Guidance

Ten things that people promoting tax avoidance schemes will not always tell you

Updated 27 April 2023

A promoter of tax avoidance looks to profit from selling and marketing tax avoidance schemes. They could be an individual, company or partnership. Here, we use the term ‘promoters’ to include enablers and anyone else involved in the supply of tax avoidance schemes, which often includes umbrella companies.

Promoters will make false claims that their tax avoidance schemes mean you can get higher take-home pay, lower tax bills and less paperwork. Instead, they tend to cost time, money and stress. Everyone is responsible under UK law for paying the correct amount of tax. You’re responsible even if you have appointed someone else to deal with your tax affairs and are given bad advice.

Here is what you need to know that a promoter will not tell you:

1. Most tax avoidance schemes do not work

A promoter may tell you your tax avoidance scheme is legitimate. But it might not give you the benefits promised, and you could end up paying interest and penalties on the tax you owe.

It is up to you to manage your tax affairs and pay the correct amount of Income Tax and National Insurance contributions. If you use such a scheme, you may receive an unexpected tax bill for any unpaid tax owed, late payment interest, and even a penalty.

2. It could cost you more than you expected

Avoidance schemes are complex and can give rise to more tax and other charges. This means you could end up owing HMRC more money than just the tax you tried to avoid. It could also be a lengthy process, costing you time and stress.

3. You pay a higher fee or margin for using an avoidance scheme

The promoter may deduct a high fee or margin from your earnings for using their services. This is likely to be much higher than fees for legitimate umbrella companies. The average fee that a non-compliant umbrella company deducts is around 15% to 22%. Fees you pay to the promoter do not count as tax paid and are rarely recovered by scheme users.

4. You may have significant legal fees to pay

If the scheme is challenged by HMRC, you’re likely to have to pay fees for tax and legal advice. Your promoter may ask you to pay into a ‘fighting fund’. This fund is money collected by the promoter to pay legal fees when the case is taken to court.

5. Your scheme is never HMRC approved

HMRC does not approve tax avoidance schemes. If a promoter tells you your scheme is HMRC approved — it is not. Getting an avoidance scheme reference number from us does not mean we approve or have cleared the scheme, or that the scheme works. HMRC issue these numbers, either:

• after a scheme is disclosed to us
• when we reasonably suspect a scheme should have been disclosed to us because it is designed to avoid tax

HMRC is challenging these schemes.

6. You could be identified as a higher-risk taxpayer

Use of an avoidance scheme could mark you out as a higher-risk or serial tax avoider. This could lead to penalties, closer scrutiny of your tax affairs, and you could be prevented from making use of certain tax reliefs.

7. HMRC is likely to defeat your scheme in court

HMRC win or partially win around 90% of avoidance cases taken to court, with many more taxpayers settling before their case gets this far. This means all the tax is due, and you could be liable for interest and potentially penalties. These amounts would be on top of the fees you have paid to the promoter and any legal costs you have incurred.

8. The risk is often all your own

A promoter cannot give you a guarantee that a scheme will work. They probably will not be around to support you once HMRC starts investigating your tax affairs. Some promoters set up simply to sell the avoidance scheme and then disappear, leaving you at risk.

9. You may have to pay the tax up front anyway

You may be issued with an accelerated payment notice, requiring you to pay the disputed tax up front.

10. Your promoter may sell your outstanding loan to a third party

Entering into a tax avoidance scheme can potentially leave you financially worse off. You may be contacted about repaying a loan that you received as part of a disguised remuneration scheme, even if you did not expect to. In most cases, the request for repayment is because the original provider of the loan has sold the outstanding loans to a third party. Check ‘Repaying a disguised remuneration loan to a third party’ for further information.

Further information

HMRC publishes information about known tax avoidance schemes and about the people involved in the supply and marketing of them. If your umbrella company or avoidance scheme is on this list, you should contact HMRC to get help.

This is not a complete list of all tax avoidance schemes currently being marketed. Neither is it a complete list of all promoters, enablers and suppliers.

HMRC publishes Spotlights about different tax avoidance schemes on GOV.UK that warn people of what they should look out for. Spotlight 60 specifically warns about non-compliant umbrella companies and what to look out for.

Tax avoidance — don’t get caught out is an HMRC awareness campaign to help you spot whether you are at risk of being involved in tax avoidance and has advice on how to leave an avoidance scheme.