We’re aware of a new disguised remuneration tax avoidance scheme that attempts to avoid Income Tax and National Insurance contributions (NICs) by paying contractors in the form of redeemable loyalty points.
This scheme doesn’t work and we’ll investigate all users of the scheme.
How the scheme works
The contractor becomes an employee of an umbrella company and is then paid in two parts. The first part is a small basic wage with little or no tax and NICs deducted. The second part of the payment is used to advertise the contractor’s services on a job board.
They immediately receive loyalty points in return for keeping their details on the job board. The loyalty points can be cashed in by the employees shortly after, with no deductions made for tax or NICs. The contractor usually has to pay a large fee to the third party running the job board.
Why you shouldn’t use it
The view of HM Revenue and Customs (HMRC) is that this and other similar schemes don’t work. Receiving and redeeming the loyalty points is taxable income, which forms part of the contractor’s employment income from the umbrella company.
This income may include the payment to the umbrella company, including any fees taken by them or a promoter.
Contractors could end up worse off because they’ll still owe the tax and NICs, plus interest and any fees charged by the promoter.
Employment agencies and businesses who are involved in this scheme may also be liable for failing to deduct the correct amount of tax and NICs.
What will happen if you use the scheme
We’ll challenge all users of this scheme and investigate their tax affairs. We’ll also challenge any umbrella company operating this scheme.
We’ll consider whether or not the General Anti-Abuse Rule (GAAR) may apply to the scheme. Transactions where the GAAR applies are subject to a 60% GAAR penalty.
Under new legislation announced in the 2017 Spring Budget, from July 2017 a new penalty of 100% of the fees can be charged. This will apply to anyone who constructs, markets, sells or otherwise enables the use of abusive tax avoidance which is later defeated by HMRC.
This legislation will also provide clarification as to what constitutes ‘reasonable care’ in relation to the application of penalties charged to users following the defeat of tax avoidance.
What to do if you’re using the scheme
Users of this type of avoidance scheme should contact HMRC and make arrangements to settle the tax and NICs due as soon as possible. If you don’t, you may have to pay interest and could receive a penalty.
You should email firstname.lastname@example.org to tell us if you are using this type of scheme.
If you’re already speaking to someone at HMRC about your use of an avoidance scheme, you should contact them.
If you haven’t filed your tax return yet, you should do so on the basis that the payment to the job board is taxable income.