EBT & other loan schemes

[sal626]

I actually came across a provider (in the summer) who have been offering the remuneration scheme for over two years. They claim this solution has been around for over 20 years and never been challenged. They were so confident they were even offering full refund of fees if successfully challenged in court. I didn’t join, but I know some contractors who have.

But the point is, all tax avoidance is on the radar now, so eventually all schemes will either be challenged in court or legislated against.

[malvolio]

I actually came across a provider (in the summer) who have been offering the remuneration scheme for over two years. They claim this solution has been around for over 20 years and never been challenged. They were so confident they were even offering full refund of fees if successfully challenged in court. I didn’t join, but I know some contractors who have.

But the point is, all tax avoidance is on the radar now, so eventually all schemes will either be challenged in court or legislated against.

The relevant wording is:

The legislation inserts a new Part 7A into ITEPA 2003. The legislation
ensures that where a third party makes provision for what is in substance
a reward or recognition, or a loan, in connection with the employee’s
current, former, or future employment, an income tax charge arises.
Income tax is charged on the sum of money made available and on the
higher of the cost or market value where an asset is used to deliver the
reward or recognition, for example by transferring or otherwise making
available an asset for the employee’s use and benefit as if the employee
owned the asset. The amount concerned will count as a payment of
employment income and the employer will be required to account for
PAYE.
There will be protection for specified types of arrangements involving
third parties – including registered pension schemes, approved employee
share schemes and ordinary commercial transactions. The tax treatment
of benefits packages which are available across the employer’s workforce
will also be unaffected by the measure, provided that the benefits are
genuinely available to substantially all employees and cannot be accessed
by only specially selected individuals.

I'm guessing they are looking at moving you from being an employee to being self-employed so the restriction on employees doesn't apply and it counts as a commercial transaction. The tricky bit is getting around "income" since self employed pay tax on all their earnings less allowable business expenses anyway. Plus, of course, Hector can already look through commercial transactions that have no direct business benefit

This could get interesting, not least because it puts your earned money even farther away from your control. However, anyone who sticks with the snake oil sellers had better have a damned good savings plan...

[pastalista]

Snake Oil

The relevant wording is:



I'm guessing they are looking at moving you from being an employee to being self-employed so the restriction on employees doesn't apply and it counts as a commercial transaction. The tricky bit is getting around "income" since self employed pay tax on all their earnings less allowable business expenses anyway. Plus, of course, Hector can already look through commercial transactions that have no direct business benefit

This could get interesting, not least because it puts your earned money even farther away from your control. However, anyone who sticks with the snake oil sellers had better have a damned good savings plan...

So how long do you think it will be Mal before the payment of dividends to avoid NI is outlawed because it constitutes tax avoidance? I'm convinced that the closer to the end of the funnel we get the more pressure will come on the supposedly "legitimate" forms of avoidance such as this.

I don't disagree with your last statement and remuneration trusts are actually meant as an inheritance tax planning system rather than an income tax avoidance scheme (in fact they are not classified as avoidance at all because they are openly reported to Hector) but it is highly likely that many of the scheme providers will adopt this approach as it "sort of" fits the bill.

There is actually a greater element of personal control with a remuneration trust in that the individual controls the allocation of the funds - it is not done on their behalf (direct and sole control of a bank account) but I suspect it won't be long before they too are attacked and successfully this time.

I personally think it is inevitable that eventually the only way that will be considered to be a legitimate vehicle will be PAYE and if rates don't adjust accordingly, who is going to want to be a contractor?

Pastalista

[malvolio]

So how long do you think it will be Mal before the payment of dividends to avoid NI is outlawed because it constitutes tax avoidance? I'm convinced that the closer to the end of the funnel we get the more pressure will come on the supposedly "legitimate" forms of avoidance such as this.

I'm not. The EBT argument is about non-UK solutions. Within UK-based taxation, I think the emphasis may shift to something closer to distinguishing between real contractors and pretend ones. Messing with corporate law has too many ramifications. Best bet is to wait for the budget in March; we'll have a much clearer idea of their thinking then.

[SueEllen]

So how long do you think it will be Mal before the payment of dividends to avoid NI is outlawed because it constitutes tax avoidance? I'm convinced that the closer to the end of the funnel we get the more pressure will come on the supposedly "legitimate" forms of avoidance such as this.

They would have a nightmare changing the law to get this through.

Lots of directors of large firms get shares as part of their remuneration packages and that's a couple of million pounds rather than a few thousand.

[Fred Bloggs]

I'm not. The EBT argument is about non-UK solutions. Within UK-based taxation, I think the emphasis may shift to something closer to distinguishing between real contractors and pretend ones. Messing with corporate law has too many ramifications. Best bet is to wait for the budget in March; we'll have a much clearer idea of their thinking then.

That's one reason why I fear an Aussie style 80% rule. I know you've dissed that in the past, but it fits that particular bill.

[pastalista]

Limited Law

That's one reason why I fear an Aussie style 80% rule. I know you've dissed that in the past, but it fits that particular bill.

It would be easy to pass a law that differentiated between different sizes of company. It could be applied to, say, any company with fewer than 3 employees. That would rule out the problems Sue Ellen mentioned but would catch almost all contractors.

There hasn't exactly been a lot of support for contractors recently. I accept that a Labour government wouldn't be expected to be keen or lenient, but the Tories? I know times are hard at the minute but the longer term view needs to be taken. Making it harder and harder for contractors to operate and come out of the deal with some recompense for all of the downsides (I won't bore by listing them here as we all know them) is not a recipe for success.

To have a Tory Chancellor stand up and talk about how "it just isn't fair, these people paying less tax than they should" is incredible. Avoidance was invented by the Tories.

It's a topsy turvy world at the moment for sure.

Pastalista