How to spot bad tax advice
HMRC have issued a warning that not all tax advice online is accurate. ‘Finfluencers’ (financial influencers) often present tax advice as ‘quick wins’ without covering the rules. This can be misleading as people may take action without being aware of the risks or whether the featured ‘win’ is appropriate to their circumstances.
HMRC have published guidance to help people avoid being caught out by bad tax advice.
Spotting tax avoidance
Tax avoidance usually involves artificial transactions that serve no real purpose other than claiming falsely to reduce tax. Anyone involved in a tax avoidance scheme will have to pay the tax that they should have paid plus interest, and maybe penalties, so such schemes are best avoided.
One way to prevent being caught up in a tax avoidance scheme is to understand how you are being paid. Check your contract and payslips to ensure you are paying the correct amount of tax and National Insurance. Warning signs that all is not well include receiving more money in your bank account than that shown on your payslip or receiving untaxed income, which may be described as a loan or a capital payment.
Remember, you are responsible for paying the correct amount of tax, even if you appoint someone to handle your tax affairs.
Anyone that thinks that they may be involved in a tax avoidance scheme is advised to contact HMRC as soon as possible.
Umbrella companies
Contractors may be employed through an umbrella company. These are often used by recruitment agencies to pay temporary workers. The umbrella company employs and pays the worker but does not find the work – this is the role of the recruitment agency. To check that the umbrella company is not operating a tax avoidance scheme, the worker should check that they have paid the correct amount of tax and National Insurance. HMRC have a tool which can be used for this purpose which is available on the Gov.uk website.
They should also check their payslip and be alert for signs of extra payments which may not have been taxed.
Reporting a tax avoidance scheme
Anyone that has been encouraged to get involved in a tax avoidance scheme, is aware of a tax avoidance scheme or knows of someone selling a tax avoidance scheme should report it to HMRC.
Claiming expenses
It is easy to get caught out by a tax refund company offering to make tax relief expense claims on your behalf in return for a fee. This might seem like an easy option. However, HMRC are keen to point out that it is easy to check whether you are eligible and to make a claim if you are. Doing it yourself means that you get to keep the full amount of any money that you are owed. The guidance explains when a claim can be made and how to make a claim with HMRC.
Remember, if something sounds too good to be true, it probably is.