Disguised remuneration: job board avoidance scheme (Spotlight 37)
HM Revenue and Customs is aware of a scheme that claims to avoid tax by using job boards and loyalty points paid by a third party.
We鈥檙e aware of a new disguised remuneration tax avoidance scheme that attempts to avoid Income Tax and National Insurance contributions (NICs) by paying contractors in the form of redeemable loyalty points.
This scheme doesn鈥檛 work and we鈥檒l investigate all users of the scheme.
How the scheme works
The contractor becomes an employee of an umbrella company and is then paid in two parts. The first part is a small basic wage with little or no tax and NICs deducted. The second part of the payment is used to advertise the contractor鈥檚 services on a job board.
They immediately receive loyalty points in return for keeping their details on the job board. The loyalty points can be cashed in by the employees shortly after, with no deductions made for tax or NICs. The contractor usually has to pay a large fee to the third party running the job board.
Why you shouldn鈥檛 use it
The view of HM Revenue and Customs (HMRC) is that this and other similar schemes don鈥檛 work. Receiving and redeeming the loyalty points is taxable income, which forms part of the contractor鈥檚 employment income from the umbrella company.
This income may include the payment to the umbrella company, including any fees taken by them or a promoter.
Contractors could end up worse off because they鈥檒l still owe the tax and NICs, plus interest and any fees charged by the promoter.
Employment agencies and businesses who are involved in this scheme may also be liable for failing to deduct the correct amount of tax and NICs.
What will happen if you use the scheme
We鈥檒l challenge all users of this scheme and investigate their tax affairs. We鈥檒l also challenge any umbrella company operating this scheme.
We鈥檒l consider whether or not the General Anti-Abuse Rule (GAAR) may apply to the scheme. Transactions where the GAAR applies are subject to a 60% GAAR penalty.
Under new legislation announced in the 2017 Spring Budget, from July 2017 a new penalty of 100% of the fees can be charged. This will apply to anyone who constructs, markets, sells or otherwise enables the use of abusive tax avoidance which is later defeated by HMRC.
This legislation will also provide clarification as to what constitutes 鈥榬easonable care鈥� in relation to the application of penalties charged to users following the defeat of tax avoidance.
What to do if you鈥檙e using the scheme
Users of this type of avoidance scheme should contact HMRC and make arrangements to settle the tax and NICs due as soon as possible. If you don鈥檛, you may have to pay interest and could receive a penalty.
You should email [email protected] to tell us if you are using this type of scheme.
If you鈥檙e already speaking to someone at HMRC about your use of an avoidance scheme, you should contact them.
If you haven鈥檛 filed your tax return yet, you should do so on the basis that the payment to the job board is taxable income.
Find out more about how to identify tax avoidance schemes.