Tax avoidance fronts

The government has previously committed to tackling the problem of non-compliant umbrella companies acting as fronts for tax avoidance schemes, who lure in contractors with “too good to be true” take-home pay rates.

It plans to do this by making employment agencies assume responsibility for ensuring the correct amount of Pay As You Earn (PAYE) contributions are paid by their workers when an umbrella company is involved in the labour supply chain.

This change was announced in the Autumn Budget 2024, with the government stating that it expects the move to generate £895m in additional tax during the 2026/27 financial year by making it harder for umbrella companies to engage in tax avoidance-related activities.

The second consultation is geared towards soliciting opinions on another set of HMRC proposals designed to strengthen the government tax collection agency’s ability to take action against tax advisors who facilitate non-compliance from their clients.

“Most tax advisers in the UK are dedicated professionals who adhere to rigorous standards, helping millions of taxpayers pay the right tax,” said the consultation document. “However, a minority of advisers fall short of these standards. Their actions can facilitate non-compliance and contribute to the tax gap. This undermines trust in both the tax system and honest tax advisers.”

Among the proposals HMRC will be seeking feedback on are whether stronger penalties should be introduced against rogue tax advisers, including publishing details of any sanctions they are being subjected to as a result of their non-compliant behaviour.

HMRC is also mulling over whether to alert professional bodies these advisers might be members to any suspect behaviour they might be dabbling in.

HMRC said it would be particularly interested in hearing from accountancy firms, tax advisers, payroll professionals and insolvency practitioners during the feedback period of this consultation, which will end on 7 May 2025.

The Spring Statement also saw Chancellor Rachel Reeves outline plans to use artificial intelligence (AI) technology to close a £500m tax gap caused by wealthy people making use of non-compliant off-shore tax schemes.

As reported by Computer Weekly, this work will involve recruiting experts in private sector wealth management, and deploying AI and advanced analytics to help identify and challenge those who try to hide their wealth.

On the topic of the consultations, Crawford Temple, CEO of independent payment intermediary compliance assessor Professional Passport, said they are “well intended” but would not have been needed if HMRC had tapped into the data it already has about these schemes earlier.

“HMRC is sitting on a goldmine of data that could have crushed tax avoidance schemes years ago, yet they’ve chosen to twiddle their thumbs,” he said. “By failing to cross-reference intermediary reports and real-time payroll data, HMRC has effectively created a playground for tax avoiders.

“Their reactive approach has cost workers millions and the Treasury billions in lost revenue. Sluggish and slow enforcement mechanisms have transformed what could have been a precise surgical intervention into a widespread compliance crisis, and the economy is suffering as a result.

“For years, HMRC has watched non-compliant umbrellas flourish while launching yet more consultations,” said Temple. “Every moment of hesitation is an invitation for tax dodgers to thrive. The time for analysis is over – the time for action is now.”