The Risk Of Tax Avoidance As A Contractor Or Temporary Worker

May 23, 2019

Categorised in: IR35, Tax Avoidance Schemes,

As a temporary worker or contractor, your income is project dependent which means your income can be less consistent than salaried employees. This inconsistency in take home pay can often be a cause of stress, which is why many contractors or temporary workers can be tempted by tax avoidance to ensure their take home pay is as much as possible.

Of course many tax avoidance schemes are hard to identify to unsuspecting contractors and temporary workers. Most tax relieving methods skirt the line between legal and illegal as explained by HMRC, which can lead to some serious penalties.

How To Spot A Tax Avoidance Scheme

  • A tax avoidance scheme will promise a tax efficient way of increasing your take home pay. This is often done by telling you that a particular expense doesn’t count as income and isn’t tax deductible. However, this is rarely the case and these payments are part of a normal income and should be deducted.
  • A company that offers you take home pay over 80-95% is unlikely to be tax compliant. The basic rate of income tax is 20% and National Insurance contributions are on top of these, and so if it sounds too good to be true, it probably is!
  • If a company is paying tax on just some of your salary and sending you an additional payment through a different company or channel that isn’t taxed, then it is likely to be a tax avoidance scheme.

What Are The Risks Of Tax Avoidance Schemes

The arrangements above are incredibly high risk because ultimately, the tax and National Insurance you pay is your responsibility, if you are found to be underpaying your tax then you can be heavily penalised by HMRC.

If challenged by HMRC, you will end up paying back the tax and National Insurance contributions that you owe, as well as interest and possible penalties. Therefore, it will end up costing you much more money in the long run. Additionally, even after you have paid your penalties, HMRC will continue to monitor your tax affairs very closely and you might even end up with a criminal record. This could make contracting your work out in future much harder.

HMRC have produced their own introduction to tax avoidance schemes, please review this to find out what you should do if you have identified a tax avoidance scheme.

Hive360 Is The Risk Free Alternative

At Hive360 we offer safe payroll solutions for temporary workers. We will ensure that your HMRC and RTI submissions are completed on time, we will manage all tax & NI calculations, and we will ensure continual compliance against any legislative changes. Please view our services for more information on our risk free proposition.