Sanzar Partnership? New IOM company

[IR35 Avoider]

What about those of us who pay for their children's education?

I was just making up an example of someone who didn't to illustrate a point.

I would like to see eveyone have a social security account to which all benefits (including benefits in kind like free health-care and education) were charged. Anyone whose account was overdrawn would pay a "benefit recovery tax" (a replacement for NI) which takes their overall tax rate on income above the personal allowance up to 50%. (This is actually less draconian than what happens now. People who receive benefits and pay tax lose two-thirds of each extra pound they earn.) The benefits recovery tax paid would be credited to the individual's social security account. People whose accounts were not overdrawn would not pay the tax, so those who pay for private education would be given full credit for the amount they save the state.

Just to drive home my right-wing point to the electorate, I would hypothecate income tax by renaming it social security tax, and by law requiring that it only be used to pay off the debts of those who died leaving their social security account overdrawn. (I made the point in another thread recently that we could afford to abolish income taxes completely if everyone paid for their own benefits.) Note that unlike "social security tax" anywhere else in the world, it would be explicitly clear that any tax a particular individual paid was ear-marked for "other people" and would not in any way benefit the payer. The distinction between "benefits recovery tax" paid, which benefits any payer who doesn't die overdrawn, and social security tax, which never benefits the payer, should increase transparency, and hence make life uncomfortable for left-wing politicians who like to pretend we are all in the same boat, and that in return for our taxes we receive benefits of comparable value.

[tim123]

I was just making up an example of someone who didn't to illustrate a point.

I would like to see eveyone have a social security account to which all benefits (including benefits in kind like free health-care and education) were charged. Anyone whose account was overdrawn would pay a "benefit recovery tax" (a replacement for NI) which takes their overall tax rate on income above the personal allowance up to 50%. (This is actually less draconian than what happens now.

The problem with this method is that there are a large percentage of people who will never be high earners, often because there aren't enough high paying jobs as well as because they are less well skilled. These people are never going to be able pay off their their own (averaged) education and health costs.

You will always have to have a system where the high earners pay more to subsidise those that do the less remunerative jobs, even if we didn't have a welfare system that paid people to sit on their backside (which sadly, we do).

tim

[IR35 Avoider]

The problem with this method is that there are a large percentage of people who will never be high earners, often because there aren't enough high paying jobs as well as because they are less well skilled. These people are never going to be able pay off their their own (averaged) education and health costs.

You will always have to have a system where the high earners pay more to subsidise those that do the less remunerative jobs, even if we didn't have a welfare system that paid people to sit on their backside (which sadly, we do).

tim

I agree with all you said. These are the people who would die with their social security account overdrawn under my model. They would also be 50% tax-payers all their life, to the extent that they had any income apart from benefits. My model has the unusual feature that the poor would pay higher rates of tax than the rich, which sounds extremely perverse, but can be justified when you look at the big picture.

I did once read of an economist who like me suggested the poor should be taxed at a higher rate than the rich, but it was only a passing reference in a newspaper article, so I don't know what his reasons were.

Under my scheme, everyone except those with no hope of escaping the 50% band would have an incentive to think twice about costing the state money, particularly by having children. Politicians would also have an incentive to keep the "hopeless" segment as small as possible. One can imagine intervention teams focusing on those with the most overdrawn accounts, and making sure they were doing as much as could be expected to alleviate the situation. For those who could do better, benefits could be made conditional on whatever compliant behaviours were required. (Compliant behaviours might mean not being anti-social, not being a criminal, doing community service, etc.)

My target would be to eventually have 80% of the population paying their own way. (Note that the 50% statistic I gave previously wasn't made up, it's from an important ONS report that's published annually. One mistake I did make was to say 50% of individuals - actually the statistic is for households. I'm guessing that it's not a coincidence that exactly 50% are subsidised; presumably our redistributive tax and benefits system is explicitly designed to achieve that.)

[Bradley]

Ahem!

My model .... sounds extremely perverse

You said it mate!

[Friendly Accountant]

response to Bradley

With apologies for the formatting problems...

