‘Absurd’ loophole sees UK tax avoidance schemes removed from HMRC list

The names of two known UK tax avoidance schemes have been removed from the government’s official list due to a legislative quirk preventing the names of bogus schemes being publicised for more than 12 months.

The schemes – Absolute Outsourcing, promoted by Lancashire’s Foerster Chambers, and Equity Participation Scheme, promoted by London’s Purple Pay – were both named and shamed as part of HMRC’s April 2022 initiative to publicly identify UK tax avoidance schemes for the first time.

But in accordance with a “loophole” embedded in the Finance Act 2021, the names of both schemes were redacted from the list of “tax avoidance schemes, promoters, enablers and suppliers” on April 5, 2023.

Industry experts have called the move “ridiculous” and “appalling”, arguing that the government list’s original purpose, to demotivate the proliferation of tax avoidance schemes, is fundamentally compromised by the redaction of the names.

“Naming a tax avoidance scheme only to delete it from an official list a year later is crazy. How can anyone steer clear of tax avoidance schemes when HMRC’s own list isn’t up to date?” says Julia Kermode, founder of IWORK, a body championing independent workers.

“This list isn’t a deterrent for tax avoidance schemes – it’s merely a temporary blip in the history of these so-called companies.”

An HMRC spokesperson said: “We ensure that all aspects of our promoter naming complies with the relevant legislation, including removing scheme names one year later in line with Finance Act 2021.”

“Naming schemes has had a disruptive effect on promoters of tax avoidance. Schemes can also be named under Finance Act 2022 and details can stay online beyond 12 months. This will continue to warn taxpayers, so that they can steer clear of them.”

A ‘farcical loophole’

Announcing the launch of its initiative to name and shame bogus schemes in April 2022, HMRC said that its motivation was to “help people identify and steer clear of these schemes” and enable the “public to be vigilant”. The announcement also noted that the move was “just the first step” in a wider push to tackle tax avoidance.

But according to Fred Dures, founder of specialist payroll auditor PayePass, the UK tax authority’s latest move has compromised the effectiveness of the initiative just one year after it was introduced, calling the legislative loophole “farcical”.

“The government has only been naming and shaming these schemes for one year. Fast forward a few weeks and months and, at this rate, the list will continue to shrink. It’s one step forward, two steps back.”

Dures adds that, even without the complication of the loophole, the government’s list is currently “only the tip of the iceberg”. In light of this, he also calls on the government to commit to regulating the umbrella company industry.

Echoing Dures’ concerns, Kermode emphasises the danger umbrella schemes pose to the public, arguing that they “wreck lives” and leave individuals with “devastating tax bills”.

“They lure in unsuspecting individuals upon the presence that they are legal and compliant. Meanwhile, the scheme, along with the people running it, have disappeared into thin air,” she says.

The now redacted listings for Absolute Outsourcing and Purple Pay on HMRC’s website offer detailed summaries of the mechanics of the schemes. In both cases, users of the schemes are paid the equivalent of the National Minimum Wage rate, with the remainder of their earnings paid through loans in an attempt to avoid National Insurance and income tax payments to HMRC.

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