Sanzar Partnership? New IOM company

[IR35 Avoider]

You probably remember what you said better than I do, but I seem to remember you saying these schemes didn't work.

For me the significance of this is that it is admitting that someone earning 100K a year (say) since 2001 and paying only 5K in tax (and 10K in fees) was acting perfectly legally. An excellent result for those brave tax-avoiders, I salute them.

[Bradley]

You're Mistaken

You probably remember what you said better than I do, but I seem to remember you saying these schemes didn't work.

For me the significance of this is that it is admitting that someone earning 100K a year (say) since 2001 and paying only 5K in tax (and 10K in fees) was acting perfectly legally. An excellent result for those brave tax-avoiders, I salute them.

What BN66 says is that the law always stopped this from working from about 1987 onwards. So it only ever worked prior to 1987 and not after that.

[Fred Bloggs]

An excellent result for those brave tax-avoiders, I salute them.

And presumably you applaud the extra tax that everyone else pays as a result of those who are not paying?

[meridian]

And presumably you applaud the extra tax that everyone else pays as a result of those who are not paying?

It's a great time to take as much in divi as possible for your spouse. I haven't anything left to distribute, but for those who have, do it the next 12 months! Not often that you get a 2nd chance.

[kryten22uk]

And presumably you applaud the extra tax that everyone else pays as a result of those who are not paying?

Yeah right, the 20% and 40% tax bands were highly influenced by the insignificant tax losses from people using DTA loopholes!

[kryten22uk]

What BN66 says is that the law always stopped this from working from about 1987 onwards. So it only ever worked prior to 1987 and not after that.

The change is effect of midnight tonight. Hence extremely unlikely that they will be chasing anyone who had previously benefited from this route. A comfort at least to those who were a little nervous of their chosen path.

[IR35 Avoider]

What BN66 says is that the law always stopped this from working from about 1987 onwards. So it only ever worked prior to 1987 and not after that.

I couldn't find BN66, so I was going by a slightly different quote, which said they would "clarify" the law with retrospective effect from today. (Though the quote was very convoluted and I may well have misunderstood what it was trying to say.)

Found it:-

4.68 The Government announces, with retrospective effect from 12 March 2008, clarification of indefinitely retrospective legislation introduced in 1987 to counter double taxation treaty avoidance schemes, so that the legislation applies as intended and is effective.

On balance, I still think this means that the "clarification" is only effective from today. If you can post a link to BN66 I will see if it changes my mind. (Not that what I think matters - this doesn't affect me.)

[IR35 Avoider]

And presumably you applaud the extra tax that everyone else pays as a result of those who are not paying?

Generally speaking, I believe we (and HMRC) should comply with the law, however crap and illogical it is.

If the law says that someone on the minimum wage should be taxed at a marginal rate of 41%, while a 100K a year contractor keeps his tax bill at 20%by paying dividends, then I condemn the law, not the contractor. If the law say that private equity people who make millions per year should be taxed at 10% rather than the 41% marginal rate their cleaners pay, then I condemn the law, not the private equity people. And if someone who would otherwise be an IR35-caught contractor sees a way to reduce the wedge of unwanted middlemen (HMRC and accountants) from a marginal rate of 47% to 15%, I condemn the law that makes the perfectly legal, and not the contractor for taking advantage of it.

In the last example, the contractor took considerable risk to make this gain, more than I'm willing to take, so I admire their bravery.

If I were chancellor, you would not be able to reduce your tax bill by paying dividends instead of taking salary, as the tax system would be structured so that you would pay the same amount of tax either way. While the rules are as they currently are though, I have no objection to you paying dividends, nor would I object to you paying dividends to your spouse while that remains legal.

On a separate note, your criticism implies that spending is fixed, so that if less tax comes from one place, more will have to be found elsewhere. This is untrue. The total amount raised by income tax, NI and Corporation tax is less than the total cost of social spending, and social spending is by definition a non-core function of the state. Its level is the result of a highly political choice. In theory at least, it need not exist at all. On the other hand I'm sure there are people who would make the case that it should be far higher than it is. The government raises what it can and spends what it can. The government could abolish income taxes altogether, or raise them to say 60% of all income for everyone. There is nothing fixed about the level of spending, and as I pointed out above, nothing fair or logical about the way the money is raised.

[dude69]

I couldn't find BN66, so I was going by a slightly different quote, which said they would "clarify" the law with retrospective effect from today. (Though the quote was very convoluted and I may well have misunderstood what it was trying to say.)

http://www.hmrc.gov.uk/budget2008/bn66.pdf

UK residents are taxable on their income wherever it arises. A wholly artificial scheme seeks to avoid UK tax by artificially diverting income of a UK resident individual to a foreign partnership comprised of foreign trustees. The scheme is designed to ensure that the income nonetheless continues to belong to the UK resident as they will be a beneficiary of the foreign trust. Legislation will be introduced in Finance Bill 2008 to:
• clarify, retrospectively, legislation introduced in 1987, which itself was retrospective, so that it has effect as intended. This will ensure that, notwithstanding the wording of any double taxation treaty, UK residents pay UK tax on their profits from foreign partnerships; and
• prevent tax avoidance through the misuse of Double Taxation Treaties by UK residents.
The first measure will be treated as having always had effect. The second will have effect for income arising on or after 12 March 2008.

So in other words, all of these IoM schemes are 100% dead as of TODAY.

Stone dead.

Time to move on. RIGHT NOW.

UK law taxes a UK resident beneficiary of certain trusts on the income to which they are entitled under the trust arrangement as it arises. This means that, in cases exploiting the above avoidance scheme, the UK resident should be taxable in the UK on his or her share of the profits of the partnership comprised of the foreign trustees.
5. But the users of the scheme claim that a provision, known as the Business Profits Article, common to most tax treaties, exempts the partnership profits from UK tax – not only in the hands of the foreign partners but also in the hands of the UK beneficiaries.
6. The first provision will make clear that (in line with retrospective legislation introduced in Finance (No2) Act 1987) tax treaties do not exempt UK residents from UK tax on any profits of a foreign partnership to which they are entitled.
7. The second measure will ensure that the Business Profits Article in the UK’s tax treaties cannot be read as preventing income of a UK resident being chargeable to UK tax.

Law and notes:

http://www.hmrc.gov.uk/budget2008/co...gn-clauses.pdf

Clause [XX} makes amendments to the Controlled Foreign Companies (CFC) legislation, which is designed to counter the artificial diversion of profits
from the UK so as to avoid UK tax. This is in response to a number of disclosed avoidance schemes to ensure the legislation continues to achieve its purpose.

The Controlled Foreign Companies (CFC) legislation is designed to counter the use, by UK groups, of low-taxed foreign companies that they control to
artificially divert profits from the UK so as to avoid UK tax. It does so by taxing any of the diverted profits that would have been subject to UK corporation tax as income had they not been diverted from the UK.

The bad news is you are going to find it a lot harder to stay outside IR35 having been subject to these schemes in the past.

So you could end up paying far more than if you'd just done a nice Ltd company in the first place.

[beaker]

PAYE anyone? You get paid holidays!