Recruiters warned against ‘unscrupulous’ tax avoidance scheme

Recruiters have been warned to give a scheme claiming to avoid tax using job boards and loyalty points paid by a third party a wide berth or risk facing big penalties.

Last Friday, on the Gov.uk website, HM Revenue & Customs announced a clampdown on a job board scheme that attempts to avoid Income Tax and National Insurance contributions (NICs) by paying contractors in the form of redeemable loyalty points.

John Hayes, owner of law firm Constantine Law, told Recruiter HMRC’s warning followed work he carried out with an unnamed healthcare recruiter to expose the scheme in question, which they reported to HMRC.

Hayes says HMRC’s announcement concerning the scheme, which he says is being promoted by “unscrupulous” umbrellas companies “desperate” to make a margin in a sector that is under severe wage pressure, is of direct relevance to recruiters supplying workers, particularly nurses, into the healthcare sector.

Hayes explains the scheme works by an agency worker becoming an employee of the umbrella company and is then paid in two parts – the first part is minimum wage, while the second part is used to “advertise” the worker’s services to a job board. At this point they receive “loyalty points” for keeping their details on the job board, while these “loyalty points” can be cashed in with no deductions made for tax of NICs. The worker then pays a fee to the third party running the job board on behalf of the umbrellas with the aim of the worker only paying tax on the NMW received. 

But Hayes warns agencies and workers using the scheme run the risk of incurring “substantial” penalties.

“The umbrellas promoting this ‘scheme’ claim that they have a QC’s opinion to support the proposal but we think this is a lie. The workings are written on a white board and are immediately rubbed out.

“HMRC is clear that this scheme won’t work. It makes the false assumption that the ‘loyalty points’ are not employment income. Plus, the worker has no need to advertise their services in this way: they will already have a job. Workers may end up worse off because they will still owe tax and NICs plus interest and fees charged by the umbrella. Agencies could also be liable for promoting a false scheme and big penalties can be imposed under the ‘General Anti-Abuse Rule’ (GAAR).

“HMRC has made it clear that they will challenge all users of this scheme and investigate their tax affairs. This could include a full PAYE audit. Recruitment agencies are strongly advised to avoid using this scheme.” 

• What are your views on this issue? Have you used such a scheme unknowingly? Email us at recruiter.editorial@redactive.co.uk or tweet us below to tell us your thoughts. We will run comments online in a round-up at the end of the week.

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