HM Revenue & Customs has warned that individuals returning to the NHS to help with coronavirus have become targets for tax avoidance schemes.
HMRC published a warning yesterday (March 30) outlining new tax avoidance schemes it has become aware of which are targeting returning NHS workers.
The schemes being offered all have common features, including using an umbrella company, although they may be described in slightly different ways, the tax authority said.
All of the schemes attempt to disguise the true level of workers' earnings, which would ordinarily be subject to income tax and national insurance contributions.
HMRC urged returning NHS workers to think carefully before signing any documents other than their contract of employment as they could be signing up to one of the tax avoidance schemes and could end up owing tax and interest, as well as incurring the fees paid to the umbrella company.
It stated: "HMRC is aware that unscrupulous promoters of tax avoidance schemes are targeting workers returning to the National Health Service to help respond to the coronavirus outbreak.
"If you are returning to work for the NHS, HMRC is warning you to be very careful not to sign up to these schemes, which HMRC considers to be tax avoidance."
According to HMRC the schemes work by carrying out two payments.
The first payment is declared as earnings and will go through the umbrella company payroll, often at national minimum wage levels or a flat rate payment of, for example, £100 per week.
There is then a second payment, which the umbrella company will claim is not taxable, such as a loan or shares.
Some of these umbrella companies may briefly explain how the schemes work, for example, stating they are using an individual's personal allowance more efficiently.
They may also claim that workers can take home 80-85 per cent of their pay.
HMRC has warned the payslips provided by the umbrella company could be misleading and may show the first payment only or inaccurate deductions.
It warned: "If you are asked to sign documents other than your contract of employment, you should think very carefully before signing up.
"You should challenge the position if you are asked to sign separate agreements to receive loans, advances, shares, annuities or anything else not relevant to your work.
"Even if you don’t realise it, these schemes are very likely to involve tax avoidance and you could end up owing tax and interest, as well as incurring the fees paid to the umbrella company."
The tax authority advised workers to use its online tax calculator to check the tax normally payable on their income and urged them to ask the tax avoidance promoter for a breakdown of the deductions being made, so it is clear what the fees relate to and also to check whether tax and NICs have been deducted.
If the person finds they are already using one of these schemes they should leave it as soon as possible and should contact HMRC and settle any outstanding tax as soon as possible.
Earlier this month (March 19), HMRC published a policy paper outlining its strategy to tackle promoters of mass-marketed tax avoidance schemes.
Tax avoidance is bending the tax rules in order to gain a financial advantage which was never intended by parliament.
Promoters of tax avoidance schemes include companies and people ranging from the designers of schemes to accountants and financial advisers who recommend the schemes to their clients.
Going forward HMRC will use employers' PAYE real time information returns and other data to spot avoidance risks, meaning it will no longer have to wait until the self assessment deadline to catch people underpaying tax.
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
