BN66 - Time to fight back!!!

[DonkeyRhubarb]

No it's not. The difference is the agency wins the busines then pays you some of their money to fulfil it . This is vastly different to you passing your gross income to someone else to manage for you.

Except at no point was I in possession of the "gross income". There was no contractual agreement between me and the agency. In fact, MontP could have run off with the money and there would have been absolutely nothing I could do about it since I had no entitlement to the proceeds invoiced from the agency. Ironically, this was one of the biggest fears most of us had in the early days.

[ASB]

Well not much we can do about it now.

Personally I am just awaiting the "Official CUK Montpelier Judicial Review" thread. After the highs and lows of the bn66 thread this promises to be a corker.

Though the thread after that "Official CUK Mal strikes back" has alot of promise too! Soory Mal

BrilloPad,

I am not a member of said scheme so I don't know the exact things going on, it's based on what's posted here and my understanding (or otherwise) of the scheme.

- I believe under current rules the scheme is probably effective. Otherwise there wouldn't be such a fuss about introducing specific legislation to "clarify" an existing treaty.
- You receive trust income from a partnership in IOM and claim exemption under the DTA
- HMRC have got their arse in their collective handbag and cried "foul, how do we get some dosh from this".

Have HMRC indicated WHAT they want to do in terms of the enquiry? Have they indicated that they believe the partnership income is not eligible for the exemption and should be taxed in the UK. In this case attracting tax and NI in the same way as UK sourced partnership income.

Alternatively is it still just "investigating SA return and partnership income thereon".

If the former then this would imply that they accept the arrangements are fundamentally legitimate and then the fees paid would not be your income - which I guess saves a few quid on the bill in the end.

What I don't understand though is (sorry to be blunt) it is quite clear the whole thing is a tax avoidance "scam" (I don't have any problem with that, if it ultimately works then fine if not tough). On this basis I don't see why they haven't attacked it using Ramsay. I would have thought this would be an easier and less risky path - it seems to me it would be hard to produce a compelling business purpose for the transaction to be structured in the way.

[malvolio]

No it's not. The difference is the agency wins the busines then pays you some of their money to fulfil it . This is vastly different to you passing your gross income to someone else to manage for you.

Except at no point was I in possession of the "gross income". There was no contractual agreement between me and the agency. In fact, MontP could have run off with the money and there would have been absolutely nothing I could do about it since I had no entitlement to the proceeds invoiced from the agency. Ironically, this was one of the biggest fears most of us had in the early days.

Doesn't matter if you could point a stick at it and say "It's there" or not. It's your earnings, nobody else's. It was also your call about what you did with it, nobody required you to let somone else deal with it.

As for I had no entitlement to the proceeds invoiced from the agency, does that really sound like a good place to put yourself?

[BrilloPad]

Actually how it worked was

I worked for a UK company(e.g. Newquay Professional). A contract between agency and them for my services. I was paid a salary which was fully taxed.

Newquay took the rest of the money, kept some as a fee and put it into the partnership run by Monp. As a member of the partnership I was entititled to a share (tax free).

So the money that the agency pays to Newquay is irrelivent since it has nothing to do with me. I was just a self employed person providing services to Newquay.

Incidently; the newquay equivilant that I was through closed down last summer.

Oh, and I type fast so no smart arse

But you seem to be typing faster than you think. Do you mean NewMedia/Manager - it sounds like it? What is this "salary" of which you speak?

[helen7]

Yep, New Media, that was the one. Newquay have now taken over that bit and are actually an in house Montpellier team (new media were a seperate organisation)

I received 2 payments, 1 'salary' on which I was taxed and 1 payment from the partneship - that was excempt under the DTA.

The salary was basically my wage for doing the contract. The parnership payment was unrealted, this was a payment from a partnership of which I was entitled money. Of course it is co-incidental that the money from contract I worked on went into my partnership :-)

[IR35 Avoider]

Doesn't matter if you could point a stick at it and say "It's there" or not. It's your earnings, nobody else's.

His income is what he receives. What the client or agency or any other intermediary in a chain pays to another UK Limited company is not a contractors gross income, unless the UK company is an IR35-caught intermediary, a condition which isn't relevant in this case.

The implication of you argument is that for a standard limited company contractor, everything the client pays out is his gross income which he allows various intermediaries to take a cut of. Or, to be fair, if the principal applies only to intermediaries the contractor has voluntarily inserted, then everything the agency pays to an umbrella company or PSC is the contractors gross income. I don't think you really believe that.

