Still not clear about Umbrella Loan

[ASB]

The fact is that if properly set up these schemes can be effective [not are, will be or whatever. Just can be]. However if you do get attacked by HMRC (and assuming it is properly disclosed you will sooner or later) then it is not necessarily easy to defend. "We'll my scheme provider says it was all OK" just starts you on the road to 500k legal hearings or pragmatic capitulation. If you are sure your provider will defend it to the hilt (as some are) then only you can decide if the risk/reward is there for you.

If you are outside IR35, and can income split then 80% with a limited is achievable.

One simple question: If legitimately arranging ones affairs in this way is so easy - and effective - why doesn't everybody it?

[TykeMerc]

One simple question: If legitimately arranging ones affairs in this way is so easy - and effective - why doesn't everybody it?

That's the absolutely critical point. If it was a viable, safe strategy then every accountant and umbrella would be using it.

The risks of being clobbered by HMRC at a later date are very high and it would be incredibly silly to think that the companies offering these "loans" will never recall them especially if they ever get into financial problems.
Far too high a risk for anyone rational.

[ASB]

That's the absolutely critical point. If it was a viable, safe strategy then every accountant and umbrella would be using it.

The risks of being clobbered by HMRC at a later date are very high and it would be incredibly silly to think that the companies offering these "loans" will never recall them especially if they ever get into financial problems.
Far too high a risk for anyone rational.

I think the risks associated with loan repayment are actually nil - if the scheme is properly set up. The funds should be paid to some sort of trust with a format trust deed. This then makes the loan to it's beneficieries and the objective of the trust is clearly defined. Upon death the trust can then recall the loan from the estate. There is now a set of money and the trust deed should ensure it is in fact paid to the inheritors. Done properly there isn't the risk of recall.

If the money is simply lent by the company to the employee then there is obviously a risk (signficant) of the loan being recalled (though this would be good evidence it was a loan - even though you are probably now bankrupt ).

As to what taxation charges these may cause on either the entity making the settlement into the trust or the individual receving the loan, and whether that loan is employment related will depend upon the individual arrangements. It is plausible that an offshore entiy might be outwith the rules which meant there was no allowance on payments into a trust - not an expense and thus CT chargeable.

I don't doubt for a moment that these sorts of arrangements can work. However they need to be tailored to the individuals circumstance. Generally they are expensive to set up properly and the return is only worth it where large sums are earned.

[malvolio]

Only thing to remember is that the tax will always be due at some point, usually when you shuffle off this mortal coil. So your nice inheritance for your family will go to pay all the taxes you've not been paying. Cheerful thought...

It's also a very small step to make the benefit of the loan a BIK, and again you'd be stuffed. That one may well happen.

[mailric]

why are these threads still appearing?

did tykemerc not spell it out clear enough above?

[ASB]

Only thing to remember is that the tax will always be due at some point, usually when you shuffle off this mortal coil. So your nice inheritance for your family will go to pay all the taxes you've not been paying. Cheerful thought...

It's also a very small step to make the benefit of the loan a BIK, and again you'd be stuffed. That one may well happen.

Actually even that is not necessarily true (but it can be). The write off of the loan on death is not necessarily a chargeable event. In fact currently if the loan is not an employment related loan then the write off of the loan is not a chargeable event (doesn't mean it won't be next year). If it's not an employment related loan then it's not due for BIK either (under current rules). Of course, actually ensuring it is NOT an employment related loan is not necessarily easy....

[pzz76077]

Actually even that is not necessarily true (but it can be). The write off of the loan on death is not necessarily a chargeable event. In fact currently if the loan is not an employment related loan then the write off of the loan is not a chargeable event (doesn't mean it won't be next year). If it's not an employment related loan then it's not due for BIK either (under current rules). Of course, actually ensuring it is NOT an employment related loan is not necessarily easy....

I just cant see these 'loans' being justified to be anything of the sort in a court of law. I will only take one such case and the whole lot will fall down leaving a thousands of bankrupt contractors given to option to pay up or face tax evasion proceedings.
Whenever that day comes, contractors in these schemes will be left holding the baby.

'Lets see, 85% of a contractors revenue for few years, plus interest and fines: that will be everything you have and more please sir'. (spoken in the voice of a HMRC investigator).



PZZ

[TykeMerc]

I just cant see these 'loans' being justified to be anything of the sort in a court of law. I will only take one such case and the whole lot will fall down leaving a thousands of bankrupt contractors given to option to pay up or face tax evasion proceedings.
Whenever that day comes, contractors in these schemes will be left holding the baby.

'Lets see, 85% of a contractors revenue for few years, plus interest and fines: that will be everything you have and more please sir'. (spoken in the voice of a HMRC investigator).

At last we agree on something!!!!

Let's be sensible about this.
HMRC have proven that they're willing to engage a time machine to retrospectively attack tax planning and since these loan schemes have infinite duration loans the users would arguably have a current scheme that wouldn't even require retrospection.
These loan schemes are begging to be battered by HMRC and I fully expect them to mount a concerted attack before too long. The bloodbath which results will make BN66 look like a picnic as there are quite a lot of loan schemes out there with loads of users to assault.

[pzz76077]

At last we agree on something!!!!

Let's be sensible about this.
HMRC have proven that they're willing to engage a time machine to retrospectively attack tax planning and since these loan schemes have infinite duration loans the users would arguably have a current scheme that wouldn't even require retrospection.
These loan schemes are begging to be battered by HMRC and I fully expect them to mount a concerted attack before too long. The bloodbath which results will make BN66 look like a picnic as there are quite a lot of loan schemes out there with loads of users to assault.

There were many of these schemes being operated out of Delaware and South Africa back in the 80's when I was contracting in the States. All of them were spectacularly crushed by the US courts, jail terms for the poor contractors shafted by the scheme operators.

Not much chance this time round IMV.

PZZ

[LisaContractorUmbrella]

I am sure that most tax advisors could put together an artifical scheme using existing loopholes which would 'guarantee' all its members could retain 95% of their earnings but, and it is a big but, part of HMR&C's remit is to ensure that, if you earn in the UK you will pay tax in the UK. Therefore, IMHO, it is only a matter of time before all avoidance schemes are targeted and closed down - and their members will be presented with a huge tax bill courtesy of HMR&C. Any legal arguments may delay payment for a while but no judge is going to agree that it is reasonable to earn your living in the UK and not pay tax.