The tax avoidance market is increasingly dominated by a hard core of specialist online promoters rather than bricks and mortar companies, while accounting firms are rarely involved in the sector now, HMRC has confirmed
HMRC estimates that around £1.7bn was lost to tax avoidance in 2018-19. Around half of this gap (£0.9 billion) was attributed to corporation tax. The £0.6 billion element related to avoidance schemes marketed to individuals is made up of unpaid income tax, National Insurance contributions and capital gains tax. By contrast this figure was a quarter of the size of unpaid taxes due to tax , which was valued at £4.6bn over the same 12-month period, while the total tax gap for evaded and avoided tax, as well as deliberate errors, reached a record £34.1bn.
The latest figures show that 30,000 individuals and 2,000 employers were involved in avoidance schemes in 2018 to 2019. The overwhelming majority of abuse was attributed to loan charge arrangements and disguised remuneration.
This type of avoidance uses contrived arrangements to make the taxable money someone receives for doing a job look like non-taxable money, all with the aim of avoiding the tax that is due.
Typically, an individual will receive their income or earnings as, what are claimed to be, a series of loans. The terms of the loans mean the recipient is highly unlikely to ever have to repay them, and the loans will generally be made via an offshore trust, which has been set up in a tax haven.
HMRC data shows that, for individuals involved in tax avoidance during the 2018 to 2019 tax year, use of tax avoidance schemes is most prevalent in the 41-60 years age group. On average, they are involved in tax avoidance for about three years. Almost half have been involved in more than one avoidance scheme.
The sale of tax avoidance schemes has moved almost exclusively online, HMRC said. There are also far fewer promoters than four years ago. The tax authority estimates that there are about 20 to 30 promoters who are behind most of the tax avoidance schemes that are marketed to the UK public. These are the people who design, manage and organise avoidance schemes.
The latest research shows that the professional bodies such as ICAEW, ACCA and the Chartered Institute of Taxation have worked hard to sstop members from any involvement in dubious schemes. All the UK’s professional organisations prohibit members from creating, encouraging or promoting tax avoidance schemes.
The problem for the public is that some of the advertising can be persuasive, claiming that it does not break tax laws. Promoters use advertising that sounds convincing and that easily draws in clients. Schemes are marketed online through price comparison-style websites. Common claims include ‘up to 90% retention on contract income’ and even ‘unprecedented support with HMRC’. HMRC continues to work with the Advertising Standards Authority and online search engines to get misleading material taken down.
HMRC identifies new avoidance schemes and the promoters behind those schemes using real time information from its PAYE systems and other intelligence. HMRC encourages anyone who is aware of avoidance schemes being marketed to provide details, including promotional material, so that it can pursue the scheme using existing powers under the Disclosure of Tax Avoidance Scheme (DOTAS) and Promoter of Tax Avoidance Scheme (POTAS) rules.
Mary Aiston, director counter-avoidance, at HMRC said: ‘Over the last six years, the amount of tax the UK loses to avoidance has fallen by around a half. The market has moved away from top accountancy firms and banks selling schemes, to boutique promoters selling online.
‘It’s no longer just about higher-income individuals using investment-based avoidance schemes involving Hollywood films or gold bullion. Instead the market has decisively shifted towards employment-based avoidance schemes, aimed at those with middle income levels, including contractors and agency workers.’
Promoters have been taking advantage of the pandemic to target NHS workers returning to work, while another target are people caught up in the loan charge scandal.
‘You don’t have to be a tax expert to know that an artificial or contrived arrangement that claims to cut your tax bill by 90% is almost certainly too good to be true. Or that an arrangement that requires you to pay big fees to the person selling it, yet very little tax to HMRC, is probably one to steer clear of,’ Aiston warned.
Since April 2016, more than 20 individuals have been convicted for offences relating to fraudulent arrangements promoted and marketed as tax avoidance schemes. The courts ordered over 100 years of custodial sentences. Most of these individuals were promoters.
The government announced on 12 November 2020 further proposals to tackle promoters, which it will consult on in spring 2021. This will include consulting on measures to ensure that promoters face significant financial consequences for promoting tax avoidance more quickly than under the existing regimes. More details are likely to be published on the new Tax Day on 23 March.