How safe are high returns when using a Ltd Co?

[Subsignal]

I've read several times in some of the more entaining "battles" involving Umbrella vs Ltd Co vs Tax Scheme about how it is possible to achieve a return of over 80% through a Limited Company.

Apparently this type of return is not unreasonable, perfectly compliant and "unchallengeable". Surely though, if the Revenue are able to apply retrospective legislation to Tax Schemes, they could also apply retrospective legislation to Ltd Co regulations (or even Umbrella regulations) leaving everyone open to uncertainty, whatever method of recieving payment someone uses? Especially when there appears to be a media witch hunt against people using Ltd Companies to minimise their tax.

[Nixon Williams]

I've read several times in some of the more entaining "battles" involving Umbrella vs Ltd Co vs Tax Scheme about how it is possible to achieve a return of over 80% through a Limited Company.

Apparently this type of return is not unreasonable, perfectly compliant and "unchallengeable". Surely though, if the Revenue are able to apply retrospective legislation to Tax Schemes, they could also apply retrospective legislation to Ltd Co regulations (or even Umbrella regulations) leaving everyone open to uncertainty, whatever method of recieving payment someone uses? Especially when there appears to be a media witch hunt against people using Ltd Companies to minimise their tax.

In theory, retrospective legislation could be applied to anything, but I think that it is safe to assume that this would not apply to the main tax regime aurrounding limited companies.

The attacks on the offshore schemes are mainly due to their use of complicated and artificial schemes to 'avoid' tax.

Some of the recent ones make use of loans in a foreign currency etc, clearly there is no reason to do this other than to exploit a loop hole in the tax laws.

Using a limited company, you can acheive high returns but it all depend on the circumstances and how the company is structured etc.

Personally I would advise caution on using offshore arrangements, despite the claims of 'QC approved' and even 'HMRC approved' the facts are that the suppliers of such schemes are likely to walk away when the letters from HMRC start arriving.

Alan

[LisaContractorUmbrella]

I've read several times in some of the more entaining "battles" involving Umbrella vs Ltd Co vs Tax Scheme about how it is possible to achieve a return of over 80% through a Limited Company.

Apparently this type of return is not unreasonable, perfectly compliant and "unchallengeable". Surely though, if the Revenue are able to apply retrospective legislation to Tax Schemes, they could also apply retrospective legislation to Ltd Co regulations (or even Umbrella regulations) leaving everyone open to uncertainty, whatever method of recieving payment someone uses? Especially when there appears to be a media witch hunt against people using Ltd Companies to minimise their tax.

There are all sorts of creative schemes which purport to lower your tax burden and there are a number of perfectly legitimate ways to increase your tax home such as pension contributions. It's very dangerous to have your starting point, when looking at a payment vehicle, as 80% take home; if you are on £500+ per day and have no real expenses and don't contribute to a pension it's not going to happen without looking at high risk options which deliberately target people who's main concern is take home pay. As Alan said 'QC approved' means nothing and, trust me, HMR&C never, ever approve anything.

[Subsignal]

In theory, retrospective legislation could be applied to anything, but I think that it is safe to assume that this would not apply to the main tax regime aurrounding limited companies.

The attacks on the offshore schemes are mainly due to their use of complicated and artificial schemes to 'avoid' tax.

Some of the recent ones make use of loans in a foreign currency etc, clearly there is no reason to do this other than to exploit a loop hole in the tax laws.


Using a limited company, you can acheive high returns but it all depend on the circumstances and how the company is structured etc.
Personally I would advise caution on using offshore arrangements, despite the claims of 'QC approved' and even 'HMRC approved' the facts are that the suppliers of such schemes are likely to walk away when the letters from HMRC start arriving.
Alan

Surely the way that Ltd Companies are used is to "avoid" tax


When you use the phrase "loop hole" does that not mean "complying with the regulations"?

When you say "how the company is structured" is that just another way of saying that clever accountants will use the complexities of tax legislation to minimise tax - in much the same way as these scheme operators do?