"The people promoting these schemes to individuals are the last in a long line of people to get their hands on this product. Most of these schemes are initially thought up by in-house tax departments of the high-street banks and FTSE100 businesses. Some enterprising soul leaves their employ and sets up a boutique tax advice shop rebranding the schemes as their own and starts finding salesmen to sell the product on. By this stage the high street bank or big business has moved on to another scheme because there is a greater risk that HMRC will notice the strategy due to the fact that every Tom, Dick and Harry is promoting it. From that point of view it's a lot like the stockmarket - you don't want to buy into something that's already caught the notice of the market and is rising as a consequence. My point is that if we on this forum know about these schemes you can bet that HMRC knows all about them too and is waiting until the numbers make a big juicy target."

You are correct, HMRC likely does know about these schemes. As a result one of two things will happen. They will challenge the scheme on the basis that it doesn't comply with the legislation and therefore doesn't work, or they will change the legislation. This, as some have previously said, may involve changing tax treaties. This will not happen overnight. Again, if you are with the right scheme the approach taken will be to change the legislation. Therefore, the scheme may only last 1 or 2 years. There are schemes out there that work. That is why the legislation keeps changing.

"I've never seen any that would argue past special commissioners level i.e. you're on your own.

My point was that the only way they can defend it is to hope that it won't be noticed which means that they think it will fail close inspection by HMRC and will get defeated in court. Otherwise they'd be quite happy to defend up to House of Lords."

This is simply not the case with many of these schemes. Whether you like it or not, this is how it works: Tax planners come up with a scheme. Government then legislates it away. Tax planners come up with a new scheme. Government legislates against new scheme. Most of these schemes that are effective have a short shelf life. The planners have no interest in making it any shorter by broadcasting the details of it to the world. It has nothing to do with the planners' confidence in the scheme.

"Ah! The Wesley Snipes defence! Wesley was advised it was OK not to pay tax. If they'd said stand with one foot in a bucket of water and whistle Dixie he'd have done it! Wesley ended up paying the tax and penalties and interest and may go to gaol."

Not my point at all. I will admit, get into the wrong scheme and you can set yourself up for a good lot of grief. My point is that it will be easier to do some due dilligence on the scheme provider than to actually understand all of the legalities of the scheme. Had old Wesley followed this advice, he'd be much better off!

"The first part of what you say here is such a cop out. If you saw someone stealing from a shop your first instinct would be to stop that person. Just because you're professional doesn't mean that you should park your conscience at the front door when you arrive at work. I'd argue that you have a duty to actively discourage anyone using these schemes as it is just plain bad advice to welcome in years of aggressive Revenue scrutiny."

These schemes are not for everyone. Don't misunderstand me. I have very, very few clients involved with what I would term loophole tax planning. It is not for everyone. I clearly explain this to anyone who wants to discuss this sort of thing. Some decide, as a result of this conversation, that it is not for them.

"As regards the 2nd part, there is absolutely no parallel between say making a pension contribution and these schemes, and that my friend is the big difference. I think everyone would agree that living and earning in the UK but paying no tax is immoral - end of."

I'm not suggesting that there is a parallel between making pension contributions and these schemes. But what about all of those traders out there who reduce their tax by trading through limited companies and taking remuneration by way of dividends. Immoral? How about trading through an umbrella company so you can claim travel expenses that you may not otherwise be entitled to? There are a lot of ways to legally reduce the tax you pay. Which ones are immoral - all of them - or just those that are particularly effective?

[Bradley]

Wrong wrong wrong!

You are correct, HMRC likely does know about these schemes. As a result one of two things will happen. They will challenge the scheme on the basis that it doesn't comply with the legislation and therefore doesn't work, or they will change the legislation. This, as some have previously said, may involve changing tax treaties. This will not happen overnight. Again, if you are with the right scheme the approach taken will be to change the legislation. Therefore, the scheme may only last 1 or 2 years. There are schemes out there that work. That is why the legislation keeps changing.

Sorry but that's just plain wrong. Don't know what you're advising on but the majority of these offshore schemes will only ever be resolved using the courts. The legislation is woolly enough not to need changed.

There are some UK based schemes that after disclosure are subject to specific AA legislation (usually on a retrospective basis) but HMRC argue that these were still caught by existing legislation as well. The recent defeat at SC level of an artificially generated capital losses scheme springs to mind here.

Whether you like it or not, this is how it works: Tax planners come up with a scheme. Government then legislates it away. Tax planners come up with a new scheme. Government legislates against new scheme. Most of these schemes that are effective have a short shelf life. The planners have no interest in making it any shorter by broadcasting the details of it to the world. It has nothing to do with the planners' confidence in the scheme.

