Global , how do they do it?

[ChimpMaster]

http://www.global-worldwide.net/services.php

still offerring EBTs??!! Is this legal? Jobserve does it again!!

[bangface]

EBT=Employee Benefit Trap?

http://www.global-worldwide.net/services.php

still offerring EBTs??!! Is this legal? Jobserve does it again!!

Due to the rules that deny tax relief on contributions to an EBT brought in by the Chancellor back in the pre budget of 27th November 2002, EBT's no longer became a viable option for UK based Umbrella hybrid Companies.

However I believe that companies like Global get around this by using a seperate offshore entity to employee the contractors and then their UK based company will handle all the administration. The reason is because the changes to UK tax law that affect EBT's is out of the jurisdiction of the offshore company and is still a totally legal and viable solution as far as its own tax system is concerned. That being said, you would have to be extremely careful regarding the way in which your contract is handled.

Very protracted procedures would need to be put in to paractice to ensure the contractor didn't fall foul of IR35 & IR56.

It is extremely important that an EBT is set up properly. I don't believe that half of the companies that offer EBT's to contractors are administering them correctly and I think that all contractors should be very wary of the tax implications to them, should the company or themselves ever be investigated by the revenue.

The company will probably go to great lengths to ensure that its contracts are outside of IR35, but won't take into consideration the commercial reality of the contractors circumstances and this would be the worrying factor from an IR56 perspective, should the revenue ever scrutinise such circumstances.

I'm surprised the agencies actually deal with these companies as they and their clients are at just as much risk as the contractor!!

[freshblue]

I'm surprised the agencies actually deal with these companies as they and their clients are at just as much risk as the contractor!!

Big ones won't but the rest will as recruitment will drive the deal. End client are often unaware....

[bangface]

Big ones won't but the rest will as recruitment will drive the deal. End client are often unaware....

You've hit the nail on the head with that one freshblue!

This is where the process will fall down for sure. The company administering the contracts may go to great lengths to ensure that the contract they have with the agency is as water tight as they can make it, however I doubt they will reciprocate the changes with the client, since the client probably won't want to entertain making changes to its contracts and the agency won't want to upset the client by proposing a million and one changes to their paperwork after it has already been agreed and signed.

The fact that the contractor will never get to see the contract that his/her agency has in place with the client means that no matter how much they try and improve their IR35 position, the client/agency contract is almost certainly going to throw a spanner in the works, should the revenue ever investigate.

I wouldn't mind betting that most contracts the agency has with the client will refer to the contractor as an employee of their company!!! ALERT!! ALERT!! add this to the way in which the client will be seen to control the contractor once on site and "Hey Presto" we got ourselves another "Deemed Employment" case! Need I say more?

[IR35 Avoider]

Why would agencies and clients be at risk?

I'm surprised the agencies actually deal with these companies as they and their clients are at just as much risk as the contractor!!

Why would agencies and clients be at risk? My understanding is that in general a company that only makes payments to another UK company for a worker is not at risk.

Schemes that have an off-shore element can have a UK company as a front-end to pass the money to them, so the agent will be in the same position as the client, i.e. they have passed money to another UK company.

[bangface]

Why would agencies and clients be at risk? My understanding is that in general a company that only makes payments to another UK company for a worker is not at risk.

Schemes that have an off-shore element can have a UK company as a front-end to pass the money to them, so the agent will be in the same position as the client, i.e. they have passed money to another UK company.

Try reading my last post again

[IR35 Avoider]

I've read your last post again, but I remain puzzled.

So far as IR35 is concerned:-

1. Off-shore schemes are usually structured so that it is (they claim) irrelevant whether you fail the IR35 status tests or not. That is the whole point of them. If you can pass the IR35 tests there's not much point using an off-shore scheme.
2. If the client or agent only make payments to a UK limited company, and definitely not directly to the contractor as an individual, they cannot be an intermediary for IR35 purposes, so they are off the hook even if he is caught.

Just to clarify - I do agree that the contractor has to worry about IR35 - it's just that (even after re-reading) I still don't see why you think the client or the agency are at risk.

Regarding IR56 - this is just the old law that means an individual claiming to be self-employed can be treated as an employee for tax purposes, if he fails status tests. Because of this (and S134) clients and agencies don't make payments to individuals other than by operating PAYE. The reason why contractors all had companies in in the first place was in order to immunise clients and agencies from IR56 and S134. IR35 was then brought in to achieve for limited company contractors what IR56 and S134 were failing to achieve, however it was deliberately drafted in such a way that it was the contractor company and not the client or agency that was affected by it.

