IPS Progression Limited (IPS) paid their 1,593 scheme users largely with tax-free loans between April 2016 and April 2022.

HMRC brought the legal action against IPS for failing to notify HMRC of its arrangement until April 2022.

A judge at the first-tier tribunal determined IPS must pay a penalty.

The tribunal judgment said the hourly rate for the contractors’ services went to IPS who took a 15% cut.

IPS issued payslips to the workers, whose services were made available by recruitment agencies to hospitals and other healthcare providers, showing 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 NICs from the salary paid and rolled-up holiday pay portions, but not the ILO bonus part.

IPS claimed they "envisaged" the employees would eventually repay the ILO bonus loans and these would have been subject to income tax and NICs. Judge Christopher Staker disagreed, saying: “The respondent never intended to establish a genuine bonus scheme and never intended that the loans would be repaid. The practical effect was that employees were paid part of their taxable earnings tax-free.”

Jonathan Smith, HMRC’s director of counter avoidance, said: “The penalty underlines how IPS were prepared to ignore their legal obligations. We use all powers available to ensure penalties are collected.”

Nigel Huddleston, Financial Secretary to the Treasury, said: “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. HMRC now has the powers to seek disqualification and pursue new criminal sanctions through the courts.”

Directors and other connected individuals can also be made liable for a company's penalties from failing to disclose a tax avoidance scheme, if the company becomes insolvent or there is a serious possibility of it becoming insolvent.

Liverpool based IPS was incorporated in 2015, according to Companies House records. Its directors are based in the Isle of Man, according to the records.