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All you people with EBT/Loan/Dodgy Umbrella schemes - what you gonna do?

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    #51
    according to the clarification FAQ No. 6 issued by HMRC on 21 February IF the IOM employer makes the loan instead of the EBT then the Disguised Remuneration tax per B/ above does NOT apply and we are back to the benefit in kind tax on loans
    This is to prevent small 'advances' of pay being caught under the new legislation.

    In which case, why did they ever need the EBT?
    Because if loans are made from the employing company, the employees are exposed to the risk that the company directors could run up huge debts and file for insolvency. This would mean that the creditors would have the right to demand the employees - who are not shielded by limited liability - pay back their loans to service the company's debts. Obviously most EBT scheme users would not want to put such a huge amount of trust in the scheme providers not to do this. This existence of a trust as a separate legal entity protects them from this - once the money is contributed to the trust it ceases to be the employing company's property and, even if the employing company went into administration, could not be retrieved to pay the company debts.

    You also have the problem that under Section 188(2) ITEPA the loan could be treated as written off when you leave employment, therefore you are simply deferring the liability until you leave the umbrella company (unless you plan to stay with them until death - at which point the amount payable would be taken from your estate).

    Comment


      #52
      Originally posted by PhilCBN View Post
      You also have the problem that under Section 188(2) ITEPA the loan could be treated as written off when you leave employment, therefore you are simply deferring the liability until you leave the umbrella company (unless you plan to stay with them until death - at which point the amount payable would be taken from your estate).
      SORRY you are wrong about
      A/ S.188 (2). All this does is prevent the loan being written-off tax free after employment has ceased; it does NOT trigger a "deemed" write-off; AND
      B/ Death. See s. 190 ITEPA 2003 which prevents a tax charge on the write-off of the loan on death.

      Comment


        #53
        Originally posted by PhilCBN View Post
        This is to prevent small 'advances' of pay being caught under the new legislation.
        This may be the intention BUT that is not what FAQ no. 6 says SO i was simply pointing out the "obscene" fact that HMRC were changing the draft legislation to make it easier to avoid.

        I agree entirely with your point about the risks of having loans with a company that could be sued. But even this can be safeguarded against.

        Comment


          #54
          For what its worth Ltd is best

          Under normal/typical scenario I would always advise someone to set up their own Limited company. Simply because you can get a very good "take home pay" without the risks and/or minimal risks.

          However there will be cases where using an Umbrella Company is more suited particularly when you are just "dipping your toes into contracting".

          Contractors join other schemes for other reasons. That does not mean that other schemes dont work. It really annoys me when people post without supporting their arguments e.g. 90% take home cant work because 90% is too high.

          The fact is is that historically the "wealthy" have got away with murder when it comes to avoiding tax. Owner/Managers of small companies have been using Offshore EBT's since the 1980's BUT it is only in 2010 HMRC introduce Disguised Remuneration.

          A combination of IR35/internet/online systems have spread some of the schemes to a different clientelle.

          If tax avoidance schemes dont work WHY is it that every Budget the Treasury/HMRC announce new anti-avoidance rules to stop existing schemes. If you look at the Budget Notices that support/accompany the announcements you will normally see a figure quoted for future savings i.e. read this as tax lost/avoided in previous years.
          It is true that in some cases HMRC say that they will be pursuing previous years through Courts etc.
          I don't know the stats for HMRC success through the Courts BUT i do know they have lost many anti-avoidance cases.
          PLUS in many cases they simply admit (to themselves) that the legislation was not good enough and have to accept that the scheme was successful (unless they adopt retrospective law as per BN66). This is particularly common with regard to Corporation Tax where the large PLC's can afford the best tax lawyers/advisors. I have worked with BP, Glaxo, Vodaphone etc and all of them had large tax departments and were very tax aggressive.

          That is why we will probably end up with a General Anti-Avoidance Rule "GAAR" similar to Australia, New Zealand where everything is tax avoidance unless HMRC say otherwise.

          Comment


            #55
            Alan, you may be annoyed when people say that 90% take home is too high but I have never yet seen anyone post here who can support the claim for individual contractors who are UK tax resident and living and working in the UK so maybe that is why the claims tend to be dismissed out of hand
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              #56
              Originally posted by LisaContractorUmbrella View Post
              Alan, you may be annoyed when people say that 90% take home is too high but I have never yet seen anyone post here who can support the claim for individual contractors who are UK tax resident and living and working in the UK so maybe that is why the claims tend to be dismissed out of hand
              Point taken. I was also commenting on tax avoidance outside the contractor arena which is much lower profile and the man in the street never gets to hear about "it" unless he reads the Budget Notices published when a scheme is outlawed.
              Re contracting there are a lot of schemes where "take home pay" is achieving high 80's but such savings cannot be regarded as "banked" until the schemes are closed and it is apparent/evident that previous years are not going to be challenged and/or challenged and HMRC fail. That is when they will become very public and then it is too late to participate.
              BN66 is a prime example. On the face of it the scheme worked (although we may never ever get to see it tested in Court) and the change in law was backdated to catch all participants.

