A new story this morning from the BBC has unearthed details that a large UK recruitment agency and contractor accountancy provider have been operating a tax avoidance scheme that abuses the Employment Allowance scheme.

In April 2014 a new scheme was introduced to give employers a tax break on Class 1 National Insurance Contributions (NIC’s). The scheme could save small businesses and charities up to £2,000 per annum in Employers NIC’s. Companies can only claim Employment Allowance for onePAYEscheme and if they are part of a group, only one company or charity in the group can claim the allowance.

Evidence has been provided to HMRC that shows the recruitment agency has been selling the scheme that creates multiple companies to pay agency workers. Each company is then suggested to be independent of the others with its own PAYE scheme in order to avoid paying Employers NIC’s though the Employment Allowance scheme. It has emerged that over 1,500 companies could have been created in recent months for use in the tax avoiding scheme.

CEO Julia Kermode of the Freelancer & Contractor Association (FCSA) said:

“I am very concerned to hear about such practice taking place, and I would like to emphasise that FCSA does not condone these tax avoidance schemes, nor does it represent any firm operating them.”

Here at Gorilla Accounting we do not promote tax avoidance schemes and we strongly recommend to stay well clear of any schemes that seem too good to be true.

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