Employer tax "solution"

CazDG87

Hi,
I work as an agency/ locum local authority worker and am paid via an umbrella company. Last week my agency contacted me to say that they recommend a new umbrella company who can increase my take home pay and yesterday that company called me.
They claim to be able to increase my take home by £100 a week by using a loan "solution". He was adamant that it was not the same as a loanscheme that is now illegal, apparently due to new legislation passed last month however it sounds the same to me.
They will split my weekly earningns into two amounts. They pay me a minimum wage amount that I pay tax/ NI on, the other amount they give to me as a loan which is therefore not taxable which creates the extra cash for me. He was clear that this is not illegal and said that I would not receive a tax bill at the end of the year. However I am doubtful. To be clear I have not agreed to join this company yet.
I did some googling last night and there were people in similar situations who then received tax bills at the end of the year as that loan payment is actually taxable. Also I plan to buy a house in a year or so - under this scheme aurely I would not be able to apply for a mortgage based on my full earnings and it would have to be based on what they say I earn for tax purposes? I will be buying it alone so on a minimum wage calculation would barely be able to afford to buy a garden shed.... and if they haven't figured out before then, I'm sure that whole process would alert the HMRC to my tax free earnings....
Does anyone have any thoughts/ experience of similar. Being able to afford a house is very important to me (generation boomerang, returned home to mum and that cannot be a long term solution!) and I do not want to risk being able to do that in the future.
Thanks!

Pennywise

Don't touch it with a bargepole. As you've rightly researched, HMRC are all over these kinds of tax avoidance schemes these days and are trigger happy in sending out tax bills. Normally, the "promoters" of the schemes have gone bankrupt by the time the tax bills come out, so aren't there to help you defend yourself against the weight of HMRC.

There's also a new anti-avoidance tax rule proposed to come in from 2019 which basically aims to raise a tax/nic bill on all outstanding loans on all "loan" type schemes, so if someone has used a "loan" scheme in the past and hasn't actually repaid the loan, then they'll get slammed with a tax bill, completely irrelevant to what type of scheme they used or what kind of legal basis the scheme was set up under - that's irrelevant and HMRC aren't interested as the new law is simply "tax on outstanding loan balance" and nothing more!

Be afraid, be very afraid. It's end game for all these kinds of tax avoidance schemes.

Re the other point, yes, you would have problems with getting a mortgage as indeed, the mortgage lending criteria applied by most mainstream lenders is based upon payslips/tax returns, so if you have a very low declared taxable income, then yes, you're not going to have adequate "income to loan" affordability ratios for a mortgage.

xylophone

Being able to afford a house is very important to me (generation boomerang, returned home to mum and that cannot be a long term solution!) and I do not want to risk being able to do that in the future.

Are you unable to obtain a permanent position with a local authority?

TheCyclingProgrammer

I got as far as "loan scheme".

Walk away. Name and shame the umbrella so other people know who to stay away from.

Cyclizine

Sounds a bit like Rangers a few years ago... Supreme Court agreed with HMRC that they were avoiding tax.

badmemory

I'm prepared to bet the agency didn't tell you the size of the "bung" they were going to get for referring you either. I agree with others - don't let this come back to bite you on the b**. Your instincts were correct - run away from them now.

There is a way this could save you a little NI (and still be legal) but it is really not worth it to get involved with this kind of business.