ASA ruling sets example for promoters of loan schemes

Recently HM Revenue and Customs (“HMRC”) complained to the Advertising Standards Authority (“ASA”) regarding their belief that scheme promoter, Williams Gordon, which targeted IT contractors, had published a misleading advertisement. The ASA has agreed with HMRC and ruled that the advertisement was misleading and informed Williams Gordon that they must withdraw the claims made.

HMRC have published the ruling as part of their new ‘Spotlight 42 – Contractor loan schemes: misleading advertising’. 

Williams Gordon advertised a scheme, commonly referred to as a contractor loan scheme, whereby contractors would receive a small part of their salary as PAYE income and the rest as a loan. The PAYE income is subject to Income Tax and National Insurance Contributions (“NICs”) and the loan element is not. The ASA ruled that the Williams Gordon website claim that you could “take home up to 92% of your pay”, remain “tax compliant” and that they were “fully compliant with the necessary HMRC legislation and with all current IR35 policies” was misleading.

It was also ruled that the website “misled by omission” due to its failure to mention the many government tools and policies aimed at the avoidance they were promoting, including the General Anti-Abuse Rule (“GARR”) and the loan charge on disguised remuneration which will treat all outstanding loans on 5 April 2019 as employment income and therefore subject to tax and NI.

Williams Gordon was also told that in relation to future ads, they needed to ensure they retained sufficient evidence and disclosed all relevant information including the risks associated with any advertised arrangement.

Spotlight 42 also outlines HMRCs understanding of the scheme and makes the following comments;

• Contractors in this scheme are employed by an umbrella company
• The umbrella company retains 10% of the invoice to its clients for the contractor’s services as a fee
• The umbrella pays the contractor enough to cover the National Minimum/Living Wage, below the limits for tax and NIC and then pays the rest of the money due to the contractor as a loan which has repayment terms that suggest the loan is unlikely to be repaid

It is HMRCs view that loans provided to contractors in this are no different to normal income and therefore should be taxed in the same way.

Click here to read “HMRC Spotlight 41: HMRC closing in on disguised remuneration”

Aspire Comment

It appears that the Government is once again tarnishing umbrella companies with the same brush. Whilst the Spotlight states that the government are aware not all umbrella companies use avoidance arrangements such as the contractor loan scheme, they do reference other standard practices, such as “retaining a 10% fee” which implicate this as being a negative action. 

Aside from this misconception of the actions of umbrella companies, it is evident that the Government are keen to tackle the use of disguised remuneration as a means of tax avoidance to ensure that all remuneration is classified as earnings, as defined in section 62 of the Income Tax (Earnings and Pensions) Act 2003 and so, subjected to deduction for tax. The ruling from the ASA sets a precedent for other avoidance scheme promoters who will be restricted from making the same claims about similar schemes. This appears to be another nail in the coffin for the contractor loan scheme.

If you believe you may be receiving payment through a disguised remuneration scheme, please contact Aspire so that we can discuss the options available to you.