I have been assisting the BBC with their news story, first broadcast this morning on the Today programme, on a new and, in my opinion, extremely abusive tax avoidance scheme.
The scheme abuses the employment allowance introduced in April 2014 that provides small employers with a rebate of £2,000 a year on their employer’s national insurance charges.
Excellent, so, dodgy tax scheme uncovered, HMRC will be right on it, OK, credit where it’s due, well done!
Leading to Ritchie’s legal demands:
All I can guess is that they think that if the Revenue come and ask for that Employers National Insurance, what they’ll say is: ‘Well, there’s no money in any of these companies, they’re all empty shells, therefore, you can sue us, you can put us in to liquidation, but they’ll be nothing for you to have.” The response to that is that is isn’t it time now to consider whether there should be a penalty on the directors of limited companies that are incorporated for the purposes of abusing the tax system.
Ooer Missus! Tough on tax, tough on the causes of tax!
But if, as I suspect, this scheme shows that systemic use of limited liability is being relied on to make sure that tax is not paid this situation has, as I have also long argued, to change so that where it can be suggested with reasonable probability that limited liability has been used for the purposes of not settling tax liabilities properly due then the liability for that tax should fall on the directors, shareholders and promoters of the scheme in question together with any who might have enjoyed economic benefit as a result of its use (i.e. the end user of the labour in this case), and this liability should be joint and several.
If the government is serious about tackling tax abuse this has to be one its first acts on this issue or this abuse will grow, rapidly. I would urge them to act, quickly.
The government must do something and quickly!
In the comments:
The scheme appears mis-guided from start to finish. Under RTI HMRC would get an early heads-up on this, the costs and admin of setting up hundreds of companies and transferring thousands of employees would be horrendous.
HMRC do, of course, already have powers to pursue directors by issuing a PLN on them under the Social Security Administration Act 1992.
I agree with you that this doesn’t seem to work.
I note that s121CSSAA 1992 allows the recovery of unpaid Class 1 NI from the directors of a company, or any other officer, where there is fraud or neglect.
If the Employment Allowance is being deliberately exploited, then this is arguably fraud. If it has not been looked at properly, this is arguably neglect. HMRC only need to be able to argue the case to start each company racking up a pretty significant cost defending itself.
The NI Manual has some good stuff on this (see NIM 12200 for details, if you’re interested in the detail). It predates Employment Allowance, but indicators that s121C should be invoked include situations where the directors are involved with other companies doing the same thing, which would seem to be pretty much bang on the money here.
So, Ritchie’s demand is already law. government, qactually, need do nothing. His response?
I admit I had forgotten that Act
How Glorious Is The Knowledge Of The Lord High Tax Denouncer!
And how much did the BBC pay for help on this story then?