If clients or agencies are only making payments to another UK limited company, then IR35, IR56 and S134 are irrelevant to them, though possibly not to the contractor and other intermediaries further down the chain.

[bangface]

I've read your last post again, but I remain puzzled.

So far as IR35 is concerned:-

1. Off-shore schemes are usually structured so that it is (they claim) irrelevant whether you fail the IR35 status tests or not. That is the whole point of them. If you can pass the IR35 tests there's not much point using an off-shore scheme.
2. If the client or agent only make payments to a UK limited company, and definitely not directly to the contractor as an individual, they cannot be an intermediary for IR35 purposes, so they are off the hook even if he is caught.

Just to clarify - I do agree that the contractor has to worry about IR35 - it's just that (even after re-reading) I still don't see why you think the client or the agency are at risk.

Regarding IR56 - this is just the old law that means an individual claiming to be self-employed can be treated as an employee for tax purposes, if he fails status tests. Because of this (and S134) clients and agencies don't make payments to individuals other than by operating PAYE. The reason why contractors all had companies in in the first place was in order to immunise clients and agencies from IR56 and S134. IR35 was then brought in to achieve for limited company contractors what IR56 and S134 were failing to achieve, however it was deliberately drafted in such a way that it was the contractor company and not the client or agency that was affected by it.

If clients or agencies are only making payments to another UK limited company, then IR35, IR56 and S134 are irrelevant to them, though possibly not to the contractor and other intermediaries further down the chain.

I agree most Off-shore schemes do "claim" to be structured in such a way that it is irrelevant whether a contractor fails the IR35 status tests or not. Not only do they "claim" to be safe, most "claim" to be IR Approved!!!! But that's another story...The structure of these schemes is built upon a high level of Tax advice and on paper theoretically should work, however such companies and their advisors cannot pre-determine the commercial reality of one's circumstances and as everybody’s circumstances are different, it is going to be extremely difficult if not physically impossible to ensure that everyone is operating outside the boundaries of IR35.

This is where I feel there will be a problem regarding "deemed employment" As we know if the revenue perform an IR35 investigation, they will almost certainly be looking to ascertain who the employer is.

As you know they will take certain criteria into consideration, which will include looking at the amount of control the agency or client has over the contractor, how the contracts are worded, the way in which the contractor represents himself and so on. If the contractor is held to be under the direction, supervision or control of a party other than his employer in accordance with Section 44 of the Income Tax (Earnings and Pensions) Act 2003 the agency or the party to whom he or she supplies services, could be deemed to be his/her employer. I am sure you will appreciate if the agency or client is "deemed employer" of the individual they will be liable to comply with IR35 regulations including the obligation to pay the appropriate employer’s National Insurance contributions.

[IR35 Avoider]

I am sure you will appreciate if the agency or client is "deemed employer" of the individual they will be liable to comply with IR35 regulations including the obligation to pay the appropriate employer’s National Insurance contributions.

We're getting there....

... but it remains my understanding that if the client or agency have paid another UK company (the scheme front-end, for example) for the workers services, then no matter what happens to the money after that, the Inland Revenue cannot track further back up the chain than that UK company, when looking for a "deemed" employer. I was really trying to find out if you had any reason to think this was untrue.

They can probably always go after the worker for full income tax and employees NI, so it's just a question of who they can go after for the employers NI. I read something a long time ago in which I think they claimed that where money had reached a worker via going off-shore, they could reclaim it from the last UK company in the chain before it went off-shore. In this case that would be the scheme front-end, not the agency or the client. They would remain safe.

The reason I want to be sure nothing's changed is that it would probably be the end of contracting as we know. If there really were any significant risk that clients or agencies could be made to cough up, they would refuse to contract people on anything other than PAYE terms.

Section 44 you referred to in your post is just the updated name for S134 I was referring to. As far as I can see, following a quick scan, it can only be applied to a company that has a direct contract with the individual. (Presumably there's an exception somewhere to cover what I said about the off-shore scenario earlier.) Given the edifice Hector has attempted to construct on the base of S660A in order to collect money in those circumstances, I suppose it's only a matter of time before they try to claim there is an unwritten contract between the worker and the client or agency.

This article emphasises the importance to the agency of not having the contractor as a party to any contract.

[csharper]

I called them. They said they don't do EBTs anymore.