Market split on harsher treatment for tax avoiders

A fresh UK government review of tougher consequences for the promoters of tax avoidance schemes has been met with mixed reaction from market participants.

Currently, promoters can face penalties of up to £100,000 if they fail to comply with a Stop Notice. The new consultation, launched late last week, will primarily assess the possibility of criminalising this.

It will also review proposals to expedite the disqualification of directors of companies who are involved in the promotion of tax avoidance, including those who control or exercise influence over a company.

According to Julia Kermode, founder of IWORK, a support body for temporary workers, the consultation could prove to be “a landmark moment” for independent working in the UK.

“It’s no secret that tax avoidance schemes have been left to run riot over the years. And the government has turned a blind eye to the disaster these crooked schemes have left in their wake.

“The fact of the matter is that tax avoidance schemes continue to ruin lives. They promise the world to vulnerable workers who are left with devastating tax bills down the line.”

Similarly, Fred Dures, founder of specialist payroll auditor, PayePass, argues that accountability for the promoters of tax avoidance schemes is overdue, and that such schemes “pollute” the increasingly fraught umbrella industry.

“It’s high time the promoters of tax avoidance were held to account, rather than the victims. Tax avoidance schemes pollute the umbrella industry, costing lives, not to mention the economy billions in uncollected tax.”

HMRC came under fire in February earlier this year after it updated its guidance for contracting through an umbrella company for the first time since November 2022. While a welcome update for some, others argued that its necessity merely highlighted the extent of the problem.

‘Enforcement is the key’

Dures went on to echo this, arguing that while a consultation is “a step in the right direction”, more must be done to tackle the prevalence of tax avoidance in the umbrella industry.

“Let’s not get ahead of ourselves,” he said. “Until these dodgy operators are left with no opportunity to set up and nowhere to run, they will continue to wreak havoc.”

In a similar show of scepticism, Crawford Temple, CEO of payment intermediary assessor Professional Passport, argues that another HMRC consultation “simply delays action and enforcement”, and that tougher punishment will not suffice as a deterrent for the perpetrators of tax avoidance schemes.

“A harsher sentence may not even be enough of a deterrent. The people behind these dodgy schemes are ruthless and savvy – they have got away with pedalling these schemes for far too long and don’t think they will ever be caught, and some don’t care as the financial reward is too tempting.

“HMRC has failed to act quickly enough over the years and a consultation that looks to introduce more punitive measures for these criminals is simply a case of shutting the stable door after the proverbial horse has bolted.”

Temple also argues that HMRC already has the data it requires to identify and eradicate the “bad eggs”, and that it must “act quicker” to catch the criminals involved.

“There are many thousands of dodgy schemes operating in various guises and many masquerading as umbrella companies. HMRC should be catching these criminals before they are allowed to cause financial and emotional damage in the first instance. Enforcement is the key”