Payment via loan

[PAG]

Even if the scheme is sucessful you would not be out of the woods.

"The income arising from the services that you provide is reviewed on a monthly basis with the aim of identifying the appropriate allocations that may be paid into the discretionary trust. The trustees may then, at their discretion, advance amounts in the form of interest free loans on a monthly basis."

If the contacts were not good from an IR35 point of view this would probably enable HMRC to challenge any income from the trust as IR35'd anyway. It wouldn't be a great leap to suggest that income received from the trust was in effect remuneration for services provided from worker to client. Then it's potentially caught.

What you say is correct. To cover that, read following excerpt from their QA section.

Q7: Will the contract under which my services would be provided be acceptable?

A:The customers/agency contracts, are perused and any detrimental clauses are questioned. The contracts with clients or their agents will only be signed if they have been perused and, in our view, found to be reasonable. However, we cannot guarantee this and would make you aware of any potential problems. We believe that some parties just sign the relevant documentation without question and consider that such practices would not be in your best interests.

What surprises me is that there are lot of people who has participated this scheme !!!

[ASB]

What you say is correct. To cover that, read following excerpt from their QA section.

Q7: Will the contract under which my services would be provided be acceptable?

A:The customers/agency contracts, are perused and any detrimental clauses are questioned. The contracts with clients or their agents will only be signed if they have been perused and, in our view, found to be reasonable. However, we cannot guarantee this and would make you aware of any potential problems. We believe that some parties just sign the relevant documentation without question and consider that such practices would not be in your best interests.

What surprises me is that there are lot of people who has participated this scheme !!!

I guess that offers some protection. But the written contracts can easily be irrelevant of course.

Also, I seem to recall that there were some recent changes which meant that these payments had to be declared on an individuals SA return and income tax paid. The income tax was then repaid when/if the payment was repaid. [The fact the there is specific changes to the treatment of these payments makes me inclined to think that the scheme was in fact workable]

[PAG]

I guess that offers some protection. But the written contracts can easily be irrelevant of course.

Also, I seem to recall that there were some recent changes which meant that these payments had to be declared on an individuals SA return and income tax paid. The income tax was then repaid when/if the payment was repaid. [The fact the there is specific changes to the treatment of these payments makes me inclined to think that the scheme was in fact workable]

I am not sure how would you declare this on your SA return. " questions.

1. Because you are FT employee you may not receive SA Return. So you can play dumb 'i did not know' if they come after you.

2. since it is a loan and not income, do you have to declare it ???

[malvolio]

I am not sure how would you declare this on your SA return. " questions.

1. Because you are FT employee you may not receive SA Return. So you can play dumb 'i did not know' if they come after you.

2. since it is a loan and not income, do you have to declare it ???

If you are a FT and resident in the UK, you have to pay appropriate PAYE and NICs on all your income, regardless of source. It is your responsibility to do so. Ignorance is not a defence to a charge of tax evasion (although it may be a defence as to why people sign up to these schemes)

As to it being a loan, if it is never intended to be repaid, and is regularly written off as a bad debt, Hector would no doubt consider that to be evasion as well, since it is a deliberate concealment of earned income.

Incidentally EBTs are illegal in the UK now. You can have an offshore one, of course, just don't bring any of the money back into the UK. Which makes paying the mortgage a bit tricky...

[PAG]

If you are a FT and resident in the UK, you have to pay appropriate PAYE and NICs on all your income, regardless of source. It is your responsibility to do so. Ignorance is not a defence to a charge of tax evasion (although it may be a defence as to why people sign up to these schemes)

As to it being a loan, if it is never intended to be repaid, and is regularly written off as a bad debt, Hector would no doubt consider that to be evasion as well, since it is a deliberate concealment of earned income.

Incidentally EBTs are illegal in the UK now. You can have an offshore one, of course, just don't bring any of the money back into the UK. Which makes paying the mortgage a bit tricky...

then how do you think TEKPAY operates, if EBT are illegal. check out their site.

[ASB]

then how do you think TEKPAY operates, if EBT are illegal. check out their site.

