A tax avoidance scheme called ‘The Partnership Model’ is being marketed to LLPs which results in non-payment of tax and National Insurance contributions (NICs), HMRC said.

The arrangements are targeted at companies who have employees and are designed to avoid the payment of corporation tax and the PAYE deduction of income tax and National Insurance contributions from their employees.

HMRC’s view is that this scheme does not work. Stressing that ‘scheme users continue to be employees and payments made to them from the company should be treated as taxable employment income’.

The schemes work by signing up an employee to an agreement whereby the employee’s employment contract can be changed or terminated in exchange for a compensation payment.