Nurses are being warned by the IR35 to avoid engaging in umbrella company loan schemes to reduce the loss of income. This has resulted in the increase of non-compliant schemes in the recruitment agencies.
The public sector IR35 reforms has pushed the nurses to turn to NHS trusts who give the healthcare workers contracts outside the IR35. Few Umbrella companies claim the employee can take home 90% of their pay/income.
Though the HMRC is taking all necessary steps to shut down such false schemes, it usually takes a long time for the HMRC to completely shut down these trusts. However, if any taxman can identify such users/employees engaged in such false schemes, they would be subjected to penalties, additional taxes, and investigations. Also, recruitment agencies promoting these trusts or schemes would be subjected to charges and criminal prosecution under the 2016 Criminal Finances Act (CFA).
While it is appealing to hear claims such as take home 90% of salary, these are not entirely true. Employees do not see the danger or disadvantages of such false schemes and thereby find themselves tangled in unlawful schemes. The schemes appear to be profitable on the surface and seem to be tax-free which allures the employees to enroll for the same.
Nurses who have enrolled under these schemes are most affected by the new rules of the IR35. The government and HMRC have been tackling tax avoidance and false loan schemes for a while now and yet actual enforcement is not visible. The reason being- the slow routine of the taxman.
The taxman has already shut down numerous schemes that were created about two decades back. But the difficulty in identifying these schemes and acting on them is a long process during the course of which, the founders and users vanish. Further, the contractors engaged in these schemes face financial crisis.
The HMRC warns nurses to not fall into a financial crisis and lose their homes as a result of these false schemes. The HMRC claims contractors are now losing their homes due to these schemes.
The government has stated that employees or users currently enrolled in loan schemes would be in trouble according to the amendments to Part 7A of the ITEPA 2003. In order to tackle tax evasion and disguised remuneration, such loan schemes will be subjected to tax charges known as the April 2019 loan charge.
Furthermore, companies or agencies who encourage the employees to enroll in such fraudulent schemes will face severe repercussions and can also face criminal charges. The September 2017 enactment of the CFA puts the company at a risk if the company doesn’t prevent the facilitation of tax evasion by an employee.
Under this law, the agency/company is punishable if:
- An employee is found to be engaged in tax evasion
- The company has not taken any steps to prevent the employee from evading tax
- The company or agency puts the employees in touch with such fraudulent schemes
HMRC would take action against the company/agency irrespective of the company being unaware of the schemes. For a company/agency to defend itself, it has to show evidence that the company has taken action against these schemes or employees enrolled in these schemes.
How to Avoid Non-Compliant Loan Schemes?
The public sector IR35 reforms are helping in driving away such fraudulent schemes thereby cutting down on the risks of employees facing troubles. Also, employees quickly trust the agents recommending these schemes based on the claims the agents make. The HMRC and government urge nurses to beware if such fraudulent and ignore the false promises.
If in case you do find yourself tangled in such false schemes or see yourself falling into one of these, you could ask the provider to give you a written document stating there would be no future tax liabilities because of the schemes.
However, there are a few checkpoints which you can tick off to ensure that your contractor is genuine such as:
- If your contractor talks about tax savings but does not give you unrealistic promises of taking home a huge chunk of your pay which is greater than the pay you take home outside IR35.
- If your contractor or umbrella provider is making payments under the PAYE format and does not deviate from the standard practice, you can be sure that he/she is genuine.