They are not illegal. However irrespective of how they are operated in their own jurisdiction users of them in the UK are obliged as a result of the finance act to do certain things. These things affect their individual taxtion positions. This certainly resaults in income tax becoming payable on income received from the trust.

In the case of loans it was OK, however there were some recent changes which I *think* mean these need to be declared in the same way as income. Since I don't receive anything in this way I don't care.

If you believe me I am sure you can try and track down a reference to clarify the position. If you don't then you have discovered some form of magic alchemy (I accept it is possible) where in order to avoid tax all that is required is to reclassify income as a loan. Somehow I think HMRC have been onto that for a while and have finally nailed it (but I am pretty sure it used to work until recently).

[Crossroads]

EBT and IDT are not the same, hence TekPay can carry on [for now].

[marcosscriven]

For the past three years I went through a similar scheme ran by Norla Consulting. I then got a letter in March saying my 04/05 tax return was being investigated, specifically the 'employee benefits' section - IE the interest free loans I recieved.

It then turned out the whole company was being investigated to a high level, the outcome of which has not been determined. They selected a handful of the contractors involved for very detailed investigation, but fortunately I was not one of them.

The accountants involved are very large and well respected. I expect if anything was considered illegals, things would have been shut down immediately.

My opinion is that this is HMRC trying to close down the interest-free loan/EBT loophole, and that we will see another change to the laws next April. I very much doubt retrospective action.

Having said all that, I decided to go PSC in this new tax year, and feel much happier about it. Also, I got 84% of gross income with the loan scheme, whereas now I am not expecting that much less. I'm outside IR35, so there are no issues taking a decent PAYE and taking the rest as dividends.

Hope that helps

Marcos

[bangface]

Incidentally EBTs are illegal in the UK now. You can have an offshore one, of course, just don't bring any of the money back into the UK. Which makes paying the mortgage a bit tricky...

Tekpay is the front end to Computer Contracts

COMPUTER CONTRACTS LIMITED
RUNNYMEDE MALTHOUSE
OFF HUMMER ROAD
EGHAM
TW20 9BD
Company No. 05330408

Status: Active
Date of Incorporation: 12/01/2005

Country of Origin: United Kingdom

TEKPAY (UK) LIMITED
3000 HILLSWOOD DRIVE
HILLSWOOD BUSINESS PARK
CHERTSEY
SURREY KT16 0RS
Company No. 05345045

Status: Active
Date of Incorporation: 27/01/2005

Country of Origin: United Kingdom

Their other company IT-Contracts Finance is based in Egham and is the back end to Kinsella Solutions, who are based in Guernsey along with Keypay Solutions.

There are two of those on companies house:

IT-CONTRACTS FINANCE LIMITED
RUNNYMEDE MALTHOUSE, RUNNEMEDE
ROAD, EGHAM
SURREY
TW20 9BD
Company No. 05013100

Status: Active
Date of Incorporation: 12/01/2004

Country of Origin: United Kingdom

IT CONTRACTS LIMITED
RUNNYMEDE MALTHOUSE
OFF HUMMER ROAD
EGHAM
TW20 9BD
Company No. 05330095

Status: Active - Proposal to Strike off
Date of Incorporation: 12/01/2005

Country of Origin: United Kingdom

Keypay Solutions which is part of the 'Kinsella Facility' is also the front end for IT-Contracts Finance

Payroll is handled by Target or Focus Services depending on which company you are with and are also based in the UK

I believe all the UK operating companies have the same Director and company secretary.

If you call Tekpay, Kinsella or Keypay you get to talk to exactly the same people, Jane or Jo. A guy called Martin is also involved. I am not sure who is involved in the day to day operation of the UK based companies. You are not supposed to talk to anyone at the UK based companies, something to do with control and a conflict of interest!

[ChimpMaster]

The TekPaY loan is an employee loan, i.e. not one of the (previously) more common forex loans. The loan is not written off regularly, and in fact it is expected in the future that you must either close off the loan or allow it to lapse and hope HMRC never notice.

Employee loans must be declared in your SA and will attract BIK taxation.

Sound similar to Norla?