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A warning to contractors- avoid schemes that say they’ll cut your tax

Contractors are being warned that HMRC are cracking down on so-called “disguised remuneration” schemes which promise to reduce the amount of tax they pay. However, companies are still advertising more and more elaborate schemes which could tempt the self-employed.

Advertising Tactics

This month alone we’ve seen adverts online for companies that claim they can reduce tax bills to 10p in the pound (when it’s almost impossible to shelter 90% of pay without raising HMRC concerns as the basic rate for income tax is 20%) and using phrases such as “QC approved” or “approved by barristers” to seem more legitimate. However, just because a QCs opinion as been given on the subject does not mean HMRC cannot challenge it.

Hiding Earnings

In particular, HMRC are looking to clamp down on schemes which try to make it look like someone’s earnings are lower than they actually are. HMRC are aware of artificial loan agreements and schemes which put money into offshore trusts.  By putting money through this way, the money is not classed as earnings and so income tax and NI go unpaid.

Who is responsible?

The scary part is that this is an industry wide problem. Less so now that those working in the public sector cannot use their own limited companies for payment, but the problem is still prevalent amongst high earners such as IT contractors, pilots and management consultants. Accountants may advise that the schemes are legitimate but it will be the contractors themselves facing a hefty tax bill if they’re investigated.

Keep well informed

If you’re a contractor, remember some tax strategies are approved by HMRC, for example taking dividends rather than a salary. It is simply not worth the risk by using a scheme that seems too good to be true.