A recent HMRC announcement that five people have been arrested on suspicion of fraud in connection with promoting arrangements designed to get around the loan charge, has been welcomed by the Low Incomes Tax Reform Group (LITRG). This follows repeated recommendations by the group urging HMRC to not only use their compliance and enforcement powers, but to publicise when they have used them, to help create a deterrent effect.
However, in light of Sir Amyas Morse’s recent findings that despite the ‘life changing’ loan charge,1 loan arrangements are still in use, the group says that HMRC should urgently consider what more can be done to stop the proliferation of loan arrangements in the first place, including taking and publicising action against actual promoters of loan schemes.
LITRG makes these comments ahead of the implementation of the off payroll rules in the private sector in April. The group is concerned about the potential for lower paid agency workers to be moved from limited companies into new and likely non-compliant models of engagement,2 as a result of the changes.
Victoria Todd, Head of LITRG, said:
"Currently, some low-income agency workers find themselves pressurised into working through an umbrella company, which in turn requires them to work through a limited company. Cost savings arise in this scenario because this currently avoids Pay As You Earn (PAYE) obligations and Employer National Insurance contributions (NIC) falling on the engager or the agency.
"A lower-paid agency worker is not likely to have much autonomy over the work that they do so come April 2020, when the off payroll rules begin, the umbrella company (as the fee payer) will likely have to operate PAYE and pay Employer NIC on their deemed employment earnings.
"Our research and understanding of the inner workings of the temporary labour market suggest that it is very likely that some of these workers will be pulled out of limited companies and put into other, likely non-compliant, arrangements including ones based on loan arrangements, as some umbrella companies seek out other ways of saving money.3
"We welcome HMRC’s action against those who they suspect of promoting arrangements designed to get around the loan charge. We urge HMRC to also use their powers and take a tougher approach with promoters of loan schemes. In addition, HMRC should consider launching a hard-hitting campaign to raise awareness of and deter the use of loan arrangements by all entities involved in an employment supply chain, including workers.
"The looming spectre of another loan charge fiasco has extremely serious ramifications for workers and the Exchequer alike and we will continue both to raise our concerns and suggestions with HMRC and to welcome firm but sensible steps that they take to address this problem."
Notes for editors
2. Some of which they outline on their website here
3. LITRG and the CIOT say this issue highlights the need for early and full consultation on new measures. This was a central recommendation of the Better Budgets report published by the CIOT, Institute for Fiscal Studies and Institute for Government. In particular, they suggest there should have been a much wider initial debate about whether the off payroll rules were the correct policy response, given they do not change the underlying structural problems that cause people to favour self-employment and incorporation over direct employment.
4. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact CIOT External Relations on 0207 340 2702 / Out of hours contact: George Crozier, 07740 477 374)More Articles by Chartered Institute of Taxation (CIOT) ...