Dynamic Management Services

**DaveB** · 2 October 2006, 19:36

Anything that differs from the standard Minimal Salary + Dividend template should be regarded with suspicion. There's a reason that decent accountants recommend it. You should have a chat with the guys recommeded regularly on here - SJD, 1st Accountancy and Nixon-Williams (?)

Just because they advise Premiership clubs and top executives on their tax liabilities doesnt mean the same will apply to you, unless of course you are a premiership player or a top executive. Whatever one of those is.

**Ardesco** · 2 October 2006, 20:23

Also bear in mind that just because they phone up premier clubs and offer advice doesn't actually mean they listen to it.....

**IR35 Avoider** · 3 October 2006, 08:51

I'm not using them, however from looking at their web-site I think I know what they are doing, and if I'm right, and they are doing it properly, I think it is OK.

Essentially their packaging option will make their "umbrella consultancy" (it's not an umbrella or consultancy in the normal sense) look sufficiently like a large consultancy for tax purposes that IR35 cannot be applied, even if you fail tests with respect to the client. The crucial factor in achieving this is that the level of your income from the "consultancy" cannot be directly linked to the contract income you generate for them. In order to lower tax bills they have the same options as all big employers, in particular government approved measures such as share and share-option schemes.

A scheme like this was tried immediately after IR35 was introduced, but at that time the level of trust it required from contractors meant it did not have the kerb-appeal to compete with the off-shore trust and EBT schemes. These latter had more appeal to contractors because they put a defined amount of money in the contractors hands within a defined amount of time. The "consultancy" scheme cannot do this because it's IR35-avoidance properties require there to be no mechanical link between fees generated and rewards (of all kinds) to its employees. You really do have to hand over all of "your" earnings and trust they will sooner or later give most of it back to you. They cannot promise to much in this regard because to do so would risk invalidating the scheme.

At the moment I immunise myself from IR35 by paying myself a salary of 5K a year plus whatever company pension contributions are needed to take remuneration up to 95% of fees. If I were working full-time (hence earning more) and couldn't afford to postpone accessing my earnings, I would consider using this scheme.

**ASB** · 3 October 2006, 09:03

Originally posted by IR35 Avoider

Essentially their packaging option will make their "umbrella consultancy" (it's not an umbrella or consultancy in the normal sense) look sufficiently like a large consultancy for tax purposes that IR35 cannot be applied, even if you fail tests with respect to the client.

A possible problem is the "reasonable" test in the legislation. Could the remuneration - however it arrives - be reasonably taken as remuneration from the contract. Fail that and you are stuffed. However, I don't think this has yet been actively persued in any commissioners case.

**DaveB** · 3 October 2006, 09:07

Originally posted by IR35 Avoider

The "consultancy" scheme cannot do this because it's IR35-avoidance properties require there to be no mechanical link between fees generated and rewards (of all kinds) to its employees. You really do have to hand over all of "your" earnings and trust they will sooner or later give most of it back to you. They cannot promise to much in this regard because to do so would risk invalidating the scheme.

So if you dont actually earn any fees for the company they will keep paying you anyway? If that is not the case then there is a clear link between fees and rewards, the whole thing collapses and you get stuck with a nasty tax bill.

If they do pay you anyway then there is a clear case to say you are an employee, the whole thing collapses and you get stuck with a nasty tax bill.

I wouldnt touch it with a pole of any length.

**Newby** · 3 October 2006, 09:10

Sign me up, from a gross invoice amount of 50,000k per annum their calculator spits out 76K net return working through their remuneration packaging scheme.

DMS -

Contractor Options * Net Return

1. Remuneration Packaging £76,530
2. Ltd Co - Not caught by IR35 £36,322
3. Ltd Co - Caught by IR35 £32,805
4. Ltd Co - Not caught by IR35
Still tax resident at home £29,958
5. PAYE £31,295

**IR35 Avoider** · 3 October 2006, 09:24

Originally posted by Newby

Sign me up, from a gross invoice amount of 50,000k per annum their calculator spits out 76K net return working through their remuneration packaging scheme.

It's a bizarre bug - all the other figures in the dropdown box give sensible answers.

**IR35 Avoider** · 3 October 2006, 09:29

Originally posted by DaveB

So if you dont actually earn any fees for the company they will keep paying you anyway? If that is not the case then there is a clear link between fees and rewards, the whole thing collapses and you get stuck with a nasty tax bill.

I would imagine that they will keep paying you for a few months. As with any consultancy, if you're non-productive for to long they would have to consider laying you off. Of course the money they paid you with would be covered by fees you generated when you were working, so they are not out-of-pocket from paying you during this period. In fact spreading "your" earnings out over time regardless of whether you're in or out of work is one small way they can be more tax-efficient than a one-man company with IR35-caught income.

Oh, I nearly forgot: as you're an ordinary employee being laid off, they could give you a large payoff, up to 30K of which is tax-free if it's at their discretion rather than a contractual right, another thing the director of a one man company can't do for himself. Of course the "compensation for loss of office" would be calculated by them with an eye on how much you had brought in in excess of what you'd already got out. (I have no idea if this is something this particular company would do - just speculating.)

You being out of work after a contract is not really a problem. The really tricky period for them would be when you first join - what if your client sacks you in the first week of your contract, but they are legally required to pay you the salary in your employment contract? I suspect they have really short notice periods to begin with, and I wonder if they have an unpaid (or low-paid) probation period?

**IR35 Avoider** · 3 October 2006, 09:58

Originally posted by ASB

A possible problem is the "reasonable" test in the legislation. Could the remuneration - however it arrives - be reasonably taken as remuneration from the contract. Fail that and you are stuffed. However, I don't think this has yet been actively persued in any commissioners case.

That is the crux of the issue. On the one hand they have to attract contractors by convincing them what they are likely to receive, then they have to deliver to make sure there are no unhappy customers, but all without making the link between earnings and rewards explicit enough that HMRC could challenge them under this clause.

Amusingly, the risk of a challenge, which if it succeeded would impact company funds and affect different contractors differently, meaning two who had brought in the same fees could get different rewards depending on timing, could itself be cited as evidence of one commercial risk that cuts the link between earnings and rewards. The threat of a successful challenge could rule one out!

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