EBT's etc

[BlasterBates]

Yup the fact is the contractor carries the can not the EBT so an EBT doesn't quite have the same motivation to have everything above board and legally water tight. This means the organisers are always going to be optimistic about it, because even if it fails miserably they can still make money, and then start a new company when it all goes belly up. I think if contractors really new the risk and uncertainty they'd never sign up to these things.

Remember it's YOU who carries the can. THEY always make money.

[pastalista]

EBT / the "new" schemes

Hi All

The "new" EBT schemes are basically a slight variance on the "old" EBTs. The only difference is that prior to 09/12/2010 the schemes employed the consultant on a salary upon which PAYE and NI would be paid, with the remainder of the income paid as a loan and post 09/12/2010, you become a sole trader on a smallish income with the remainder paid as a loan.

It's all moot anyway because all of these schemes are considered "aggressive avoidance" once you are under investigation by Hector. The legislation is just to make it clear in advance I think.

Hector really has forced contractors to use limited companies or umbrellas with little or no dispensation. Let's just wait for the inevitable attacks on limited companies and their benefits.

Good luck all

Pastalista

[malvolio]

Hi All

The "new" EBT schemes are basically a slight variance on the "old" EBTs. The only difference is that prior to 09/12/2010 the schemes employed the consultant on a salary upon which PAYE and NI would be paid, with the remainder of the income paid as a loan and post 09/12/2010, you become a sole trader on a smallish income with the remainder paid as a loan.

It's all moot anyway because all of these schemes are considered "aggressive avoidance" once you are under investigation by Hector. The legislation is just to make it clear in advance I think.

Hector really has forced contractors to use limited companies or umbrellas with little or no dispensation. Let's just wait for the inevitable attacks on limited companies and their benefits.

Good luck all

Pastalista

Appreicate the info, but I can't see that it makes a difference. The new rules are sufficiently wide-ranging that they apply to any taxpayer (or non-taxpayer... ) regardless of how they pretend to be employed. All income deriving from an EBT or similar is now taxable. As BB says, the providers are continuing to earn as before, it just their clients that don't know the world has changed.

Incidentally, if they've gone from pretend employee to pretend sole trader doing exactly the same job, they're IR35 caught as well, which is what they all claim to have been trying to avoid all along. Gets better and better, doesn't it...

[Tomo1971]

I was on one of the EBT schemes and as soon as the draft legislation was published I started to go over to Ltd Co, which is fully done now and have left the EBT scheme. No fee's to leave.

I will however say I that I think the one I was on was one of the better ones.

I was referred to it by an accountant and after the draft legislation was announced and had several mails from the EBT the accountant had a conference call to discuss the implications.

I dont want to go into too much detail as the forum has eyes, but my mind was put at rest about PAYE implications and the validity of the scheme over the coming months (which affect a few outstanding payments that I am due).

My main reason for going to LTD was the fact that HMRC will keep on closing the holes in this until finally there is no way round it. So I may as well commit to Ltd now, rather than later.

S.

[LisaContractorUmbrella]

I was on one of the EBT schemes and as soon as the draft legislation was published I started to go over to Ltd Co, which is fully done now and have left the EBT scheme. No fee's to leave.

I will however say I that I think the one I was on was one of the better ones.

I was referred to it by an accountant and after the draft legislation was announced and had several mails from the EBT the accountant had a conference call to discuss the implications.

I dont want to go into too much detail as the forum has eyes, but my mind was put at rest about PAYE implications and the validity of the scheme over the coming months (which affect a few outstanding payments that I am due).

My main reason for going to LTD was the fact that HMRC will keep on closing the holes in this until finally there is no way round it. So I may as well commit to Ltd now, rather than later.

S.

Can you expand on this Tomo1971?

[pastalista]

Validity of EBT scheme

Having been investigated by our beloved friends for 4 years, I can state that despite my lawyer "proving" that the scheme I used complied with all relevant UK tax law, Hector took the view that the schemes were all "aggressive avoidance" and therefore all income would be taxed as PAYE (plus of course penalties and interest).

I think that although the scheme providers are saying "it's all ok so long as you don't draw any loan income after 09/12/2010", all this means is that anybody who did so will get their letters from Hector first. Everybody who used the schemes will get hit at some point as it is simply too big a cash cow for them to ignore and the government (that's right, the ones who are so pro small business when in opposition) needs all the cash it can get, however it can get it.

I agree with the previous comment that the change from employee to sole trader doesn't make any material difference and that the 09/12 legislation will effectively cover EBT no matter what the other element of the vehicle is. Again I believe it will simply be a matter of time before all scheme users get hit. Hector is in no hurry as the longer people stay in the schemes, the more tax, penalties and interest they will be able to charge.

It seems to me that limited company is the only way to go now (if you want to sleep at night) - the problem is I don't think it will be long before the campaign begins highlighting the "unfairness" of contractors being able to pull more income than PAYE folks for doing the "same" job. This seems to be a common thread now to the approach from the authorities - fairness and identifying people who are "getting away with it". Then, and it may be a way off yet but I think it will come, we will all have to be PAYE. Interesting then that Hector is currently, out of the goodness of its heart no doubt, offering to administer all PAYE payments for all employees.

Scared? Me? I'd go and be a witch in Romania except that the government there has made them start paying tax as of January 1st 2011. There's no escape people.

Pastalista

[malvolio]

It seems to me that limited company is the only way to go now (if you want to sleep at night) - the problem is I don't think it will be long before the campaign begins highlighting the "unfairness" of contractors being able to pull more income than PAYE folks for doing the "same" job.

That's a fair assumption but not actually a realistic one. We can already demonstrate the clear financial difference between permie and freelance business models and why the latter can justify their apparently higher net income. Also, whatever happens to IR35, there needs to be a clear recognition of the one-man business as a valid option and IMHO signs are that is beginning to happen.

Totally agree your own, genuine Ltd Co is the way to go if you want to make contracting a long term option. All other variations are going to get you taxed as a permie, even if you aren't one.

[LisaContractorUmbrella]

That's a fair assumption but not actually a realistic one. We can already demonstrate the clear financial difference between permie and freelance business models and why the latter can justify their apparently higher net income. Also, whatever happens to IR35, there needs to be a clear recognition of the one-man business as a valid option and IMHO signs are that is beginning to happen.

Totally agree your own, genuine Ltd Co is the way to go if you want to make contracting a long term option. All other variations are going to get you taxed as a permie, even if you aren't one.

What signs Mal?

[malvolio]

What signs Mal?

Cameron's written endorsement of the freelance business model on PCG's National Freelance Day, the specific exclusion of Ltd Co Contractors from the AWD and the similarly specific brief to the OTS to consider IR35 are three...

[pastalista]

Law unto themselves

Cameron's written endorsement of the freelance business model on PCG's National Freelance Day, the specific exclusion of Ltd Co Contractors from the AWD and the similarly specific brief to the OTS to consider IR35 are three...

Malvolio

Whilst I agree with your statements, there is a big difference between Cameron endorsing the freelance business model and HMRC not doing something else entirely. Hector has proved to be a law unto himself for sometime now and governments come and governments go but Hector is always there. There are always some MPs / ministers who will be easily convinced by Hector that crushing contractors further still is a good thing whatever they might have said from the cheap seats of opposition.

Although the OTS has been asked to look at IR35, it has been made equally clear that it will not simply go away but be replaced by something as yet unknown. Who knows if it will be any better / fairer?

I hope that it is just the after effects of being battered by Hector for 4 years making me doubt everything and that contractors will finally be allowed to conduct their business as a business.

Pastalista