The BBC presenter Christa Ackroyd is one of the highest profile cases of an individual facing bankruptcy following her participation in a tax avoidance scheme. She was in the news February this year when a tax tribunal determined she had to pay £419,000.00 in unpaid tax. It did add that she should not be criticised because she had followed specific BBC advice. Many other BBC workers were affected in a similar way to Christa.

Tens of thousands of freelance workers are accused of tax avoidance and facing insolvency and possible bankruptcy because of their involvement in the schemes. Many contractors, including workers in IT or healthcare believed the schemes were within the law. The basis of the scheme is an employer making payments to a trust that then makes an interest free ‘loan’ to the contractor.

No doubt a lot of unscrupulous scheme promoters misled and misrepresented the rules to the contractors, who then believed they were doing the right thing.

However, HMRC’s position is that the schemes are, and always were, tax avoidance. They believe that the contractors used contrived transactions to bend the rules of the tax system to avoid paying tax. In reality, the individual contractor would never repay the loan from the third party so in effect it is no different to normal income therefore taxable.

Ultimately, the individual contractor signs their own tax return and so ultimate responsibility lies with them. HMRC has little sympathy with them complaining that they thought everything was legal and above board. They simply say the individual is clearly attempting to avoid paying tax by investing in a disguised remuneration scheme. They argue it simply would not ‘feel right’ if an individual was being paid in ‘loans’ made by an off shore entity so that they pay little or no tax on that income. HMRC will act as they always do and very rarely accept anything other than payment in full.

The problem for individuals, who are now being sent Accelerated Payment Notices (APNs), is that HMRC penalties and interest will often dwarf the original tax avoidance figure. As a lot of the schemes are historic and over ten years old, with interest accrued on the non payments, the full payment owed is often huge.

Personally, I see these disguised remuneration schemes as the close relation of the film scheme investments, of which ‘Eclipse’ is one of the biggest. I act for the Professional Football Association (PFA) and often and increasingly advise their members who have fallen foul of film scheme tax avoidance. We look at all options for the individual including time to pay agreements with HMRC as well as the possibility of an Individual Voluntary Arrangement (IVA) or even bankruptcy. It is certainly a difficult and stressful time when an individual receives an APN from the revenue but it is always best to seek professional advice as soon as possible to look at what the options are.

To get in touch with Farleys’ personal insolvency team please call 0845 287 0939 or submit your enquiry through our online form.