HM Revenue and Customs (HMRC) has warned taxpayers that it will investigate anyone using a new disguised remuneration tax avoidance scheme.
It said that the scheme attempts to avoid Income Tax and National Insurance contributions (NICs) by paying contractors in the form of redeemable loyalty points.
Under the scheme, the contractor becomes an employee of an umbrella company and is then paid in two parts. The first part is a small basic wage with little or no tax and NICs deducted. The second part of the payment is used to advertise the contractor's services on a job board.
They immediately receive loyalty points in return for keeping their details on the job board. The loyalty points can be cashed in by the employees shortly after, with no deductions made for tax or NICs, said HMRC. The contractor usually has to pay a large fee to the third party running the job board.
HMRC said that the schemes do not work, as receiving and redeeming the loyalty points is taxable income, which forms part of the contractor's employment income from the umbrella company.
"Contractors could end up worse off because they'll still owe the tax and NICs, plus interest and any fees charged by the promoter," it said.
Employment agencies and businesses who are involved in this scheme may also be liable for failing to deduct the correct amount of tax and NICs, the notice said.
HMRC said it would consider whether to apply a 60 percent General Anti-Abuse Rule (GAAR) charge on transactions within schemes where tax avoidance is identified.
Under new legislation announced in the 2017 Spring Budget, from July 2017 a new penalty of 100 percent of the fees can be charged for anyone who constructs, markets, sells, or otherwise enables the use of abusive tax avoidance which is later defeated by HMRC.
"Users of this type of avoidance scheme should contact HMRC and make arrangements to settle the tax and NICs due as soon as possible," the notice said. "If you don't, you may have to pay interest and could receive a penalty."