BN66 - Time to fight back (Chapter 3)

[Friendly Accountant]

You raised a very good point earlier Friendly Accountant. A loan is not income. True. So the money doesn't belong to you. You depend on the good will of the scheme provider to write it off. If the loan is truly a loan and will stand up in a court, it isn't yours, and there's no way you can prove it will be.

By the way it isn't just that website, there was a posting a few weeks back from an individual, who's just discovered he has a whole lot to pay of tax to pay on his loan as a benefit in kind.

I don't want to get further into the details of how these work on this forum, but you are not depending entirely upon the goodwill of the scheme provider. You are more protected than you may think. At least, you should be, it depends on how the scheme was set up.

I didn't see the posting from the individual re: the BIK on a loan, but, that certainly should have been explained to him before he got on the scheme. Incidentally, the BIK on these works out to approximately 1% of the loan so, in the grand scheme of things, I don't think "huge tax bill" is an appropriate description of the tax on the BIK.

[BrilloPad]

I don't want to get further into the details of how these work on this forum, but you are not depending entirely upon the goodwill of the scheme provider. You are more protected than you may think. At least, you should be, it depends on how the scheme was set up.

I didn't see the posting from the individual re: the BIK on a loan, but, that certainly should have been explained to him before he got on the scheme. Incidentally, the BIK on these works out to approximately 1% of the loan so, in the grand scheme of things, I don't think "huge tax bill" is an appropriate description of the tax on the BIK.

You may well be wasting your breath. BB is a first class twunt who makes Mal look normal. He is better know on these forums for posting doom threads.

[Friendly Accountant]

Virtually everyone I know who's tried some scheme, and some of them have been running in excess of 10 years "successfully", their scheme as either been busted or they've lost money.

Everyone who's in a scheme thinks their's is somehow different, legal with no catch.

I've had two contractors sitting next to me over the last two years, one had EUR 100,000 bill to pay in Germany, the other one has just heard that his scheme went bust, and he was in it 10 years ago, i.e. an accountant running it faces criminal charges. He might or might not get away with it becuase it was so long ago.
I spoke to a management co provider 5 years ago, and he promised a fully legit solution. All the contractors on that scheme are having their lives ruined. That scheme ran successfully for over 10 years. I declined to join the scheme, because like the scheme you are proposing it was fundamentally flawed.
It was loans scheme.

Yes, there are definitely horror stories out there, just ask anyone who has a vested interest in this thread. But you can't disregard the entire tax planning industry because a few cowboys have tried to copy well implemented schemes and cocked it up. Yes, there are definite risks involved, the spectre of retrospective legislation being the most significant right now. Hopefully, the challenges currently under way will be successful and that risk will go away.

Part of the question you should ask when looking at these schemes is this - Does the provider offer other tax planning schemes, unrelated to the contracting profession. If they do, there is probably a better chance that they are a legitimate tax planning group, and not just a copycat.

(Just re-read that - to be clear, I don't want to imply that Montpellier was a poorly run scheme, they just got hit with some questionable legislation).

[BlasterBates]

You may well be wasting your breath. BB is a first class twunt who makes Mal look normal. He is better know on these forums for posting doom threads.

Yes BP you need to give me a few tips on how to plan my tax.

How much have you saved over the years ?

[BlasterBates]

With regard to taxing income in a foreign country and using the Double Taxation treaty, that only works, if you actually travel and work there. Some of these schemes don't do that, hence BN66 or no BN66 it is fundamentally flawed, and would have been attacked anyway. The only thing that stops tax authorities easily doing this is that they can't raid the offices.

This precisely the scheme that was run in Germany and was busted because the Germans acually raided the Swiss side of the DTA dodge.

I was told of a scheme where you tax in Ireland....but work in the UK IT DON't WORK.

You might as well work blackmarket and hide the money in a box.

Some banks have used a Jersey DTA "loophole" but this works because the employees actually travel and work there in a subsiduary at least once a month.

[NickNick]

With regard to taxing income in a foreign country and using the Double Taxation treaty, that only works, if you actually travel and work there.

You know I actually contracted with a guy from the IoM who travelled over to the mainland and took full advantage of a DTT. He would jsut laugh at any other contractors based in the UK using similar schemes.

Mind you, he was mad as a box of frogs.

[dezze]

Virtually everyone I know who's tried some scheme, and some of them have been running in excess of 10 years "successfully", their scheme as either been busted or they've lost money.

