"We weren’t trying to avoid tax – but now our lives are in ruins"

[dammit chloe]

I do sympathise with the degree to which you've all suffered for your mistake. There may be a case that it was easier to miss earlier on. However, for many, many years the majority of these schemes were marketed to the credulous with phrases like "HMRC approved". Anyone spending a few minutes looking at this would immediately realise that HMRC approves nothing. As I said, the level of blame varies quite a lot among those affected, but there were certainly many people that were, bluntly, not too clever and many others who were taking a calculated risk. As it turns out, those calculations were completely wrong because of the punitive way this was legislated against and the complete lack of care and compassion shown by HMRC w/r to taxpayers vs. those promoting avoidance. A lot of this nuance is lost, of course, because there are many vested interests, but there is also no argument for a majority of those who were captured by this being blameless. Unsettled law would be a massive red flag to most people who looked at this more carefully.

I never saw HMRC approved on anything. I left just as DOTAS came in. Unfortunately DOTAS played into the hands of the marketers because it was followed up with nothing. So DOTAS registered became the tax equivalent of CORGI registered. So I think your idea that "HMRC approves nothing" is somewhat off the reality even if technically true. The truth is HMRC area just another broken Dept with broken systems like so much of the country now.

At the end of the day it the majority were people on managed payroll schemes, they weren't people dreaming up their own schemes with their accountants that so many casual observers seem to think.

[jamesbrown]

I never saw HMRC approved on anything. I left just as DOTAS came in. Unfortunately DOTAS played into the hands of the marketers because it was followed up with nothing. So DOTAS registered became the tax equivalent of CORGI registered. So I think your idea that "HMRC approves nothing" is somewhat off the reality even if technically true. The truth is HMRC area just another broken Dept with broken systems like so much of the country now.

At the end of the day it the majority were people on managed payroll schemes, they weren't people dreaming up their own schemes with their accountants that so many casual observers seem to think.

It was so common as to have been a caricature of these schemes. Likewise with QC approval or QC opinion. Why might a QC opinion be required? Why might you enter an arrangement around which you knew the law to be murky? For many, the answer is that it was a (miss)calculated risk. Even for those that wanted to believe and made only a semi-conscious decision for financial reasons and because they thought it was a way to circumvent IR35 (aka, the credulous), the rat was there to smell with a small amount of due diligence. I wouldn't necessarily level the same criticism, or to the same degree, at the (generally poorly paid) healthcare workers and others that were caught up in this and for whom due diligence was somewhat harder because they had no legal "spidey senses" whatsoever and no experience of contracts or taxation.

There is blame to be shared around, including blame of HMRC (perhaps even mainly blame of HMRC), but a majority of contractors were not caught up in this and it is worth asking yourself why. I dare say you will find hundreds or thousands of anecdotes about contractors working in financial services and others areas who had friends and colleagues involved with these schemes, but decided against it after some due diligence. The breadcrumbs were there, even from a very early stage.

Again, you do have my sympathy about the fallout. I would not wish that on anyone. The consequences have been far too punitive. But I also believe that a majority of those caught up in these schemes are not blameless and could've asked more questions and thought about it more carefully.

[Unix]

I have limited sympathy im afraid, I knew about these schemes and always thought they were dodgy and avoided them, I was earning enough by dividends/salary, it's obvious HMRC aren't going to let you only pay 5% tax A 5 minute google search could have revealed the risks involved.

[malvolio]

I have limited sympathy im afraid, I knew about these schemes and always thought they were dodgy and avoided them, I was earning enough by dividends/salary, it's obvious HMRC aren't going to let you only pay 5% tax A 5 minute google search could have revealed the risks involved.

Yeah, I agree. But around 2008 or so when there were some lively debates on here about the schemes of various flavours and clear cases such as BN66 aka Padmore vs HMRC, those who were saying (a) "They don't work", (b) "It will come back to bite you" (e.g. through your eventual IHT bill) or (c) "You're a company director, why don't you understand the rules?" were routinely abused for daring to question the wisdom or abilities of those who are now the victims. Like many others, my sympathies are with the harshness of the penalty regime but not with getting yourself into that position in the first place.

[woody1]

For many things in life, being part of a large group is an advantage ie. safety in numbers. Not so with HMRC. The more people doing X, the more likely X is to be targeted for "special treatment" (retro legislation etc).

Obviously we've seen this with the loan schemes but also the groups trying to claim PAYE credits (Hoey, Big Group, NTRT et al).

It's perhaps not surprising therefore that HMRC have now set their sights on the big contractor accountants like CK and Boox.

