Offshore Company - Almost too late to back out - advice please

[cojak]

Loads unfortunately We're seeing new schemes coming onto the market every week. Couple of weeks ago someone even tried to sell a scheme to me for ContractorUmbrella Basically, we raise the invoices as normal then send the money to this company that then uses EIS tax relief to make money for me, the contractors and gosh darn shucks well just about everyone

I pointed out to him that tax relief from an EIS involves an investment - he agreed. I then pointed out that, once we had retained our margin, HMRC had been paid their bit and then contractor was paid their's there wasn't anything left to invest. Ah but you see, he said, we take part of the contractor's money to use as the investment and then we loan them the balance through another company. So, I said, it's a sham arrangement with no real purpose other than to avoid tax? No, he assured me, it's all above board and devised and approved by KPMG. So you can show me the questions you put to them regarding the scheme and their answers? Was I prepared to sign an NDA? Yes, I said, why not. I then asked to see written details for the scheme mechanism so that I could discuss their proposal with my lawyers and auditors. This was, sadly a step too far. He couldn't possibly do any such thing but he would speak to his MD and call me back. Never heard another word - funny that

So these are the questions you need to ask, people.

[DonkeyRhubarb]

Loads unfortunately We're seeing new schemes coming onto the market every week. Couple of weeks ago someone even tried to sell a scheme to me for ContractorUmbrella Basically, we raise the invoices as normal then send the money to this company that then uses EIS tax relief to make money for me, the contractors and gosh darn shucks well just about everyone

I pointed out to him that tax relief from an EIS involves an investment - he agreed. I then pointed out that, once we had retained our margin, HMRC had been paid their bit and then contractor was paid their's there wasn't anything left to invest. Ah but you see, he said, we take part of the contractor's money to use as the investment and then we loan them the balance through another company. So, I said, it's a sham arrangement with no real purpose other than to avoid tax? No, he assured me, it's all above board and devised and approved by KPMG. So you can show me the questions you put to them regarding the scheme and their answers? Was I prepared to sign an NDA? Yes, I said, why not. I then asked to see written details for the scheme mechanism so that I could discuss their proposal with my lawyers and auditors. This was, sadly a step too far. He couldn't possibly do any such thing but he would speak to his MD and call me back. Never heard another word - funny that

Surely anything like this, where the contractors are employees of a UK agency, would be caught by the agency legislation or disguised remuneration rules? I really can't see how this could ever work.

[LisaContractorUmbrella]

Surely anything like this, where the contractors are employees of a UK agency, would be caught by the agency legislation or disguised remuneration rules? I really can't see how this could ever work.

I think the scheme relies on the contractors remaining employees of the UK umbrella - they represent the 'compliant' face and all the dodgy shenanigans go on behind the scenes

[Alan @ BroomeAffinity]

I think that these schemes being marketed aggressively at the moment are a result of the Dividend Tax and T&S relief changes. Rightly or wrongly, but certainly understandably, some contractors are beginning to think if HMRC aren't giving us a fair crack at the whip, then why should we give them one. I guess its up to the like of us to keep banging the drum to get the message out that these things are just a big bag or risk. The problem is that many (most?) who take up these schemes are unreceptive to advice about them. If KPMG and some tax QC says its all good then it must be.

[LisaContractorUmbrella]

I think that these schemes being marketed aggressively at the moment are a result of the Dividend Tax and T&S relief changes. Rightly or wrongly, but certainly understandably, some contractors are beginning to think if HMRC are giving us a fair crack at the whip, then why should we give them one. I guess its up to the like of us to keep banging the drum to get the message out that these things are just a big bag or risk. The problem is that many (most?) who take up these schemes are unreceptive to advice about them. If KPMG and some tax QC says its all good then it must be.

I think you're exactly right Alan and it is something that HMRC have been warned about (by me amongst others) - if they keep pushing and pushing in our sector I think people will eventually get the attitude of 'might as well be hung for a sheep as a lamb'.

[cojak]

I think that these schemes being marketed aggressively at the moment are a result of the Dividend Tax and T&S relief changes. Rightly or wrongly, but certainly understandably, some contractors are beginning to think if HMRC aren't giving us a fair crack at the whip, then why should we give them one. I guess its up to the like of us to keep banging the drum to get the message out that these things are just a big bag or risk. The problem is that many (most?) who take up these schemes are unreceptive to advice about them. If KPMG and some tax QC says its all good then it must be.

But they end up running to us complaining about how nasty the scheme providers are and why didn't anyone warn them?

(Not the OP, obviously.)

Because you didn't want to know and didn't look further than your nose!

It's amazing that they didn't find us when everything was rosy, but manage to find us as soon as the brown envelopes start dropping on the doormat...

[cojak]

I think you're exactly right Alan and it is something that HMRC have been warned about (by me amongst others) - if they keep pushing and pushing in our sector I think people will eventually get the attitude of 'might as well be hung for a sheep as a lamb'.

And be traumatised by the whole experience.

[Alan @ BroomeAffinity]

A lot of the time we only hear what we want to hear. In a similar scenario, I am having a bit of trouble with a firm of accountants who are aggressively marketing the process where a contractor closes his company every 2 or so years to get ER. Regardless of us explaining that this does not work due to the Transfers in Securities rules, folk just do it. A similar view I suspect to the people who jump into offshore schemes.

[LisaContractorUmbrella]

And be traumatised by the whole experience.

Yep They'll all end up with us eventually

[Dan@OrangeGenie]

I think you're exactly right Alan and it is something that HMRC have been warned about (by me amongst others) - if they keep pushing and pushing in our sector I think people will eventually get the attitude of 'might as well be hung for a sheep as a lamb'.

Couldn't agree with you more Lisa. It seems to be on the rise at the moment too, hats off to Hector again for scattering the herd.