HMRC has published full details of the stop notice ordering Purple Pay Limited to cease paying contract staff virtually tax free and promoting tax avoidance.

Purple Pay is one of only 16 companies given a stop notice since HMRC started enforcing tougher rules to stop umbrella companies from running egregious tax avoidance schemes, frequently used by low earners who do not realise they will be pursued for unpaid tax by HMRC and could face punitive penalties for evasion.

HMRC first gave Purple Pay a stop notice in January 2023, but has now set out details of the company and the nature of the avoidance scheme which saw users taxed on only 5% of their earnings, while 95% was tax free.

Purple Pay, based at offices in the City of London, has been operating as an employment agency since 2014 and has a sole director Dennis Curtis Fenemore who was only appointed in July 2022. Two previous directors, Ryan Laville and John Michael Ward resigned in July and January of 2022 respectively.

The company is facing strike-off action by Companies House and last filed accounts in June 2022. At the time it had £903,187 in assets and £48,471 in capital and reserves, and reported 292 employees, up from zero the previous year.

The stop notice highlighted the scale of the tax avoidance scheme, with Purple Pay Limited paying the scheme user around 5% of the amount billed to the client company, which was described as ‘wages’ and was taxed correctly under PAYE.

The user was then paid around 75% of the billing amount as an advance under a so-called ‘employee cash facility’ which was paid tax free. HMRC described this as ‘essentially a loan between the user and PPL and allows PPL to provide unsecured advances to the user’.

This meant that only 5% of the user’s earnings were taxed exposing them to HMRC investigation if they failed to report their earnings correctly on a self assessment tax return and paid the due tax.

The way this scheme works was fairly complicated and begs the question how many users realised what they were signing up to.

Before getting any work from the company, the user had to enter into a co-ownership agreement with PPL and the trustee of the Purple Pay employee share ownership trust. As part of this agreement, the user was said to ‘acquire a joint interest in shares of PPL’.

Once the user stopped working employment contracts, they had to ‘dispose of their joint interest in shares acquired under the co-ownership agreement’. This fabricated ‘sale’ effectively wrote off the advance payments.

While the users earned the tax-free income, Purple Pay kept 20% of the fee earned from the client as a commission.

This was not the first time Purple Pay had been flagged by HMRC for promoting tax avoidance schemes. It first came to the attention of the tax authority in April 2022 when it was named on the tax avoidance promoters list and told to terminate using the so-called Equity Participation Scheme run through Purple Pay, which saw users paid with a mixture of taxed national minimum wage and a secondary amount of untaxed remuneration.

Mary Aiston, director of counter avoidance, HMRC said: ‘These schemes are cynically marketed as clever ways to pay less tax. The truth is they rarely work in the way the promoters claim and it’s the users that end up with big tax bills.’

HMRC List of tax avoidance scheme promoters – stop notices