Category: Updates

Spotlight 53: Disguised remuneration: using capital advances, joint and mutual share ownership agreements

Spotlight 53:

HMRC warns about a number of schemes designed to avoid Income Tax and National Insurance contributions (NICs) through a combination of capital advances and complex offshore joint (or mutual) share ownership arrangements.

How do these schemes work?

The schemes are claimed to work by either having an employee of an umbrella company or a connected entity, such as an offshore company, to sign a loan or capital advance agreement and a joint (or mutual) share ownership agreement, confirming how their salaries are to be paid by the employer company.

On either a weekly or monthly basis, the employee is paid through 2 separate payments with the first payment representing a nominal salary which results in a payment with little to no Income tax or NICs occurring. The second involves ‘capital advances’, also paid weekly or monthly in the form of loans.

Then, involving an offshore joint (or mutual) share ownership trust, the employer company carries out various share transactions which are said to result in financial gains for the employee, the shares may also attract a dividend for the employee. The employee would also receive statements on a monthly or annual basis stating that their outstanding loans have been repaid as a result of capital gains and dividends even though they may have not been directly involved in the share transactions.

As a result of this process, the schemes attempt to disguise an employee’s earning that would typically be subject to Income Tax and NICs by utilising additional allowances from capital gains or dividends. The employer company attempts to avoid its own tax liabilities as well with this method.

HMRC are very clear that they do not approve of these schemes and any employees or employers caught will result in repaying underpaid tax with interest and be subject to penalties.

What does this mean for tax avoidance promoters?

The recent Disclosure of Tax Avoidance Schemes (DOTAS) legislation allows those involved in contrived arrangements involving employment income related loans to be disclosed to HMRC.

Scheme promoters should carefully consider the DOTAS rules to decide if the arrangements they are marketing should be disclosed to HMRC.

HMRC will pursue anyone who promotes or enables tax avoidance.

More information on the new Spotlight 53 can be found here.

What to do if you’re using these schemes?

If you are using these or similar schemes or know someone who does, it is advised by HMRC to withdraw from these immediately and settle your tax affairs as soon as possible.

Disclosing this to HMRC will allow you to:

  • avoid the costs of investigation and litigation
  • minimise interest and, where they apply, penalty charges on the tax you should have paid

Symptoms of aggressive scheme promoters:

  • Directors with a history of phoenixing companies
  • Directors with hundreds of small companies under them
  • Companies registered offshore e.g Philippines, India & Isle of Man
  • Payslips for an agency using different PAYE references
  • So called FREE schemes – i.e no margin charged to the worker
  • High rebates to agencies
  • High take home pays promised 

Reasons to use NumberMill:

  • FCSA Accredited – the only independently reviewed accreditation for umbrellas – undertaken by Ernst & Young and files passed to HMRC
  • Genuine ACCA and IPSE IR35 accountants offering an agile choice of services
  • CEO – Active HMRC lobbyist – close relations with HMRC intelligence hub
  • CEO background: CFO Adecco and Commercial Director Randstad – expert on contractor and HMRC engagement models
  • All calls are recorded
  • State of the art portals
  • Contracts issued using E-Signatures for efficiency
  • GDPR compliant
  • Partnered with Accountax to ensure all documentation, contracts, processes and practice are efficient and compliant 

Umbrella EXPENSES are BACK!

(Particularly welcome to those affected by current and potential IR35 reforms)


In 2016, the umbrella industry was seriously affected by HMRC new rules. 
The new rules came in 2 parts;

Rule 1 – The first rule – affecting Salary Sacrifice and the ability to gain tax relief on a weekly basis.

ITEPA 2003 – Section 289 (2) (b) denies an exemption for expenses paid under an arrangement whereby an employees earnings vary with expense reimbursements. 

For this reason if the expenses are set at a fixed level and do not vary the earnings then relief can be obtained.

Rule 2 – restricted the claiming of expenses if a worker is under;

SDC – Supervision, Direction & ControlSection 339A denies tax relief for travel and subsistence expenses where a worker;

1) Personally provides services to another person

2) Under arrangements involving an employment intermediary

These rules do not apply if the manner in which the worker provides the services is not subject to SDC.


The majority of umbrella organisations, including ourselves decided that the workload and extra costs in developing contracts, processes and systems were too onerous and as such have steered clear from processing expenses.

With the introduction of extended IR35 reforms, the industry saw a large swing from Personal Service Company contractors in to umbrella, often dictated to by blanket decisions being made by the Public Sector.

It is the expectation that this will happen again in the Private sector with the planned IR35 reforms expected in April 2020. 

For this reason NumberMill have taken the decision to invest in legal contracts, system updates and renewed processes to allow us to process expenses within the HMRC rules. As an FCSA Accredited umbrella these have been developed in order to meet the FCSA code.    


So the good news is, if your contractors meet the requirements, they can claimfixed expenses which will significantly improve their take home pay. 

We at NumberMill will ensure compliance by;

  • Issuing a specially developed DocuSign compliant contract
  • We will undertake an SDC assessment (providing detailed guidance on SDC status) NB This is different legislation to IR35
  • Agree with the contractor the level of fixed expenses (providing a detailed expense guide) 
  • Facilitate the compliant claiming of the fixed expenses through our state of the art portals
  • All contracts are issued automatically by our CRM providing evidence for HMRC
  • All discussions are recorded, again providing evidence for HMRC

Types of contractors which are likely to benefit;

  • Contractors who previously work via a Personal Service Company who are effected by the IR35 reforms in the public and Private sector
  • Contractors who earn more than £11/ hour