HMRC’s Latest ‘Blacklist’ Move, and What It Means for UK Contractors

On August 24th, HMRC (Her Majesty’s Revenue and Customs) took a significant step in its ongoing fight against tax avoidance. The tax authority issued an update to its “Current list of named tax avoidance schemes, promoters, enablers and suppliers,” adding the company, SmartPay Limited, company number 05618472, to a slowly-expanding ‘blacklist’ of offenders – a move heralding massive implications for both the financial industry and contractors. Contractor UK has the details.

HMRC Takes a Stand: Who’s Called Out and Why

The tax authority’s move to ‘name and shame’ tax avoidance schemes has been long-awaited by many. For years, these schemes have targeted a multitude of UK contractors, leading to widespread concern in the financial community. One such instance is SmartPay Ltd., which, through its Third Party Loan scheme, brought a great number of contractors under its control.

However, recent action by HMRC is now bringing the company’s malpractices into the spotlight. Notably, despite its registered office being in Blackpool, Lancashire, the company is incorporated in the Isle of Man, drawing a parallel with another blacklisted scheme, Payeworx Ltd.

According to ex-taxman Graham Webber, SmartPay seems to be connected to a group of entities that have been described in First Tier Tribunal cases as an ‘informal group’. This group shares links with Knox House Trust and others in the Isle of Man, as well as entities in Malta, raising serious questions about their operations and motives.

The Rising Tide: More Companies Blacklisted By HMRC

The move against SmartPay and Payeworx has opened the floodgates, with several other companies now finding their way onto HMRC’s blacklist. On August 31st, Dalespay Limited, based in Cyprus, joined the list, along with Pay Rec Limited, and Prime Umbrella Services Limited.

HMRC’s blacklist is not limited to companies but can include individuals and schemes. Given the complex nature of these tax avoidance schemes, making sense of them can be challenging. Contract workers often find themselves entangled in intricate networks, drawn into employment contracts and ‘bonus schemes’, where a portion of pay is advanced against future bonus payments, often without income tax and NICs deducted.

Contrary to what such schemes claim, HMRC views these ‘advances’ as normal income, making it taxable. For contractors trying to navigate these difficult waters, advisory firm Tax Resolute UK provides simple yet helpful advice: “Is this your wages being circulated?” “Has the tax been paid for it?” If the answer to the second question is no, then there’s a high probability that there should be tax paid on it.

The Growing Need for Reliable Advice

In light of this complexity and confusion, contractors are strongly advised to seek guidance from independent specialists, preferably ones “not connected with the tax scheme provider,” according to Jesminara Rahman, from Tax Resolute UK.

Despite HMRC’s effort to provide a blacklist, there is controversy surrounding the temporary nature of the list, with companies being delisted after 12 months. To Julia Kermode, founder of independent work champion IWORK, this system is less effective for an audience that barely knows it exists in the first place.

As HMRC continues to target tax avoidance schemes, contractors, companies, and financial advisors alike need to be aware of potential pitfalls. Transparency is key, but most importantly, understanding the system and seeking advice from reliable, independent sources is a critical step towards protecting oneself from falling into the trap of tax avoidance schemes.