent to which tax avoidance is a factor in determining the structure of an employment supply chain and the reasons why. Information is also required on how engagers of contingent staff ensure that the intermediaries are complying with their tax responsibilities. Information is also requested on any employment agencies using disguised remuneration schemes and on the role of umbrella companies.