EBT's etc

[malvolio]

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?

You need to look at who is on the advisory panel to the OTS looking at this whole area for an answer to that question. I don't think Anne Redston nor Chris Bryce (PCG Chairman) will let things slip by them for a start.

The really important change is that HMG accept that we are genuine workers, not simply tax evaders by another name. Politicallly they can't back out IR35 and get us back to 1999, that won't happen. They can, however, limit and clarify its applicability

[craig1]

I thought this would be an appropriate place to stick this article: How the EBT and EFRBS changes are affecting sport, specifically the two rugby codes. Not specifically relevant to us but still interesting to see the wider impacts of the changes.

[Tomo1971]

Can you expand on this Tomo1971?

Nope, don't want to jeopardise either my status (even though ive now left) or that of others still in the scheme.

If a chartered accountant with 30 years experience is telling me and others that the EBT scheme is still robust then I am going to have to trust him.

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

S.

[malvolio]

Nope, don't want to jeopardise either my status (even though ive now left) or that of others still in the scheme.

If a chartered accountant with 30 years experience is telling me and others that the EBT scheme is still robust then I am going to have to trust him.

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

S.

Because it's your personal tax that they see as having gone missing, not the EBT providers' corporate tax? Also, on the same basis, it's your personal responsibility to pay the correct amount of tax, nobody else's. You can sub the calculation to someone else, but if they get it wrong, you get the fines. And sorry but if you don't understand that basic rule of self assessment, then you aren't in a position to judge the worth, or not, of an EBT.

And as I've said before, the scheme's are still robust and still have an entirely legitimate purpose, it's only the tax position that's changed. But if they're not telling you that, clearly and simply, then what else aren't they telling you? Don't suppose they're possibly more interested in their revenue stream than your take home, do you...?

[pmeswani]

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

S.

Personally speaking? Who chose the solution. You or the EBT provider? I am guessing you did. Therefore you were looking for ways of not paying any forms of tax. As a result, the liability falls with you and not the provider, hence why I believe HMRC should chase you and not the provider. In any case, a lot of the EBT providers trade overseas and HMRC do not have any authority to chase payment from the providers, so it would be easier for them to chase the contractor rather than the company who provided the solution as the chances are the contractor is based in the UK.

But that is my personal view.

[SueEllen]

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

HM Revenue & Customs: Do you need to complete a tax return?

[pastalista]

Who chose the scheme?

Personally speaking? Who chose the solution. You or the EBT provider? I am guessing you did. Therefore you were looking for ways of not paying any forms of tax. As a result, the liability falls with you and not the provider, hence why I believe HMRC should chase you and not the provider. In any case, a lot of the EBT providers trade overseas and HMRC do not have any authority to chase payment from the providers, so it would be easier for them to chase the contractor rather than the company who provided the solution as the chances are the contractor is based in the UK.

But that is my personal view.

I appreciate that you are saying this is a "personal" view but when looking around to see what is available in terms of payment vehicles, most contractors shop around for the best available deal. Some choose total security (PAYE), some go limited (safe but the rules shift around a lot), umbrella (safe but HMRC challenging dispensations) and some choose the offshore options which were (still are as vehicles but no longer tax efficient) completely legal.

If people want to introduce morality into taxation then that is clearly their choice but as Lord Clyde said "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue". EBT was a perfectly legal way of ensuring that Hector got some money but not as much as he would have liked. Whether one morally agrees or not, the law is the law.

Now that the law has changed, people who continue to use EBT can expect a letter at some point. It would be perfectly reasonable to say to anyone who now begins to use an EBT in the hope that they can avoid tax that they are foolish and indeed illegal (if they don't declare the income) but prior to 09/12/2010 it was perfectly fine. Lord Clyde made it perfectly clear that there was no moral reason for somebody to pay the maximum amount of tax that HMRC would like. In fact, using a limited company is a tax avoidance vehicle due to the lower NI contributions so presumably it won't now be long before more people are making moral judgments about that.

On a practical level, if an EBT provider were approached for outstanding tax they would state that it was the responsibility of the individual, not them as an entity. It is up to all of us to ensure that any scheme we use stands up in law. With the introduction of the "aggressive avoidance" approach from HMRC, that became much more difficult.

Most contractors will now either use an umbrella or a limited company to manage their finances, which is of course precisely what HMRC wanted.

