Despite huge rafts of Government legislation dealing with tax avoidance we still seem to have lots of people posting on here who have been tempted by the promise of high take home pay with little or no risk and the backing of QC's. The scheme providers are often very convincing and are marketed to appeal to new contractors who have little or no understanding of the UK tax system and the risks that they are running. The following have/will shortly be introduced to counteract this sort of scheme:
GAAR: General Anti Abuse Rule - The GAAR Study Group Report was based on the premise that the levying of tax is the principal mechanism by which the state pays for the services and facilities that it provides for its citizens, and that all taxpayers should pay their fair contribution. This same premise underlies the GAAR. It therefore rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position. HMRC will use GAAR to combat schemes which they feel have no purpose other than to avoid tax: the tax payer will be required to revise and resubmit self assessment forms to correct the tax position and will face penalties if they fail to do so.
Agency Legislation (ITEPA) - if a worker is resident, tax resident and working in the UK then PAYE must be applied to their earnings even if their intermediary is based offshore. If the intermediary does not properly account for taxes owed then the obligation will pass to the recruitment agency that engages with the end client. As part of the same legislation - if a worker engages with an agency then they will be liable for PAYE taxes (which can be deducted by the agency or an umbrella company) if it can be proven that they are under the supervision, direction and control of the client. Agencies will be required to report to HMRC on those workers that they believe will not meet this criteria. This legislation doesn't apply to PSC working outside IR35 as dividends are not considered income for the purposes of the legislation. One of the purposes of this legislation is to stop what is referred to as 'false self-employment' whereby a worker is engaged by an intermediary as 'self-employed' thereby removing the need for the intermediary to pay employer's national insurance.
Accelerated Payments: DOTAS : workers who have used a tax avoidance scheme registered under DOTAS will be required to pay disputed tax up front i.e. before the validity of the scheme has necessarily been tested in court. The disputed tax will be payable within 90 days.
Follower notices: These will be issued if HMRC feel that the mechanism to avoid tax has been used by another provider and defeated in court.
If you contravene any of the above you will be obliged to pay back the tax HMRC deem that you owe, with interest and possibly penalties. HMRC have already set a precedent for retrospective tax legislation - this means that you will not owe tax from the point at which the scheme you use is discredited, you will owe from when you first began using it. There have been over 1 MILLION views of this thread http://forums.contractoruk.com/accou...al-beyond.html which details the misery of contractors caught out by tax avoidance schemes and retrospective legislation. If this doesn't convince you, this entire section HMRC Scheme Enquiries is dedicated to those who have received notices from HMRC following their use of tax avoidance schemes - all of which were promised to be compliant and risk free.
If it seems to good to be true then it very probably is.
GAAR: General Anti Abuse Rule - The GAAR Study Group Report was based on the premise that the levying of tax is the principal mechanism by which the state pays for the services and facilities that it provides for its citizens, and that all taxpayers should pay their fair contribution. This same premise underlies the GAAR. It therefore rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position. HMRC will use GAAR to combat schemes which they feel have no purpose other than to avoid tax: the tax payer will be required to revise and resubmit self assessment forms to correct the tax position and will face penalties if they fail to do so.
Agency Legislation (ITEPA) - if a worker is resident, tax resident and working in the UK then PAYE must be applied to their earnings even if their intermediary is based offshore. If the intermediary does not properly account for taxes owed then the obligation will pass to the recruitment agency that engages with the end client. As part of the same legislation - if a worker engages with an agency then they will be liable for PAYE taxes (which can be deducted by the agency or an umbrella company) if it can be proven that they are under the supervision, direction and control of the client. Agencies will be required to report to HMRC on those workers that they believe will not meet this criteria. This legislation doesn't apply to PSC working outside IR35 as dividends are not considered income for the purposes of the legislation. One of the purposes of this legislation is to stop what is referred to as 'false self-employment' whereby a worker is engaged by an intermediary as 'self-employed' thereby removing the need for the intermediary to pay employer's national insurance.
Accelerated Payments: DOTAS : workers who have used a tax avoidance scheme registered under DOTAS will be required to pay disputed tax up front i.e. before the validity of the scheme has necessarily been tested in court. The disputed tax will be payable within 90 days.
Follower notices: These will be issued if HMRC feel that the mechanism to avoid tax has been used by another provider and defeated in court.
If you contravene any of the above you will be obliged to pay back the tax HMRC deem that you owe, with interest and possibly penalties. HMRC have already set a precedent for retrospective tax legislation - this means that you will not owe tax from the point at which the scheme you use is discredited, you will owe from when you first began using it. There have been over 1 MILLION views of this thread http://forums.contractoruk.com/accou...al-beyond.html which details the misery of contractors caught out by tax avoidance schemes and retrospective legislation. If this doesn't convince you, this entire section HMRC Scheme Enquiries is dedicated to those who have received notices from HMRC following their use of tax avoidance schemes - all of which were promised to be compliant and risk free.
If it seems to good to be true then it very probably is.
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