It was also your call about what you did with it, nobody required you to let somone else deal with it.

His call to offer his services via the scheme is no different in principal to the average contractors decision to run a one man limited company as opposed to being PAYE with agency.

HMRC have not (so far) objected to non-IR35 caught contractors unnecessarily inserting a one-man company between themselves and their agency and lowering their tax bill by paying dividends. So it's not the principal of a tax-lowering unnecessary intermediary they object to, it's just the nature and extremity of the particular type of intermediary this scheme represents.

I think what you are missing is that (unlike the case of a PSC intermediary where the contractor is a director and shareholder) contractors in this scheme are only involved for tax purposes as the end-recipients of various chunks of money. So, for example, if HMRC did go to the trouble to prove a particular contract was IR35 caught and IR35 did apply, the contractor cannot be liable for the employers NI, some part of the scheme would. (The UK front-end company.)

From what I've seen in these forums, all HMRC actually want is for the trust income to be treated as self-employed income for tax and NI purposes.

To answer a question someone else asked, I believe the reason you can (in practise) be self-employed with this scheme but not otherwise is indeed because of its off-shoreness. Any attempt to collect employers NI would end up with the UK front-end company, and I reckon HMRC know that the chances are there would be no funds left to be raided if/when they went down that route. (There may be some reason I don't know of why the UK front-end company wouldn't be liable. If liability rested with an off-shore entity then I think the employers NI would be classified as due but not collectible. i.e. UK law says it is due but DTA means off-shore entity doesn't have to pay.)

[BrilloPad]

Yep, New Media, that was the one. Newquay have now taken over that bit and are actually an in house Montpellier team (new media were a seperate organisation)

I received 2 payments, 1 'salary' on which I was taxed and 1 payment from the partneship - that was excempt under the DTA.

The salary was basically my wage for doing the contract. The parnership payment was unrealted, this was a payment from a partnership of which I was entitled money. Of course it is co-incidental that the money from contract I worked on went into my partnership :-)

So are you with Newquay?

Because I was with NewMedia - and now I am with mrg. Everyone I knew went with mrg.

My understanding was it was self employment income rather than salary. But I could be wrong - I left the details to montpelier.

[DonkeyRhubarb]

ASB,

Thanks for your constructive comments.

Have HMRC indicated WHAT they want to do in terms of the enquiry? Have they indicated that they believe the partnership income is not eligible for the exemption and should be taxed in the UK. In this case attracting tax and NI in the same way as UK sourced partnership income.

Yes. Originally they were going to take a test case forward to the Special Commissioners on this basis. It now seems that they weren't that confident of winning, hence the retrospective "clarification" of the legislation. The new (sorry "clarified") legislation basically targets the exact workings of the scheme so that they can retrospectively collect tax/nic for all the SA returns they've got under enquiry. For example, they've had my 2001/2 tax return under enquiry for 5 years this November.

What I don't understand though is (sorry to be blunt) it is quite clear the whole thing is a tax avoidance "scam" (I don't have any problem with that, if it ultimately works then fine if not tough). On this basis I don't see why they haven't attacked it using Ramsay. I would have thought this would be an easier and less risky path - it seems to me it would be hard to produce a compelling business purpose for the transaction to be structured in the way.

I can't give you the reasons why but MTM said from the very start that it couldn't be attacked using Ramsey principles, and like you say I'm sure they would have gone down this path if they could.

If it wasn't for retrospectively "clarifying" (that word again) the original 1987 legislation, I think they realised after dragging the investigation out for 5 years they would have to put up or shut up.

DR

[malvolio]

I can't give you the reasons why but MTM said from the very start that it couldn't be attacked using Ramsey principles

Can't as in not allowed or can't as in don't know? And do they mean the specific case of Ramsay, concerning cyclical loans that goes back into the dark ages (OK, 1982 from memory), or the wider principle that HMRC can "look through" any arrangement that has no obvious business justification. You may be OK under the former but not necessarily the latter

[BrilloPad]

Can't as in not allowed or can't as in don't know? And do they mean the specific case of Ramsay, concerning cyclical loans that goes back into the dark ages (OK, 1982 from memory), or the wider principle that HMRC can "look through" any arrangement that has no obvious business justification. You may be OK under the former but not necessarily the latter

I though Ramsay case was in the fifties?