Loan charge:Tax compliance charity demands criminal fraud investigation into scheme promoters

A tax compliance charity has written to the City of London Police to urge the force to launch a fraud investigation against the promoters of loan-based disguised remuneration schemes that have left thousands of IT contractors facing life-changing tax bills.

In a letter addressed to the City of London Police’s Economic Crime Unit, TaxWatch director George Turner, said these tax avoidance schemes are designed to “both defraud the Treasury and scheme users” through the “deliberate concealment of income” from HM Revenue & Customs (HMRC).

“The continuing sale and marketing of disguised remuneration tax avoidance schemes constitutes a serious economic crime, costing the Treasury hundreds of millions a year. Until the promoters of fraudulent tax schemes are prosecuted, they will continue to ruin lives,” the letter states.

“I request you urgently open a criminal investigation into the promotion of these schemes, [and] TaxWatch of course stands ready to assist in the collection of evidence in any way we can.”

These schemes typically see participants remunerated for all or part of the work they do in the form of non-taxable loans, which are usually paid out to them via an off-shore employee benefits trust (EBT).

In recent years, HMRC has sought to clampdown on these schemes through the introduction of its controversial loan charge policy in November 2017, which is an instrument introduced by the agency as a means of recouping the unpaid taxes it claims scheme participants avoided paying.

In HMRC’s view, the loans scheme participants received were never intended to be repaid, and should be retrospectively reclassified as income and taxed accordingly, resulting in tens of thousands of people being asked to repay huge sums in tax relating back to work they did up to a decade ago.

However, one of the main criticisms of the loan charge policy is that it fails to take into account the circumstances surrounding how these individuals ended up enrolling in such schemes, which were historically  and erroneously marketed by promoters as HMRC-approved and fully compliant with UK tax laws.

“These schemes constitute fraud, not only in the loss to the public purse, but also on the scheme users who may be fraudulently persuaded to join such schemes,” Turner goes on to say in the letter.

“Handing over a substantial proportion of their income to promoters, on the mistaken understanding that these schemes are lawful.”

One of the reasons often given as to why scheme participants, rather than promoters, are at the forefront of HMRC’s disguised remuneration enforcement action is because these schemes are typically operated off-shore, and beyond the geographical jurisdiction of its powers.

At the same time, many of the individuals involved in the promotion of loan schemes have since exited the market and wound down their companies, making it tricky for HMRC to take action against them.

However, in a follow-up conversation with Computer Weekly, TaxWatch’s Turner said any suggestion that “nothing can be done” to take promoters to task now is simply not true.

“If tax advisers knowingly mislead their clients about the effectiveness or risk of a scheme in an attempt to extract fees, then that is fraud,” said Turner.

Clamping down on scheming promoters

HMRC recently began consulting on measures it is planning to introduce that seek to target the promoters of disguised remuneration schemes, but similarly-structured and marketed tax avoidance  arrangements are continuing to emerge.

“There can now be no doubt whatsoever that these schemes simply do not work from a tax point of view,” he said. “There have been widely publicised court judgements stating clearly that income received via loan schemes was always taxable.”

“The government has repeatedly stated its intention to introduce retrospective legislation to tackle these schemes, has introduced retrospective legislation in the past and has introduced retroactive legislation in the form of the loan charge. I was shocked to learn that despite all of this these schemes continue to be sold to the public as ‘legal’, with promoters aggressively pursuing clients though social media marketing and client referrals,” he continued.

For this reason, a clampdown on individuals and organisations that are continuing to market these schemes is urgently required to guard against another tranche of contractors being hit with huge tax demands from HMRC in the years to come.  

“The marketing of these schemes as compliant with HMRC rules is reckless and going to end up getting scheme users in a lot of trouble. Until advisors are properly held to account, I do not see how this highly damaging trade ends,” he added.

“What troubles me is the thought that had law enforcement authorities properly dealt with these schemes in the first place, then thousands of people many not have ended up being seduced into entering into them, preventing the financial chaos that many are now suffering.” 

Computer Weekly contacted the City of London Police to enquire about its response to the letter, and received the following statement: “City of London Police has advised that if you’ve been a victim of this type of fraud, or any fraud, report it to Action Fraud online at actionfraud.police.uk or by calling 0300 123 2040.”

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