Don't be fooled by companies offering you 90% take-home pay
Bluebird Accountancy is fully compliant with HMRC and does not offer or promote tax evasion or tax avoidance. This example has been created to assist contractors with identifying unethical schemes that could land them in serious trouble. If you have any questions about tax avoidance schemes, please call us on 0808 301 2389.
This example focuses on a fictional company called ‘Tax Avoidance Associates’ and has been created to help you identify the classic warning signs of an offshore tax avoidance scheme.
You must be vigilant when deciding which payroll provider to use for your accountancy or umbrella requirements. There are more and more offshore companies claiming to be able to help you retain up to 90 percent of your take-home pay. This is obviously tax avoidance and could land you in serious trouble with HMRC.
Your recruiter must also be careful because they can be held accountable by HMRC if they are found to have facilitated tax avoidance – even if it was by accident! Therefore, if you are referred to an offshore scheme, both you and your recruiter are at serious risk of an HMRC investigation.
Here is what you need to know about these dodgy offshore schemes
The company above certainly sound appealing if you are interested in increasing your take-home pay. However, please read our 1-9 descriptions below because this is what they are not telling you…
Keeping 90 percent of your take-home pay is clearly too good to be true. For starters, the basic rate of income tax in the United Kingdom is 20 percent. Therefore, keeping up to 90 percent of your pay is never a legitimate prospect. Don’t forget – you also have National Insurance Contribution’s (NICs) to pay as well!
This is true – taking home 90 percent of your pay is a lot better than if you receive PAYE. However, the statement “much better than traditional PAYE” is horribly misleading because whilst it’s true, a majority of UK workers in full-time employment or those using umbrella companies receive PAYE by law. Everyone is expected to pay the correct tax and NICs, in accordance with HMRC.
Tax avoidance is technically legal. However, this does not mean you will get away with it and be able to safely take advantage of dodgy offshore schemes. HMRC are relentlessly hunting for companies promoting tax avoidance and the users of these schemes can be retrospectively punished. This means that if you have ever avoided tax, you could be found out in the future – even if the scheme has long since closed. HMRC will win 8 out of 10 cases that go to court so if you decide to avoid tax, you should be concerned and worried about being caught.
Just because the scheme is used by thousands of contractors, it doesn’t mean that it is compliant and reliable. In this case, it means that thousands of contractors are at severe risk of an HMRC investigation.
It is recommended that self-employed workers do their research into insurances and carefully decided what they do and do not require for each assignment. Whatever insurances this company provide, it will not protect you from an HMRC investigation for underpaying tax. Therefore, insurances are absolutely nothing to brag about in this company’s case.
What does IR35 compliant even mean, in this case? IR35 applies to contractors working through their own limited company and in the private sector. These contractors are either inside or outside IR35 and they must pay their taxes accordingly. Therefore, using the phrase “IR35 compliant” on this landing page is actually a complete lie because whether you are inside or outside of the legislation, your tax and NICs will be significantly higher than 10 percent (if you were to receive 90 percent take home pay).
Sadly, this statement is probably true. However, experts at what? The directors of this company are probably experts at helping contractors avoid paying the correct amount of tax and NICs. However, they are not experts at operating compliantly and without risk of severe penalties from HMRC.
What a lovely quote – but who has it been written by? It certainly hasn’t been written by anyone who works at HMRC or the UK government. The quote makes it clear that if you use this company, your pay retention will be better than if you used a UK based umbrella or accountant. The company has basically admitted they are an offshore intermediary and are promoters of tax avoidance.
I think we all agree that if we had a choice, we would like to have more money coming into our bank accounts. However, we all contribute to a fair society by paying the expected amounts of tax and NICs. Therefore, don’t let companies like this try and convince you that you don’t deserve to be paying the amount of tax and NICs that is legally required, because you do!
More information on offshore intermediaries and the risks of engaging with them can be found here.
If you are unsure whether to start a limited company or use an umbrella, contact us for some free professional advice.
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