              A final point re disguised remuneration is that having read and re-read the FAQ's published by HMRC on 21 February i get the feeling that they are not too bothered about IR35 because the FAQ's are creating a number of loopholes/dispensations that enable IR35 schemes to continue to operate - UNLESS HMRC have something lined up on 23 March for IR35
              e.g.

              A/ abolish/withdraw the current deemed employee test and
              (i) have a special extra tax/NI on Dividends paid from PSC's (i.e. 5 or fewer shareholders) or;
              (ii) make the end client withhold 30% - similar to the construction industry, and/or

              B/an offshore IR35 amnesty to persuade contractors to go back to conventional PSC/Umbrella, and/or;

              C/ an IR35 targeted GAAR
              Last edited by Alan Jones; 24 February 2011, 13:58.

              Comment


                #57
                Originally posted by Alan Jones View Post
                Point taken. I was also commenting on tax avoidance outside the contractor arena which is much lower profile and the man in the street never gets to hear about "it" unless he reads the Budget Notices published when a scheme is outlawed.
                Re contracting there are a lot of schemes where "take home pay" is achieving high 80's but such savings cannot be regarded as "banked" until the schemes are closed and it is apparent/evident that previous years are not going to be challenged and/or challenged and HMRC fail. That is when they will become very public and then it is too late to participate.
                BN66 is a prime example. On the face of it the scheme worked (although we may never ever get to see it tested in Court) and the change in law was backdated to catch all participants.

                A final point re disguised remuneration is that having read and re-read the FAQ's published by HMRC on 21 February i get the feeling that they are not too bothered about IR35 because the FAQ's are creating a number of loopholes/dispensations that enable IR35 schemes to continue to operate - UNLESS HMRC have something lined up on 23 March for IR35
                e.g.

                A/ abolish/withdraw the current deemed employee test and
                (i) have a special extra tax/NI on Dividends paid from PSC's (i.e. 5 or fewer shareholders) or;
                (ii) make the end client withhold 30% - similar to the construction industry, and/or

                B/an offshore IR35 amnesty to persuade contractors to go back to conventional PSC/Umbrella, and/or;

                C/ an IR35 targeted GAAR
                Sorry Alan but what do you mean when you refer to an 'IR35 scheme'?
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                Comment


                  #58
                  Originally posted by LisaContractorUmbrella View Post
                  Sorry Alan but what do you mean when you refer to an 'IR35 scheme'?
                  What i meant was "would allow certain IR35 schemes to continue with minimum amendment" . For e.g. to best of my knowledge all previous promoters of EBT based IR35 schemes continue to offer schemes albeit modified.

                  Comment


                    #59
                    Originally posted by Alan Jones View Post
                    What i meant was "would allow certain IR35 schemes to continue with minimum amendment" . For e.g. to best of my knowledge all previous promoters of EBT based IR35 schemes continue to offer schemes albeit modified.
                    I think a more elegant solution would be to move UK-based freelance businesses out of scope of IR35 and leave the rest - including offshore schemes - in scope. So F2Ms and forced incorporation become clearly non-viable and offshore schemes continue to fail the "legitimate business-related avoidance" test. And HMRC have some clearly defined targets for their depredations

                    IR35 is not about tax avoidance anyway, it's actually about NIC avoidance by use of dividends, as I'm sure you know. But since those dividends derive from a fully legal (and totally compliant, whatever that means) UK Limited Company, it's hard to see how they would target it any more closely than they already do - which is very badly. Unless they try to introduce a third category of business vehicle, which would be ridiculous. For the money involved - no more than £400m at the absolute tops - it's hardly worth the bother.
                    Blog? What blog...?

                    Comment


                      #60
                      Originally posted by Alan Jones View Post
                      to best of my knowledge all previous promoters of EBT based IR35 schemes continue to offer schemes albeit modified.
                      If that is the case then it's inviting a retro "clarification" of the law, à la BN66, at some point in the future.

                      If I was in one of these schemes then I wouldn't stay in for too long.

                      In hindsight, the mistake many of us made with these schemes was not using them but putting too many eggs in one basket.

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