Employment Allowance Avoidance Scheme Doesn’t Work, Says HMRC

HM Revenue and Customs (HMRC) has updated its guidance on the Employment Allowance in light of media reports of an attempted avoidance scheme designed to exploit the allowance.

Under the Employment Allowance, employers can reduce the amount of National Insurance contributions (NICs) they pay for their employees by up to GBP2,000 (USD3,060).

According to HMRC, scheme promoters suggest that users can save themselves their entire NICs bill. The proposition is that a payroll company takes on the employer’s staff and sets up underlying companies, each of which employs a small number of staff. The original employer is then invoiced for the services their ex-staff provide, and each company claims the full Employment Allowance.

HMRC said the targeted anti-avoidance rule in the Employment Allowance prevents the use of artificial and contrived arrangements to secure an unintended advantage. HMRC’s view is that such schemes are notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.

It has advised anyone who has used such a scheme to withdraw, and confirmed that by withdrawing and notifying HMRC, participants will avoid the costs of investigation and litigation, and minimize the interest on underpaid NICs and any penalties that may be applicable. HMRC is investigating cases where this scheme has been used and has said it will challenge every case it identifies.