Dodgy tax schemes - are they worth it?

[beaker]

With all the hoohaa about IR35... getting contracts rewritten, hiring accountants, working practices, insurances, worrying about getting investigated etc, I'm surprised more contractors don't use "dodgy" tax schemes.

Most of these schemes exploit loop holes in the tax law eg. paying income to using overseas trusts then paying it back at a lower tax rate or MSCs, so arguably they are legal. Sure HRMC closes the loop holes eventually, but is it worth exploiting them while you can?

Does anyone have any experience with this or know of anyone getting caught by using such schemes?

I've tended to play it safe but I from time to time I do think what if I used so and so and got 80% net etc...

[Bumfluff]

I know a few people who ended up with big tax bills due to such schemes, such schemes also tend to take a massive amount as commission. Personnally I rather sleep at night happy with my 66-70% rather than sh8tting it all the time with my 80%

[Bear]

Ditto

Sure - I know loads of contractors who use 'dodgy' methods and that's they're choice. But that then depends on your definition of 'dodgy'.

Loopholes, are indeed loopholes - they are legal at that point in time.

Some 'dodgy' schemes are simply schemes that have declared themselve to HMC and are therefore within the law.

It's each to their own - you make your choice.

I choose to run a limited and I return over 70% without taking the p*ss - I;m happy with that

[clwd]

I know a few people who ended up with big tax bills due to such schemes, such schemes also tend to take a massive amount as commission. Personnally I rather sleep at night happy with my 66-70% rather than sh8tting it all the time with my 80%

Bumfluff,

Are you using umbrella company or limited company? Lately, I have been thinking whether I should pay PAYE to myself rather than receiving min. wages and dividends because of the IR35 issue.
Is it worth running Ltd company to pay myself in PAYE? any comments?

[Sockpuppet]

Bumfluff,

Are you using umbrella company or limited company? Lately, I have been thinking whether I should pay PAYE to myself rather than receiving min. wages and dividends because of the IR35 issue.
Is it worth running Ltd company to pay myself in PAYE? any comments?

Yes becuase you still get 5% + some other allowances.

[Bumfluff]

Bumfluff,

Are you using umbrella company or limited company? Lately, I have been thinking whether I should pay PAYE to myself rather than receiving min. wages and dividends because of the IR35 issue.
Is it worth running Ltd company to pay myself in PAYE? any comments?

LTD, sal and dividends but not min wage. Even if I was going full PAYE I would use a LTD, for the reason Sockpuppet mentioned, also by not using an umberalla its one more person out of the chain in terms of getting the money into the company account. Ltd is not for everyone it does require some effort but I dont mind counting the £.

[Chugnut]

Definitely not worth the risk these days. All schemes need to be registered with the Revenue as part of the 2004 disclosure rules, and they are looking into them.

The Revenue appear to be getting more aggressive towards any type of tax planning/avoidance, and naturally want us all on 100% PAYE with Employer NIC as well too, ta. The 2007/2008 tax return has the new "service company" section and I expect limited companies will soon be firmly in the firing line, citing reasons of "tax motivated incorporation".

At the moment I have no idea how much to pay myself - do I cover my monthly living expenses or not? Accountants say around 6k salary is the minimum, whereas they recommend 10k or above. Clearly the Revenue would prefer otherwise, and they are the ones you are ultimately answerable to.

I wouldn't be surprised if the next rule of thumb the Revenue apply is you must pay yourself "market rate" (that old contentious chestnut), it must cover your monthly outgoings, with any dividends to be paid annually at the end of the financial year - a reward for work not salary supplement. Remember, accountants also recommended making your wife/husband a shareholder, perfectly legal, and look where that's ended up - S660 and "income splitting".

Excuse the long post. Just ranting really, I'm not Denny or anything.

[Bumfluff]

The 2007/2008 tax return has the new "service company" section and I expect limited companies will soon be firmly in the firing line, citing reasons of "tax motivated incorporation".

Are they defo including the 'service company" questions in the next tax returns I had seen it mentioned before but thought it had been dropped ???

[Chugnut]

Are they defo including the 'service company" questions in the next tax returns I had seen it mentioned before but thought it had been dropped ???

It's in the draft version at the moment.

http://www.hmrc.gov.uk/sa_drafts/pdf-2007-08.htm

I know there's a lot of opposition but hadn't heard that it was to be dropped.

[Bumfluff]

I can see the question , not sure what it means though to contractors, whats the definition of a 'service company' ?