I agree that caution should be used and that HMRC will never "approve" a scheme and neither will a QC. Surely though, if many QCs have the opinion that a scheme works, it is legal and compliant until there is a legislation change

[northernladuk]

Surely the way that Ltd Companies are used is to "avoid" tax

The way we use LTD's is questionable hence IR35 looming over us. There is an argument are we legitemate companies or are we hidden permies and there is legislation to try and clarify this (but it fails miserably). The actual structure of a LTD isn't a problem.

When you say "how the company is structured" is that just another way of saying that clever accountants will use the complexities of tax legislation to minimise tax - in much the same way as these scheme operators do?

It means that to run a company properly it must be structured in a way that is understood and doesn't break the spirit or the word of the laws. Paying directors dividends is a normal structure but that structure becomes skewed when you make your mum a director to avoid tax. This is not properly structured for example. You are complying to a faily agreed set of rules that most understand and how the system was designed. These scheme operators purposely attempt to find gaps in the system which is not complying with the spirit of the rules. That is where the grey area comes in.

[Nixon Williams]

Surely the way that Ltd Companies are used is to "avoid" tax


When you use the phrase "loop hole" does that not mean "complying with the regulations"?

When you say "how the company is structured" is that just another way of saying that clever accountants will use the complexities of tax legislation to minimise tax - in much the same way as these scheme operators do?

I agree that caution should be used and that HMRC will never "approve" a scheme and neither will a QC. Surely though, if many QCs have the opinion that a scheme works, it is legal and compliant until there is a legislation change

Tax avoidance is certainly not illegal but there are scheme providers that use convoluted methods in an attempt to avoid and paying tax.

A limited company contractor invoices their client, who then pays the invoice (to the company). The limited company then pays certain expenses, salary to the director etc. Anything left is profit, subject to corporation tax, after which can be distributed as a dividend.

Nothing our clients do is any different to any large company such as Capita, Tesco, BAE etc. The only difference is the size of the number.

Some of these schemes, make artificial loan arrangements, foreign currency loans seem popular at the moment, and most of the money a contractor 'pays' is in reality fees to the provider, the actual tax is usually very low, often just the PAYE & NIC on a national minimum wage salary.

In what world is a scheme which 'loans' you your own money and which you have to promise to repay on demand, not deemed to be a contrived and convoluted tax avoidance scheme that will attract the attention of the tax authorities?

The company structure could relate to the shareholding but also to what cash demands a client has, they could limit the cash withdrawals and extract the cash upon closure in say, 10 years time.

I have seen 'QC approved' before on schemes that are now under attack from HMRC and whose providers have long gone.

Anyone is free to make their own choice, personally I would not wish to be waiting for a knock on my door from HMRC to 'save' a few extra pounds each year, the returns from a limited company can be as good if not equal and with a good nights sleep thrown in.

Alan

[Subsignal]

In what world is a scheme which 'loans' you your own money and which you have to promise to repay on demand, not deemed to be a contrived and convoluted tax avoidance scheme that will attract the attention of the tax authorities?

Alan

In this world, it would appear!

Weren't a lot of the EBT schemes using loans as a method of payment? They were closed (or legislated against) not for the loan part of the mechanism, but for entirely different reasons.

[Bumfluff]

Put it this way everyone I have known who contracts and used one of the high return schemes have all had come back from HMRC, whether they actually had to pay anything back I don't know but all have had issues. Also if HMRC is not the issue alot of the agents these days will refuse to deal with schemes like this.

The only ones I know who use high return schemes and are happy to do so are people who are willing / able to relocate there lifes abroad if HMRC come a knocking.

[psychocandy]

I think what Alan says is fair enough. You might or probably will get away with it. But for how much more income?

Not worth the hassle IMHO in case it does all go wrong for a few more quid...

[Alan @ BroomeAffinity]

100% in agreement with Alan.

I had an argument on LinkedIn with a scheme provider the jist of which was to explain, if the return is 85%, where is the other 15% going? I knew it was in fees but I was trying to draw him out. He went all "you'll need to sign a NDA before we tell you anything" on me. Modern day snake oil salesmen, the lot of them.