New contractor tempted by Norla Isle of Man EBT option

[saxon]

I have just been offered my first contract on a rate of £440 a day via computerpeople. It seems that the computerpeople contract isn't IR35 friendly so operating under an umbrella such as 360 group gives me less hassle for the same income as operating my own limited company. 360 have indicated I could expect to take home 61% of my income.

A contractor friend (who is an ex accountant) however operates via Norla consulting who pay a modest salary and distribute profits from the Isle of Man via a tax-free EBT. If I follow him then I could net around 84% of my gross which is obviously extremely attractive.

I am probably likely to only contract for 6-12 months and am keen to 'make hay while the sun shines' - I don't on the other hand want to do anything illegal and would be keen to avoid having any nasty surprises 2-3 years down the line. However if if it's a genuine tax loophole then why not exploit it?

I'd particularly value expert opinion on whether this scheme is worth pursuing. Norla charge around 10% of gross so if the IR do come knocking at the door I could end up worse off by having to pay this on top of a tax demand.

I have to make a decision quickly and would appreciate any advice.

Thanks,

Saxon

[Rebecca Loos]

If you don't want to do anything illegal and don't want any surprises 2-3 years down the line, then don't do it.

And 10% gross is a lot.

[IR35 Avoider]

Even people who do things that all accountants and lawyers and Inland Revenue (at the time) don't object to get comebacks later - see S660a.

It's not worth getting involved in these things now - bite the bullet until 6th of April next year, then put all your earnings into a pension and pay no tax at all. (Assuming you prefer saving excess cash to spending.)

[malvolio]

Congratulations...

You've just managed to consider using the three worst posible options to being a freelance in a single post - Computer People, 360 group and EBTs. Plus demonstrating appalling ignorance about how it all works and just how difficult it is to do it legally.

If you have a CP contract, forget about IR35 because you will be caught, end of disussion.

And for reference, a legally constructed Ltd Co will return around 80% at fairly low risk, if you know how not to be caught by IR35. I suggest you go with the flow for this role, but do some research (including using a proper accountant for professional advice) before you go for the next one. You'll still double your permie wage.

That said, welcome to the real world!

[rootsnall]

The majority ( inc me ) are a I think working through a Ltd and declaring themselves outside IR35 and getting 70%ish net. If you only do one set of accounts in your contracting career I very much doubt the IR will deem you a worthwhile target to chase !? All of the agencies I know about were issuing IR35 friendly contracts, I'd quiz the agency and demand a decent contract.

[Bradley]

Re: Less Tax

If you're only going to contract for one year then form a limited company, draw the money you need out as a loan and then get the company struck off. You can ignore IR35 and s660 cause the Revenue will never get round to paying you a visit. That way you'll end up paying far less tax because of:

- the zero rate of CT up to £10k
- the availability of taper relief at 50% on striking-off (you & partner)
- the capital gains annual exemption (you & partner)

For example

Contract Income => £50k
Expenses => £6k
Profits => £44k
CT Payable => £8k
Capital distributions => £36k (figure above)
Cap Distribs (each) => £18k
Cap Distribs less CGT taper @ 50% => £9k
Capital Gain after Annual Exemption => £0k

TAX PAYABLE £8k or 16% of Gross IE Only 6% more than they'll charge for a post-Dextra case dodgy or what EBT

[rootsnall]

I've never had the pleasure of working for them !

[saxon]

Interesting

Thank-you for the replies - well all except Malvolio who seems keen to abuse me as a newbie whi is new to all this and admits that openly.

I will not be pursuing the EBT option and am curious about the notion of being outside IR35. Presumably I should ask computerpeople to change the contract to make it more likely I can claim to be outside IR35, although not being a lawyer I don't really know what it is I'd like them to change. I also got the impression from speaking with them on the phone that they see me as caught fair and square within IR35 and thus the contract reflects that.

At the end of the day I will be using the offices, facilities, computers and equipment of the hiring firm. I don't advertise, don't employ any staff and am being hired for a period of 6 months initially to work on a project lasting perhaps 2 years. I can't see how I could argue otherwise with the IR. If I just declare myself outside IR35 and hope to slip under the IR radar because I'm only doing this for a few months presumably I may get away with it and I guess that's what most people are doing.

Saxon

[malvolio]

"well all except Malvolio who seems keen to abuse me as a newbie whi is new to all this and admits that openly."

Now then, I'm not knocking you for being a newbie, 'cos we've all been there, and we've all made mistakes (even me ). Everyone knows I'm a miserable old curmudgeon anyway

What I'm knocking is the lack of research before you start off on a significant career change such that you would even consider the EBT option (even based on unqualified advice) when you haven't really got your head around the basics. You are allowed to be wrong, but you should not be either naive or unprepared - there is a lot of information already in place to help you.

It is perfectly possible to have a valid defence against IR35 while working on site with client equipment and client staff - I do it myself - but you will not do it with a Computer People contract and they will not make any significant changes to help you (even if they do, you will find that they have not changed their contract with the client anyway, so you're still still stuffed.) CP do not even understand the concept of "not caught" - they will not take any notice of your Ltd Company at all, will represent you as their employee and will stiff you over expenses and VAT.

My advice may be abrupt (after all, think about what 'malvolio' really means!) but it is qualified by experience and it is realistic. If you don't believe me and the more polite members of our little gang, go look at the Guide to Freelancing at www.pcg.org.uk at the very least.

[saxon]

Thanks

Malvolio,

No worries and thanks for the information. I have just spoken with a local accountant who has indicated (as suggested earlier in the thread) that he would like to take a look at the contract, although he feels there is a good chance on a very short contract of this nature of slipping under the radar given I am then leaving contracting to go permie again.

Presumably if all Computerpeople are doing is paying into my business account then my accountant can then work as if I am outside IR35 in terms of low salary, high divi and just hope it doesn't get noticed because that's what thousands of people are doing? I guess if the IR do come looking in which case presumably all I have to do is then say 'sorry' hold my hands up and shove the tax at em?

Keen to hear views,

Jonathan