Sanzar Partnership? New IOM company

[gehan.g]

Hi,

Has anyone heard of The Sanzar Partnership or the Isle Of Man tax method that they offer?

It's a familiar theme but I can't find much about it. Essentially you are employed by Sanzar. You give them timesheets then they invoice your agency, the agency invoices your end client and the monies are paid back that way.

You are then paid minimum wage by Sanzar and the rest of the money is given to you as a share of the profits of Sanzar. Apparently this works because corporate tax for certain industries is 0% on IOM and so I guess Sanzar claims to be in one of those industries.

The important part is that they can just give you the money because of the Double Taxation Treaty between the United Kingdom and Isle of Man (1955), paragraph 3(2). This states that any tax paid on IOM is deemed paid in UK - therefore the 0% tax paid in IOM means you don't have to pay it again when it arrives in your account in the UK.

If you look at the treaty it mentions that in order to do this the business in the UK can't be a 'permanent establishment', of which the definition saus it 'does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of such enterprise or has a stock of merchandise from which he regularly fills orders on its behalf.'

This seems to look ok to me but I am still a little dubious, as they say it means you can keep 85% of the gross value of the contract, as supposed to 70-72% of a Ltd company after PI insurance and accountants fees...

Does anyone know anything about this? They claim to have run it by 'one of the UK's most eminent International Tax QCs'

Thanks,
Gehan

[Alan @ BroomeAffinity]

Looks and sounds well dodgy to me. Anything that is Isle of Man or such like related will always attract the wrong sort of attention from Hector. Keep away IMO.

[Pondlife]

Shameless spamming.

Get a grip will you.

[IR35 Avoider]

This appears from the available information to be similar to a scheme run by X. X contractors pop up in these forums from time to time asking questions, when they're being investigated. The Special Compliance Office of the Inland Revenue said as long ago as 2002 that one such scheme didn't work. Judging by the people who pop up here, X are still operating their scheme. I haven't heard of anyone being take to court, so I wonder what the results of these investigations are. The scheme requires you to declare all you income, and the way you have to do so sends up a red flag so that HMRC will know from the very first year exactly what type of scheme you are in and how much money you have received from it.

I find the answer to what happens if you're investigated on the SANZAR web-site very worrying. Essentially it says nothing that addresses the question. Presumably that means you're on your own. By contrast, if I remember correctly, when X started their scheme they promised to defend you all the way to the House of Lords if necessary, at their own expense. The kind of lawyers you would need to argue with HMRC that this scheme works used to charge £500 per hour, several years ago.

(X is not the real name of X, if you see what I mean.)

[Waldorf]

A mate of mine used a set up based in IOM and has just had a letter from the Revenue investigating the scheme. The IOM people do not want to know as he left it in March! So he is bricking it.

Avoid if you want to sleep easily!

[David Parker ACMA]

any clue as to who was the 'set up' referred to?

[ChimpMaster]

If HMRC simplified the British tax system and avoided inefficiency such as IR35 then without doubt more contractors would be happy working through the Ltd Co. option.

The way things are with HMRC -- clamping down on anything other than PAYE -- it forces individuals to use alternative methods to get the most out of their hard work.

Even if you have a Ltd, you can't always sleep easy for fear of IR35 or any other investigation.

[meridian]

You are then paid minimum wage by Sanzar and the rest of the money is given to you as a share of the profits of Sanzar.

A share of profits? This implies that you're a partner. Partner income tends to be distributed untaxed with each partner responsible for personal taxation of profits, unless it's registered as a separate corporate body.

Apparently this works because corporate tax for certain industries is 0% on IOM and so I guess Sanzar claims to be in one of those industries.

IoM corporate tax is 0% for all industries (except Financial Institutions) since 2006.

The important part is that they can just give you the money because of the Double Taxation Treaty between the United Kingdom and Isle of Man (1955), paragraph 3(2). This states that any tax paid on IOM is deemed paid in UK - therefore the 0% tax paid in IOM means you don't have to pay it again when it arrives in your account in the UK.

No, it states that the Manx tax is allowable as a credit against any UK tax payable - in other words, you're still personally liable to pay tax in the UK on any profits received, and you can have a credit for the Manx tax paid on that distribution. If you've paid 0% tax in IoM, you get 0% as a credit against your taxable income in the UK.

This seems to look ok to me but I am still a little dubious, as they say it means you can keep 85% of the gross value of the contract, as supposed to 70-72% of a Ltd company after PI insurance and accountants fees...

They don't deduct tax and still only give you 85%?!?! You can do almost as well legally here in the UK without all the shenanigans, just get a decent accountant.

[IR35 Avoider]

This implies that you're a partner

I'd love to explain how it (allegedly) works, because it really is very cunning, but having signed an NDA I'm not prepared to mess with people who can afford £500 an hour lawyers.

A mate of mine used a set up based in IOM and has just had a letter from the Revenue investigating the scheme. The IOM people do not want to know as he left it in March! So he is bricking it.

Avoid if you want to sleep easily!

I think this really sums up why a barge-pole is called for: even if you have a contract signed in blood that they will look after you when the tax-man comes calling (and it won't be your local inspector, it will be the Special Compliance Office who are the "special forces" of HMRC) you will have no way to enforce that contract. Are you really going to sue people who can afford much better lawyers than you for not using their lawyers to defend you?

I still think the scheme could conceivably stand-up in court, if someone is willing to pay the legal fees involved, but it is so utterly outrageous in the way that it transforms what HMRC regard as UK employment income into tax-free income that I wouldn't want to take the kind of heat investigations and court cases will generate. The fact that you might win isn't sufficient reason for risking it.

[meridian]

...but it is so utterly outrageous in the way that it transforms what HMRC regard as UK employment income into tax-free income.

...and this is where it seems to fall down. You're assuming that HMRC regard it as employment income - the reality is that for UK tax residents/domiciles, it doesn't matter whether it's UK employment income, Manx employment income, Manx Capital Gains, or whatever, it's still taxable in the hands of the individual in the UK whether or not it's (deemed to be) earned/gained here or overseas.

(Note I said "in the hands of the individual". If a Manx company controlled by you was between the payment and yourself, and that company never issued dividends to you personally, you might get away with it. But then you'd never get your hands on the cash unless you travelled abroad and became non tax resident when dividends were finally declared.)