Out-Law Analysis 2 min. read

Returning NHS staff warned of disguised remuneration scam

HM Revenue and Customs (HMRC) has been forced to publish an alert warning returning NHS staff that they are being actively targeted by promoters of tax avoidance schemes.

The alert was published as the government announced that around 20,000 former NHS staff were returning to work in the UK health service in response to the coronavirus outbreak.

The legal obligation to pay the right amount of tax sits with each individual and, as users of previous avoidance schemes have found to their detriment, the risk of challenge from HMRC is extremely high. HMRC will raise an enquiry to seek the recovery of unpaid tax, National Insurance contributions (NICs) and interest, and possibly additional penalties, from users of these schemes.

Most employment agencies operate within the tax rules. However, in its alert, HMRC warned that unscrupulous agencies or umbrella companies are seeking to sign up returning NHS staff by tempting them with arrangements that they claim to be legitimate, tax efficient ways to allow the contractor to take home as much as 85% of their gross salary and reduce their paperwork, without explaining the risks associated with the scheme.

These ‘disguised remuneration’ schemes may work in different ways but the companies that provide them will nevertheless attempt to disguise the true level of the individual’s earnings which would ordinarily be the subject of income tax and NICs, while seeking to assure the user that the scheme is tax compliant.

Typically the NHS returner, who may be engaged through an umbrella company, will receive their remuneration as two payments:

  • the first will be declared as earnings and pass through the provider’s payroll in the normal way albeit often at around National Minimum Wage levels or at a low flat rate such as £100/week, from which income tax and NICs have already been deducted; and
  • a second, larger payment, received simultaneously or with a slight delay, and possibly from a different account. This payment will be referred to as something other than pay, and will be said not to be taxable because it relates to a loan, annuity, shares or even a “payment derived from a revolving line of credit facility”.

However, the second payment is actually no different to normal income, and tax and NICs are payable in the normal way. In most cases, the basic rate of income tax is 20% with NICs additionally due on earnings.

HMRC is advising NHS returners who think they may have been caught up in such schemes to urgently seek independent advice, or to compare their net pay after income tax and NICs have been deducted with the results of HMRC’s online tax calculator - which will give an approximate indication of what an individual’s take home pay should properly be.

In addition to avoidance schemes such as these, HMRC is also taking increased criminal action against the creators of illegal tax evasion schemes. As recently as 27 February, more than 100 HMRC officers searched business and residential premises and arrested four men and a woman suspected of fraud in connection with “disguised remuneration avoidance schemes”. At the time, HMRC confirmed that it had more than 200 suspected ‘enablers’ of these schemes under criminal investigation.

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