Skip to content Skip to main menu Skip to utility menu

Tax avoidance: Don’t get caught out!

February 14, 2022

Tax avoidance is when people bend the rules of the tax system to try to pay less than they owe. HMRC’s report, the Use of Marketed Tax Avoidance schemes in the UK, has shown that contractors are often targeted and drawn into schemes marketed by companies promising higher take home pay and less administration. Many of these schemes do not work and there could be significant financial implications for anyone involved. Use the risk checker to check whether your current contract could involve tax avoidance.

You don’t need to be a tax expert to spot an avoidance scheme. If you’re offered higher take home pay simply for rearranging how it reaches you, for example as a non-repayable loan or as a trust payment, it almost certainly is tax avoidance.

Look out for any of the following signs:

  • A scheme that allows you to keep more of your income than you would expect, with little or no deductions for Income Tax and National Insurance contributions (NICs)
  • Some, or all of the payments are said to be “non-taxable”. These could be described as loans, annuities, bonuses, or shares. These payments are no different to normal income and you still need to pay Income Tax and NICs on them
  • You may be told the schemes are safe and compliant or approved by HMRC. This is not true - HMRC never approves avoidance schemes
  • Only a part of the total payments you receive are taxed as income. If you are employed, this is often close to the national minimum wage
  • You are offered a choice between a standard or “enhanced” pay scheme. The enhanced version is likely to be tax avoidance
  • You have been asked to sign more than one contract or agreement
  • Your employment contract or agreement does not state how your income will be paid, or provide you with a breakdown of all your deductions
  • You may even be offered a ‘cash bonus’ if you recommend the scheme to a friend.

Recognise tax avoidance. Learn how to spot the signs, understand how it works, and know the risks.

Understand how umbrella companies work. If you work through an ‘umbrella company’ – here’s what you need to know about how they should operate.

Check your pay and contract arrangements. Looking at your payslip is a useful way to check for signs that you may be involved in a tax avoidance scheme.

Get help if you think you’re already in a tax avoidance scheme and don’t know how to get out.

If you think you have spotted a tax avoidance scheme, you can report it by using the Report Tax Fraud Online form. Please make sure you enter the words ‘Contractor campaign’ in the ‘Other information’ section. You can also phone HMRC on 0800 788 887 (outside the UK +44 (0)203 080 0871).

If you think you are in a tax avoidance scheme, contact the team and the will help you get on the right track. They won’t be judgemental and if you can’t afford to pay everything in one go, they may be able to offer you an instalment arrangement. Email exitsteam.counteravoidance@hmrc.gov.uk

For further information read Tax avoidance: getting out of an avoidance scheme.