[cojak]

Yeah, I agree. But around 2008 or so when there were some lively debates on here about the schemes of various flavours and clear cases such as BN66 aka Padmore vs HMRC, those who were saying (a) "They don't work", (b) "It will come back to bite you" (e.g. through your eventual IHT bill) or (c) "You're a company director, why don't you understand the rules?" were routinely abused for daring to question the wisdom or abilities of those who are now the victims. Like many others, my sympathies are with the harshness of the penalty regime but not with getting yourself into that position in the first place.

I saved a few pages of links BITD when I, Mal and a few others were warning people to steer clear. The earliest warning I’ve got from Mal was in 2005…

it was 2013 when we started getting flooded with cries for help, which is when I asked Admin to set up the HMRC Enquires sub-forum. I was initially unsympathetic but there were so many and they needed help, not censure so I changed my position on it.

[dammit chloe]

I have limited sympathy im afraid, I knew about these schemes and always thought they were dodgy and avoided them, I was earning enough by dividends/salary, it's obvious HMRC aren't going to let you only pay 5% tax A 5 minute google search could have revealed the risks involved.

Now. Not back in the early 2000s. There was no info. I know, I looked.
Were you inside or outside IR35? Have you avoided a lot of tax just because HMRC didn't get round to investigating. Because that is what this is all about. AS I have said HMRC reckon 80% of contractors should have been paying full PAYE.

[dammit chloe]

I saved a few pages of links BITD when I, Mal and a few others were warning people to steer clear. The earliest warning I’ve got from Mal was in 2005…

it was 2013 when we started getting flooded with cries for help, which is when I asked Admin to set up the HMRC Enquires sub-forum. I was initially unsympathetic but there were so many and they needed help, not censure so I changed my position on it.

Again, I left them in 2005. The scheme I was in was a payroll scheme run by an accounting firm that had been around decades. I was forced into contracting in the dotcom bust. My brother who worked as an senior accountantant/auditor in a big city firm didn't flag anything ( he even was in the same class as the QC who lent his opinion to the scheme ).

So there is a mix, but anything that isn't clearly flagged ( not in these forums or on HMRC spotlights ) will not be noticed by anyone who is unused to the contract environment. This is also why the schemes have kept going after the loan charge. First time contractors or agency workers will likely not know what they are being payed other than the bottom line.

[malvolio]

Again, I left them in 2005. The scheme I was in was a payroll scheme run by an accounting firm that had been around decades. I was forced into contracting in the dotcom bust. My brother who worked as an senior accountantant/auditor in a big city firm didn't flag anything ( he even was in the same class as the QC who lent his opinion to the scheme ).

So there is a mix, but anything that isn't clearly flagged ( not in these forums or on HMRC spotlights ) will not be noticed by anyone who is unused to the contract environment. This is also why the schemes have kept going after the loan charge. First time contractors or agency workers will likely not know what they are being payed other than the bottom line.

Well that's rather the thesis, isn't it.

It is not all that hard to work out that the minimum tax rate on income is (now) 20% so no matter how it winds up in your personal bank account, somewhere around that amount has got to be paid to HMRC. If you're getting 85% or so of your gross as personal income and also paying 5% or more of your gross to your "payroll provider" then clearly something is badly wrong. That was all that we were saying in the 2000's.

Go a bit deeper into how these things were working and it rapidly became clear that something like a motor trader allowance for stock holding is perfectly legitimate - but only if you are in the business of buying an selling cars. Writing code doesn't really qualify.

Similarly with EBTs, they are a perfectly sensible way to stop double taxation on pensions paid for out of already taxed income, but they are not applicable to pre-tax income.

Similarly with IoM double taxation treaties; yes the IoM taxation level was zero percent, but you weren't earning your money in the IoM, you were earning it in the UK where it is clearly liable for UK taxation.

There were degrees of naivety at work, but at the end of the day, the numbers just don't add up. We as a group are fairly intelligent and should be capable of recognising the absolute stupidity of using a scheme that promised unlikely levels of return on gross. But first you have to look at what is on offer and not simply accept that five magic beans are a viable option.

And, just as an aside, many of these companies said they had a QC's opinion on their viability. They never ever actually said what that opinion was...

[woody1]

And, just as an aside, many of these companies said they had a QC's opinion on their viability. They never ever actually said what that opinion was...

FWIW, the sales blurbs I saw back in the 2000s made claims like "QC approved" etc. I doubt firms would have advertised this if the opinions didn't support the validity of the arrangements.

I wonder if any of the schemes still being sold now are backed by an opinion? You'd have to be a pretty dodgy KC to provide any form of endorsement these days.