The HM Treasury has confirmed that the government is “closing in” on those promoting tax avoidance schemes.

These employment schemes often ensnare employees into evading their rightful tax payments, sometimes without their knowledge or consent. This could result in significant financial loss and potential legal issues.

Earlier this week, Chancellor Rachel Reeves announced plans to launch a consultation aimed at enhancing tax collection, with a particular focus on targeting promoters of these schemes.

This could potentially include financial incentives for whistleblowers who expose these schemes, rewarding them with a percentage of any recovered tax resulting from their information. A straightforward way to ensure you’re paying the correct amount of tax is by carefully examining your payslip.

By scrutinising their payslips and contractual agreements, workers can confirm they are correctly paying Income Tax and National Insurance contributions, typically via the PAYE system.

A possible warning sign of involvement in a tax avoidance scheme could be noticing a higher amount in your bank account than what’s reflected on your payslip.

HMRC has cautioned that some employers may try to exploit the system to pay less tax than they are legally required to. Those most vulnerable to such schemes include contractors working for umbrella companies, many of whom may not be familiar with the correct procedures for tax payments through these companies.

Per HMRC guidelines, contractors working for umbrella companies are expected to submit their timesheets to a recruitment agency, which then invoices the clients. The recruitment agency subsequently pays the umbrella company the agreed rate, calculated by multiplying the assignment rate by the hours worked.

The umbrella company, in its capacity as the employer, is then responsible for paying the contractor. Contractors are legally entitled to receive a payslip detailing any deductions made, including Income Tax, National Insurance and student loan repayments where applicable.

What should you do if you suspect involvement in a tax avoidance scheme?

If you have suspicions of being part of a tax avoidance scheme, it’s advised that you contact HMRC as soon as possible for guidance on the necessary steps to take. It’s important to bear in mind that settling any owed tax is ultimately your responsibility, even if you inadvertently become involved in a tax avoidance scheme.

In certain cases, you may be required to pay interest on the due tax, which could accumulate over time and result in an unexpected large bill. If you’re unsure about whether you’re paying the correct amount of tax, you can use this interactive risk checker for more clarity – ensure you have the following documents ready before using the checker:

• any other documents you have relating to your employment arrangements
• payslips
• key information document
• payment advice
• bank statements
• employment contracts or agreements

More details on tax avoidance schemes and what you can do about them can be found here.

The government also provides a regularly updated of known tax avoidance schemes and promoters which can be found here.