Everyone who's in a scheme thinks their's is somehow different, legal with no catch.

I've had two contractors sitting next to me over the last two years, one had EUR 100,000 bill to pay in Germany, the other one has just heard that his scheme went bust, and he was in it 10 years ago, i.e. an accountant running it faces criminal charges. He might or might not get away with it becuase it was so long ago.
I spoke to a management co provider 5 years ago, and he promised a fully legit solution. All the contractors on that scheme are having their lives ruined. That scheme ran successfully for over 10 years. I declined to join the scheme, because like the scheme you are proposing it was fundamentally flawed.
It was loans scheme.

What scheme was it?

[A-Nony-Mouse]

Yes BP you need to give me a few tips on how to plan my tax.

How much have you saved over the years ?

There is one word that appears to describe you succinctly based on this and the majority of your other posts.

Troll.

I've always been told to not feed trolls, but I never can resist...

[ASB]

Again, there are good providers and not so good. Some of these schemes, if set up properly, work.

From a personal perspective I have never been near one. Why? Because I have been fortunate enough to be able to arrange my affairs with careful use of allowances, income shifting etc to yield 80% of fee income - and retain a bit as well which was got out under ESC16. So for me there has never been a position where I thought there could be a material benefit in terms of the risk.

However, if I were to restart contracting I would seriously consider it - if I was unable to arrange my affairs as above - and this would now be unlikely.

I certainly believe these arrangements can be made to work. But it's not simple and there is never a one size fits all approach. With any loan based scheme there are of course a number of issues. If the loan is by virtue of employment (and it may or may not be) then there is BIK on the interest - though if the loan is made from a discretionary trust of some description paying the interest would only eventually end up to the benefit of the beneficiaries anyway. In any event - currently - it appears the BIK stops when employment ceases.

There is then the question of the tax charge arising if the loan is written off. It then becomes liable to income tax at that point. Though certainly some aspects of this could be circumvented by partial write offs to use unused tax allowances at various points. In any event loan repayment could be back to the underlying trust - thus benefitting future beneficiaries. If by some amazing coincidence a will trust repaid the loans on death that may do the trick, then the trustees might decide your benficiaries would be suitable people for the trust to carry on to. One also has to consider the tax position of settlement into an underlying trust (if one is used of course).

I certainly believe that tailored schemes can work very well depending upon the objectives of the individual (and crucially their income level since these are likely to be fairly expensive to run). I suspect "I want to pay pretty close to no tax and spend all the money now" is probaly a difficult set of objectives though.

I believe it is fairly easy to establish that these arrangements can work if done properly. If there were huge fundamental problems then the Treasury wouldn't be constantly doing things like BN66, the Dec '04 announcment, changes to EBT rules, changes to other trust rules and changes to the tax treatment of settlement into trusts.

Unjfortunately I do suspect that if the BN66 retrospecition is ultimately sanctioned they will be some difficulties ahead for any of this sort of planning. Yet another reason why the retrospection is fundamentally wrong.

[Toocan]

With regard to taxing income in a foreign country and using the Double Taxation treaty, that only works, if you actually travel and work there. Some of these schemes don't do that, hence BN66 or no BN66 it is fundamentally flawed, and would have been attacked anyway. The only thing that stops tax authorities easily doing this is that they can't raid the offices.

This precisely the scheme that was run in Germany and was busted because the Germans acually raided the Swiss side of the DTA dodge.

I was told of a scheme where you tax in Ireland....but work in the UK IT DON't WORK.

You might as well work blackmarket and hide the money in a box.

Some banks have used a Jersey DTA "loophole" but this works because the employees actually travel and work there in a subsiduary at least once a month.

Have a look at some of the past tax cases from the Courts – HMRC regularly lose. I’m not going to give you an unbalanced view – sometimes they win and sometimes they only partially lose. They test every possible way to try to close down avoidance schemes and their efforts have became even more desperate in recent years – did you follow the Arctic systems case?

In this case, with s.58 FA 2008, HMRC will lose. The providers of the scheme have dealt with HMRC and their attacks for years – they are battle hardened. They know their enemy. And they know the law. HMRC also know the law but they are trying to play us. Perhaps they are succeeding with some people?

While you may enjoy poking at those of us that have put our money where our mouth is, we committed to this course of action years ago. Keep in mind that there are no penalties here so even if it doesn’t work out, HMRC are not trying to make us employees…