A UK umbrella company faces a £900,000 penalty for failing to co-operate with HM Revenue & Customs. IPS Progression Ltd. was accused by HMRC as being a tax avoidance promoter whose schemes were used by locum doctors and nurses.

IPS allegedly paid its 1,593 users largely with tax-free loans between April 2016 and April 2018, according to HMRC. Some of the workers were locum doctors and nurses whose services were made available by recruitment agencies to hospitals and other healthcare providers.

The tribunal judgment said the hourly rate for the contractors’ services went to IPS, who took a 15% cut. IPS then issued payslips to the workers showing that the remainder was split in three parts:

1. “Salary paid”: This part equalled the national minimum wage for the hours worked.
2. “Rolled-up holiday pay”: This was 12.07% of the “salary paid” amount.
3. “ILO bonus”: This was whatever was left of the payment.

IPS would only deduct Income Tax and National Insurance Contributions from the “salary paid” and “rolled-up holiday pay” portions, but not the “ILO bonus” part, according to the HMRC.

IPS said they envisaged the employees would eventually repay the ILO bonus loans and these would have been subject to Income Tax and National Insurance Contributions, according to HMRC.

“The respondent never intended to establish a genuine bonus scheme and never intended that the loans would be repaid,” Judge Christopher Saker said. “The practical effect was that employees were paid part of their taxable earning tax-free.”

IPS has 56 days to appeal the judgement.

“This penalty underlines how IPS were prepared to ignore their legal obligations and we are pleased the tribunal agree a significant penalty is due in this case,” Jonathan Smith, HMRC’s director of counter avoidance, said in a press release. “We use all powers available to ensure penalties are collected. This can include making company directors liable.”

Nigel Huddleston, member of Parliament, financial secretary to the Treasury, said he supports the HMRC in its efforts to root tax avoidance promoters.

“These schemes can cause life-changing damage to people who get involved with them, so I am making it my priority to support HMRC in using all powers available to clamp down on avoidance promoters: whether it’s through fines, legal challenges or stop notices,” Huddleston said. “HMRC now has the powers to seek disqualification and pursue new criminal sanctions through the courts.”