Firstly it has to be said that all accountants and their clients in the UK are bound by the same rules, laws and regulations; sadly there are no secret loopholes that let you take home 93% of your contract value, anyone who says otherwise is likely to be offering a high risk scheme of one guise or another.

The ‘red flags’ to look out for are companies offering. . .

• Up to 90% take home pay guaranteed
• No need to record any company expenses
• All money transferred over using a company loan
• All funds deposited into an offshore account

Quite simply, any of the above statements should be considered and investigated with caution. All contractors who are working in the UK need to abide by UK tax regulations and tax laws. We break down exactly what to avoid when choosing an accountant for you.

What are the common signs of a dodgy tax avoidance scheme?

Throughout the years famous celebrities such as Gary Barlow, Wesley Snipes and Jimmy Carr, to name a few, have been caught by HMRC using tax avoidance schemes, which caused them to pay hundreds of thousands of pounds back in tax.

Quite simply, a tax avoidance scheme is depositing money into a separate accountant to avoid tax which is due on your income, usually people using this structure will be seen depositing funds into an offshore account/scheme (more on this later).

The most obvious sign is if someone is offering you something that is too good to be true because, as we all know, it probably is! Don’t find yourself in a situation where HMRC is pursuing you for tax avoidance, look out for these common signs:

• Suggesting payments by way of loans, with the implication they will never need to be paid
• Suggesting that payments will be made in the form of bonuses via an offshore account
• Suggesting that claims should be made on expenses that don’t actually exist
• Suggesting you add additional employees to your books that don’t exist
• Having a reputation in the industry

What exactly is an offshore tax scheme?

It is fundamentally a scheme designed to avoid tax by placing money into a separate account in a foreign country. But… and it’s a big one… if you live and work in the UK you legally need to pay your taxes and there is no way around it. And you need to be aware, if you try and work around it by placing your money in an offshore account, its fairly certain that HMRC will catch up with you at some point as they are proactively looking for people who have used these schemes.

What is an Employee Benefit Trust (EBT)?

EBT stands for Employee Benefit Trust and is another way people try to avoid paying their tax. If you use an EBT provider they will pay you a really small basic salary, and the rest of your income will be paid to you in the form of loans. They try and sell the idea that these loans will probably never need to be repaid but of course, HMRC recognise this for what it is – trying to avoid tax – and they are actively pursuing those it believes are underpaying their tax and NICs and fining them accordingly.

The loan provider may inform you the loan is never written off, but that is only true if it remains with the same provider. You will remain liable for the repayment of the money.

What are the ramifications of using these schemes?

If you’re using, or have previously used, an offshore account or EBT, HMRC can go back as far as 1987 and retrospectively fine you and demand backdated taxes. And to re-iterate, HMRC are actively searching out these cases and can demand full payment within 90 days.

If you have already signed up to such a scheme… what should you do?

If you were misled by the sorts of claims these schemes offer and now want to get out, don’t worry. Speak to a legitimate and reputable accountant as soon as you can who will advise you and put your best interests at heart. The role of your accountant is to assist you in making your business as efficient and profitable as possible, within the realms of the law, they won’t over promise but they will deliver, if you always remember that you won’t go far wrong.

Tips on choosing the right contractor accountant

As as a starting point, consider the following when appointing the right accountant for you:

• Will you have your own dedicated accountant and a ‘team’?
• What qualifications do they have?
• Can you meet your accountant face to face as well as be contactable on the phone and via email?
• Do they have a service guarantee that is backed up with a money back assurance?
• Are the fees transparent and all inclusive, or do they charge extra for what you need?
• Are they specialists in providing accounting services and tax advice to the consultant, contractor and freelancer market?

There are many factors to consider when leaving the safety of employment, choosing the right accountant when entering the world of contracting is one of them. A wise person once said that picking a cheap accountant can end up being the most expensive choice.

Fore more advice, why not read our top tips to Choosing the right Accountant.