The UK’s tax collection department (HMRC) has been sending letters to tens of thousands of taxpayers, demanding they pay large outstanding tax obligations. The letters have come as a surprise to many and have allegedly been linked to 10 suicides.
The issue has arisen out of the use of umbrella companies. Workers would have their salaries paid into the umbrella company, which would then lend the money to the worker, but it was not repaid. Such a structure was common in fields such as nursing and teaching, with there often being no choice but to get paid in this way. However, the scheme was not compliant with UK tax legislation, resulting in large underpayments of tax and national insurance over the years.
Rather than go after the employers that set these schemes up, the HMRC is contacting individuals directly and placing the tax burden on them.
Is this something that could happen in New Zealand? Technically, the legislation does allow for it. The Income Tax Act 2007 provides that where PAYE is not withheld from an income payment, the employee is then liable to pay that tax. In reality, this is unlikely to happen because Inland Revenue would more likely pursue the employer.
However, if someone is being paid ‘gross’ it is better to ask the question and not consider it a ‘windfall gain’.
