The last thing they need is financial anguish. Sadly, a growing number of workers on modest incomes are calling on the services of TaxAid, a charity which supports vulnerable people in poverty who have a tax problem.
The callers have received letters from HMRC telling them they may have unwittingly become involved in tax avoidance through an umbrella company.
Valerie Boggs, the chief executive of TaxAid, said the callers had believed their tax arrangements must be legitimate because of who they were working for.
They had no intention of avoiding their responsibilities as taxpayers and were devastated to find that they have been duped into getting involved with these unethical “disguised remuneration” schemes.
The callers are far removed from the conventional image of a tax dodger. Many placed their lives on the line to keep us all safe during the pandemic.
Now they are facing unexpected, and potentially life-changing, bills. MPs have repeatedly called for action to clean up the ‘Wild West’ supply chain that exploits freelance and contract workers.
Ms Boggs’ concerns are shared by Meredith McCammond, Technical Officer at the Low Incomes Tax Reform Group, who said: “It seems that the use of disguised remuneration schemes is driven by the motivations of other entities in the supply chain rather than the workers.”
She added: “Many agency workers who want to get work have no choice but to be paid by umbrella companies, who then may use disguised remuneration to pay them, essentially behind their backs. Umbrella companies can be confusing and are complex. But the issues surrounding disguised remuneration can be decoupled from the rest of the issues surrounding umbrella companies.
Ms McCammond added: “I have some sympathy with HMRC because some umbrella companies are slippery – they can be set up easily and quickly, and can build a client list overnight, can casually implement disguised remuneration for workers and then can fold when HMRC come calling.
"But under PAYE legislation the employer (the umbrella company) has primary responsibility under law to ensure the correct tax is deducted from workers and paid over to HMRC. HMRC is leapfrogging that part of the process by simply chasing the worker.
“Workers are beside themselves,’’ Ms McCammond added. “They can’t believe the system has allowed this to happen to them. It has caused misery across the board and has even affected health workers who have joined the NHS to fight the pandemic. It has the potential to cause huge reputational damage to the tax system.”
Rebecca Seeley Harris, Chair of the Employment Status Forum, said that although the Government has promised to create a single enforcement body which would act against rogue umbrella companies “there is no parliamentary timetable for it to happen”.
The Government has said it will bring forward an Employment Bill when Parliamentary time allows.
Ms Seeley Harris added: “The saddest thing is that these are some of the hardest working and most vulnerable people in society, especially those who have helped out during Covid-19.”
A HMRC spokesman confirmed that it has started sending people early intervention letters where it is believed they might be in an avoidance scheme to give them the chance to get out as soon as possible.
The spokesman told me: “This was a recommendation from the Morse review (the review of the controversial loan charge policy). It’s a good thing that we’re informing people as soon as we can, or we’ll end up with similar stories to those which you have heard and covered in your work about people finding out later that the scheme they used a few years before was avoidance.”
Julia Kermode, the founder of iwork.co.uk, which protects the UK’s independent workforce, said: “It is clear that change is urgently needed and enforcement bodies must use all their powers to eradicate such schemes.”
New legislation must be brought in to protect workers from shadowy individuals who become wealthy on the back of human misery.
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