See answer above. With offshore schemes HMRC reckon they have all the ammo they need already.

These schemes are not for everyone. Don't misunderstand me. I have very, very few clients involved with what I would term loophole tax planning. It is not for everyone. I clearly explain this to anyone who wants to discuss this sort of thing. Some decide, as a result of this conversation, that it is not for them.

Glad to know that you see something wrong with them then.

I'm not suggesting that there is a parallel between making pension contributions and these schemes. But what about all of those traders out there who reduce their tax by trading through limited companies and taking remuneration by way of dividends. Immoral? How about trading through an umbrella company so you can claim travel expenses that you may not otherwise be entitled to? There are a lot of ways to legally reduce the tax you pay. Which ones are immoral - all of them - or just those that are particularly effective?

Can we just limit what we say to the use of offshore schemes by UK resident persons please? Under that criterion is it moral or immoral to earn and live here but pay no tax? That was my original point.

[Friendly Accountant]

Sorry but that's just plain wrong. Don't know what you're advising on but the majority of these offshore schemes will only ever be resolved using the courts. The legislation is woolly enough not to need changed.

There are some UK based schemes that after disclosure are subject to specific AA legislation (usually on a retrospective basis) but HMRC argue that these were still caught by existing legislation as well. The recent defeat at SC level of an artificially generated capital losses scheme springs to mind here.

See answer above. With offshore schemes HMRC reckon they have all the ammo they need already.

Glad to know that you see something wrong with them then.


Can we just limit what we say to the use of offshore schemes by UK resident persons please? Under that criterion is it moral or immoral to earn and live here but pay no tax? That was my original point.

1. I know of a number of schemes that have been closed by legislation, with no challenge to tax savings achieved prior to the change. Again, I don't know the mechanics of all of the schemes out there, however, the one that I am familiar with, I believe, works.

2. I don't see anything wrong with these schemes, however, I do acknowledge that they are not for everybody.

3. I see no difference between the offshore schemes and the other widely used methods of reducing tax payable as previously quoted - other than the levels of savings involved. We may just have to agree to disagree on this one.

Once again - apologies for the formatting. I need a course on how to use the quote button!

[Bradley]

I don't think you know what you're talking about ...

1. I know of a number of schemes that have been closed by legislation, with no challenge to tax savings achieved prior to the change. Again, I don't know the mechanics of all of the schemes out there, however, the one that I am familiar with, I believe, works.

The only reason why I'm responding to what you are saying is that I don't want anyone to go away with the impression that offshore schemes work until legislation makes them inoperative. With offshore schemes you're always relying on an interpretation of existing case law or a tax treaty. Changing legislation is not effective, therefore. This means that the schemes are always a gamble that the courts will see it your way and very often overturn existing case law.

I can't think of any legislative changes in the last ten years that have affected offshore schemes. Please let me know which pieces of legislation you are talking about. Bear in mind we are talking about offshore schemes.

I'm guessing you'll find it hard to respond. If so, please don't comment on matters about which you have such a limited knowledge.

[THEPUMA]

The only reason why I'm responding to what you are saying is that I don't want anyone to go away with the impression that offshore schemes work until legislation makes them inoperative. With offshore schemes you're always relying on an interpretation of existing case law or a tax treaty. Changing legislation is not effective, therefore. This means that the schemes are always a gamble that the courts will see it your way and very often overturn existing case law.

I can't think of any legislative changes in the last ten years that have affected offshore schemes. Please let me know which pieces of legislation you are talking about. Bear in mind we are talking about offshore schemes.

I'm guessing you'll find it hard to respond. If so, please don't comment on matters about which you have such a limited knowledge.

That's harsh. I think Friendly Accountants's analysis was spot on. What makes you such an expert anyway?

What about the change to the EBT legislation? I'm sure that was in the last 10 years and that affected offshore schemes.

Of course offshore schemes are a gamble and it's important for anyone entering into one to appreciate the risk they are undertaking. It's very easy to criticise them and a lot of people on here who don't understand them do criticise them unfairly.

Ultimately you are gambling on whether the courts will follow the interpretation of the scheme provider and in some cases they will. That is assuming HMRC take them to court which is not a certainty either because the scheme is robust or because it isn't economically worthwhile to do so.

[Lewis]

The problem with them is that they might work, they might not, but do you really want to be in this position: http://forums.contractoruk.com/accou...as-victim.html