AccountingWeb : HMRC campaign causes collateral damage
http://www.accountingweb.co.uk/tax/b...lateral-damage
Rebecca Cave caught up with Philip Fisher, AccountingWEB columnist and BDO partner, to find out more about the issue.
26th Jul 2016 : Innocent employment agencies are being hit with tax bills relating to a tax scheme which they had no idea existed.
Tax scheme
Investigations by BDO have uncovered a tax avoidance scheme which offers individuals an effective 1% rate of tax, if they pay 16% of their earnings to a scheme promoter. The scheme has reputedly been sold to more than 2,000 individuals and HMRC is now trying to recover the tax that they avoided.
The scheme appears to involve a single employer and a trust or alternatively an individual located in a tax haven, as well as one or more UK-based companies. The employees are apparently rewarded with non-taxable loans rather than more traditional forms of remuneration.
Caught in a trap
The workers caught up in this scheme have been recruited to work in multinational companies across the UK, with contracts that pass through a chain of UK employment and recruitment agencies. Many of the employment agencies at the top of the chain, who supply workers directly to the multinational companies, had no idea the tax avoidance scheme was in existence, even where they had carried out a reasonable level of due diligence with the smaller UK-based companies they source workers from.
Several of those top-level employment agencies have received assessments raised under reg 80 of the PAYE rules (SI 2003/2682), which demand huge sums of tax.
HMRC powers
Where PAYE has been avoided in a supply chain, HMRC has the power to collect that tax from any company in that chain, if one or more of the parties is based overseas (ITEPA 2003 s 689). This is the legislation used in this case, which has been combined with assessments raised under regulation 80 to demand the tax avoided from the “indirect” employers.
Fisher and his colleagues at BDO have seen a number of regulation 80 assessments in recent months, and conclude that HMRC has issued hundreds of similar tax assessments to UK-based employment agencies.
What to do
Fisher recommends that recipients of such tax assessments should immediately lodge an appeal with HMRC and request postponement of all the tax demanded. When HMRC respond, the taxpayer should request a statutory review from HMRC. Those reviews are now carried out by the solicitors’ office within HMRC, so should be genuinely independent of the HMRC officers who raised the regulation 80 assessment.
Quantum of tax
A key point to address with HMRC is the how the tax demanded in the reg 80 assessment has been calculated.
Fisher said this is key: “Although the agency will know what they have paid to the third party supplier for the worker’s time, that agency will have no idea of how much the worker eventually receives, or of the effective tax rates which should be applied to that income.
Fisher added: “There is danger of double taxation in this process, as even if the employment agencies pay up, the individual workers will also be asked to pay income tax on the remuneration or dividends that they have received from the managed service company, or personal service company in the chain.”
http://www.accountingweb.co.uk/tax/b...lateral-damage
Rebecca Cave caught up with Philip Fisher, AccountingWEB columnist and BDO partner, to find out more about the issue.
26th Jul 2016 : Innocent employment agencies are being hit with tax bills relating to a tax scheme which they had no idea existed.
Tax scheme
Investigations by BDO have uncovered a tax avoidance scheme which offers individuals an effective 1% rate of tax, if they pay 16% of their earnings to a scheme promoter. The scheme has reputedly been sold to more than 2,000 individuals and HMRC is now trying to recover the tax that they avoided.
The scheme appears to involve a single employer and a trust or alternatively an individual located in a tax haven, as well as one or more UK-based companies. The employees are apparently rewarded with non-taxable loans rather than more traditional forms of remuneration.
Caught in a trap
The workers caught up in this scheme have been recruited to work in multinational companies across the UK, with contracts that pass through a chain of UK employment and recruitment agencies. Many of the employment agencies at the top of the chain, who supply workers directly to the multinational companies, had no idea the tax avoidance scheme was in existence, even where they had carried out a reasonable level of due diligence with the smaller UK-based companies they source workers from.
Several of those top-level employment agencies have received assessments raised under reg 80 of the PAYE rules (SI 2003/2682), which demand huge sums of tax.
HMRC powers
Where PAYE has been avoided in a supply chain, HMRC has the power to collect that tax from any company in that chain, if one or more of the parties is based overseas (ITEPA 2003 s 689). This is the legislation used in this case, which has been combined with assessments raised under regulation 80 to demand the tax avoided from the “indirect” employers.
Fisher and his colleagues at BDO have seen a number of regulation 80 assessments in recent months, and conclude that HMRC has issued hundreds of similar tax assessments to UK-based employment agencies.
What to do
Fisher recommends that recipients of such tax assessments should immediately lodge an appeal with HMRC and request postponement of all the tax demanded. When HMRC respond, the taxpayer should request a statutory review from HMRC. Those reviews are now carried out by the solicitors’ office within HMRC, so should be genuinely independent of the HMRC officers who raised the regulation 80 assessment.
Quantum of tax
A key point to address with HMRC is the how the tax demanded in the reg 80 assessment has been calculated.
Fisher said this is key: “Although the agency will know what they have paid to the third party supplier for the worker’s time, that agency will have no idea of how much the worker eventually receives, or of the effective tax rates which should be applied to that income.
Fisher added: “There is danger of double taxation in this process, as even if the employment agencies pay up, the individual workers will also be asked to pay income tax on the remuneration or dividends that they have received from the managed service company, or personal service company in the chain.”
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