Employment allowance

HMRC has clarified its position on avoidance schemes that exploit the Employment Allowance

HMRC has highlighted that, where an avoidance scheme is designed to exploit the Employment Allowance, it is of the firm view ‘that such schemes are notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) rules’.

This includes where ‘scheme promoters suggest that users of the scheme can save themselves their entire employer NICs bill.

The proposition is that a payroll company takes on your staff and sets up underlying companies, each of which employs small numbers of your staff.

You are invoiced for the services your ex staff provide - as you no longer employ them.

Each company claims the full Employment Allowance to wipe out the employer NICs liability.’

HMRC states ‘that this scheme simply does not work’ and it ‘will challenge every case it sees.’ 

It also states that ‘users will find themselves out of pocket from the promoter’s fees, and possible interest and penalties on the NICs liability’.

To find out more about this and other tax schemes, see ‘Related links’.