HMRC has welcomed a Court of Appeal decision that discovered tax avoidance as a result of a contractor operating via a business claiming to be an umbrella company.
The tax office took action against IT contractor Stephen Hoey, who used a disguised remuneration (DR) tax avoidance scheme, entering into an arrangement whereby he worked through an umbrella company based outside the UK to provide his services to UK-based financial service companies.
Hoey received most of his earnings in the form of loans, organised by the umbrella company, which were initially claimed not to be taxable.
HMRC argued that such schemes do not work and the loans received are taxable as income.
Hoey eventually accepted that he had received taxable income, but he claimed he should not have to pay anything because he was entitled to a notional PAYE credit.
There was no evidence that the UK-based companies that engaged him had any knowledge of the tax avoidance arrangements that he had entered into, nor of any requirement to operate PAYE.
PAYE credit proves decisive
The Court of Appeal’s finding that Hoey was not entitled to a PAYE credit confirmed HMRC’s position in collecting tax from taxpayers in cases where they enter into these types of convoluted arrangements to avoid it.
It found in favour of HMRC, and that Hoey was liable to pay the tax owed.
A spokesman for HMRC said: “If you are involved in a tax avoidance scheme, or think you might be but are unsure, you should contact us as quickly as possible. We’ll help you get out of it and settle your tax affairs. The longer you leave it the bigger the tax bill.
“Our job is to help get you back on the right track. If you can’t afford to pay everything in one go, we may be able to offer you an instalment arrangement.
HMRC will ‘always take action to tackle tax avoidance’
“Tax avoidance deprives the government of funds to pay for vital public services and is unfair to the majority of taxpayers who willingly pay their tax. HMRC will always take action to tackle tax avoidance, including challenging schemes in court.”
HMRC advised that those owing money can settle under the disguised remuneration settlement terms 2020.
The opportunity to spread payments over a number of years is still available for any taxpayer wishing to settle their disguised remuneration liabilities.
This includes people impacted by the Loan Charge, who received loans before 9 December 2010, where HMRC still has open enquiries or assessments.