HMRC Urged to Clamp Down on Tax Avoidance in Umbrella Company Market

The government consultation on non-compliance in the umbrella company market is coming to a close, and industry experts are urging HMRC to show a commitment to tackling tax avoidance in the economy.

The consultation was launched in June 2023 to gauge industry opinion regarding the regulation of umbrella companies. That opinion has been clearly focused on demanding more action from HMRC regarding tax evasion.

The tax authority recently published its annual report and accounts for the 2022/23 financial year which revealed an investment of £451 million towards addressing ‘specific areas of tax evasion, avoidance and non-compliance’. However, the amount invested represents just 6.5% of its £6.8 billion annual budget.

HMRC estimates that approximately £400 million in taxes was lost in 2020/21 due to tax avoidance schemes. Another £800 million was lost due to various other forms of tax avoidance activity.

‘Urgent Need’ to Address Tax Avoidance Schemes

The CEO of IR35 compliance firm IR35 Shield, Dave Chaplin, believes the end of the consultation period provides an opportunity for HMRC to demonstrate that they are committed to dealing with tax avoidance. Chaplin said: “It is critical that HMRC finally listens to the feedback and acts, because there is an urgent need for tax authorities to prioritise prevention and timeliness when addressing tax avoidance schemes, as they are on the rise.”

Meanwhile, the CEO of payment intermediary assessor Professional Passport, Crawford Temple, believes that tax avoidance is at an all time high, and that it is surprising that HMRC spent as much as 6.5% of its budget on tackling tax avoidance.

Temple explained: “HMRC’s activity across all aspects of compliance in the sector is practically non-existent. HMRC has all the data it needs to identify the perpetrators of these schemes and it must tap into that information quicker and be more proactive in its effort to find the architects of the dodgy schemes and close them down.”

Tax Avoidance Solutions From the Experts

Temple believes that ‘visible enforcement is key’, while Chaplin reiterates that ‘prevention and timeliness’ should be prioritised when assessing tax avoidance schemes. Chaplin also suggests that the reconciliation of recruitment agency data against individual tax records can work as a method of automating the detection of non-compliance.

“This seems a straightforward, cost-effective solution staring HMRC in the face for years,” added Chaplin. “We must ask why such real-time preventative measures have stalled while tax avoidance persists.”

The Director of Carrington Umbrella, Nicky Owen, welcomed the enforcement of current legislation being stepped up, but urged caution by saying: “Carrington Umbrella hopes that the consultation will not take a sledgehammer to crack a nut. We welcome the scrutiny of the unscrupulous but trust that the consultation will recognise much of the good work that umbrella companies provide.”

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