The Low Incomes Tax Reform Group's (LITRG) recent response to HMRC’s consultation on ‘tougher consequences for promoters of tax avoidance’, highlighted a concerning problem of individuals being recruited via social media to act as stooge directors to front umbrella companies that are not compliant with tax law.
They are likely to be attracted by the fees on offer for agreeing to act as a director, but the individuals involved usually have no understanding or experience of a director’s role and do not realise they are leaving themselves exposed to being fined, or to criminal prosecution.
Directors are legally responsible for running companies. The group say that becoming a director is never something to be undertaken lightly but should be avoided at all costs by people who are not involved in the running of the company and so do not exercise any control or influence over it and are simply paid to forward on correspondence. In the eyes of the law, they are treated like any other director and are potentially liable for any problems with the way the company is run.
Victoria Todd, head of LITRG said: “It is important for anyone thinking about becoming a director of a limited company to understand what the role entails and what their responsibilities are, as they may be fined, prosecuted or disqualified from being a company director in future if they do not meet their responsibilities.
"We are concerned about the growing number of social media adverts being used to find stooge or nominee directors who are then being used to ‘front’ non-compliant umbrella companies in return for a fee. This is usually an attempt to try and disguise the real ownership of the company.
“HMRC are currently thinking about how they can clamp down on umbrella companies that are non-compliant with tax law, and one of their proposals is to expedite the disqualification of directors and those who exercise control or influence over a company. This would obviously include any stooge or nominee directors - with the problem being that being disqualified as a director is a very serious matter and can have a major impact on one’s life chances.
“We are concerned that young, inexperienced, or otherwise vulnerable individuals, who have been recruited as directors for a fee and who aren’t really the ones in charge but are just attracted by the money on offer, could find themselves caught up in this. Even if the proposals don’t go ahead, there are numerous other reasons why allowing themselves to become a stooge or nominee director is a very bad idea.
"We are warning people of the dangers of signing up to be a stooge director and advising any that have already signed up – to do their research and consider resigning their directorships as soon as possible.”
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