Another day, another tax scandal. With HMRC attempting to crack down on avoidance it seems like there is a new story every ten minutes. This time though, the source was a BBC investigation relating to Umbrella Company Intelligent Salary Services (or ISS for short – not to be confused with the International Space Station, which is outside HMRC’s jurisdiction). With at least 24,000 contract workers on their books, ISS have been doing pretty well for themselves. The majority of the freelancers and contractors on their books work in the public sector as supply teachers and what have you.

According to the BBC, ISS have been making use of their off-shore tax status (being located in the sunny Channel Islands) to forego paying their National Insurance contributions. If you were to consider a supply teacher on an average day rate of £160, that teacher’s weekly NI contribution would total around £90. Tally that up across 24,000 contractors and you’ve got a rather hefty underpayment on your hands.

Of course, ISS have denied any wrongdoing – however having been put in the spotlight by the BBC you can bet HMRC will be taking a closer look at their arrangements.

The BBC’s investigation also discovered that some of the contractors may be falling foul of the IR35 ‘disguised employment’ rules. These contractors could now be forced into proper employment contracts, and possibly be forced to repay any tax they avoided in the interim.

For freelancers the episode could bring back painful memories of December 2010, when HMRC unceremoniously outlawed offshore Employee Benefit Trusts, leaving many contracting through them suddenly without access to their finances just a fortnight before Christmas.

Photo by Molly DG