Pastalista

[malvolio]

I think you'll find 99% of one man bands who use Ltd Cos do so because the people who control the jobs market won't deal with them other than through an intermediary company because of S44-47 ITEPA 2003 (S143c as was). Before we get hung up on the idea of a Ltd Co as being tax efficient (which it is, of course, if properly managed), first we must allow that they are the only viable option of you don't want to be an employee of someone else and find work through agencies.

Incidentally, working at the level I do, I would probably get more take home as a permie these days, with a lot less hassle. Rates are pretty much the same as they always have been, whereas senior salaries have gone up significantly. Add in pensions and holidays, and the economic justification for freelancing gets increasingly tenuous. And given the amount of personal, corporate and Value Added taxes I generate in a year, if I'm a tax avoider, I'm really not a very good one...

[pmeswani]

I appreciate that you are saying this is a "personal" view but when looking around to see what is available in terms of payment vehicles, most contractors shop around for the best available deal. Some choose total security (PAYE), some go limited (safe but the rules shift around a lot), umbrella (safe but HMRC challenging dispensations) and some choose the offshore options which were (still are as vehicles but no longer tax efficient) completely legal.

If people want to introduce morality into taxation then that is clearly their choice but as Lord Clyde said "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue". EBT was a perfectly legal way of ensuring that Hector got some money but not as much as he would have liked. Whether one morally agrees or not, the law is the law.

Now that the law has changed, people who continue to use EBT can expect a letter at some point. It would be perfectly reasonable to say to anyone who now begins to use an EBT in the hope that they can avoid tax that they are foolish and indeed illegal (if they don't declare the income) but prior to 09/12/2010 it was perfectly fine. Lord Clyde made it perfectly clear that there was no moral reason for somebody to pay the maximum amount of tax that HMRC would like. In fact, using a limited company is a tax avoidance vehicle due to the lower NI contributions so presumably it won't now be long before more people are making moral judgments about that.

On a practical level, if an EBT provider were approached for outstanding tax they would state that it was the responsibility of the individual, not them as an entity. It is up to all of us to ensure that any scheme we use stands up in law. With the introduction of the "aggressive avoidance" approach from HMRC, that became much more difficult.

Most contractors will now either use an umbrella or a limited company to manage their finances, which is of course precisely what HMRC wanted.

Pastalista

Do you live in London by any chance and Drive a car by any chance? If so, do you go out of London regularly to fill up your car tank with the cheapest possible petrol? If your car uses Diesel, do you use the Red Diesel (or whatever its called)? I'd be surprised if you don't attempt to get the VAT and fuel tax taken off the petrol cost when you go and pay. I also wouldn't be surprised if you don't have insurance, tax or MOT on your car. I mean using your logic, why bother having them, right? Not having any of these doesn't pose any danger to other road users, right?

Back to the point. Shopping around is one thing, looking for ways to evade tax or ways to break the spirit of the law in tax avoidance is wrong. I don't mind paying Corp Tax. If I have to pay Income Tax and National Insurance, then I don't see the problem. I don't look for ways of avoiding my responsibilities. There is nothing immorral in paying ones dues. If you want to bury your head in the sand and hope the issue goes away without paying a penny to the Taxman, good luck to you. (And if you want to live the imorral lifestyle supported by Lord Clyde, then go for it. I just hope you get caught).

[slogger]

Hi Pastalist,

What you say is quite correct however the point I made earlier in the thread is that the two (small sample yes but they're two companies quite widely used here and had colleagues working via them) EBT providers I looked at had a completely contrived setup - and not contrived in what I believe was/is a legal sense - they where saying one thing and writing another - i.e. the written contract details where not reflected to what was verbally written...I believe if the ebt provider is guaranteeing you will receive say x% of your income as a loan each month and you never have to repay it then its a sham setup - the HMRC bods can upick this as far back as they like -i.e. prior to dec 9th 2010 - as what these schemes are doing may prove to be illegal. Again - I'm not a lawyer so could be wrong - but just looked too dodgy to me.

I appreciate that you are saying this is a "personal" view but when looking around to see what is available in terms of payment vehicles, most contractors shop around for the best available deal. Some choose total security (PAYE), some go limited (safe but the rules shift around a lot), umbrella (safe but HMRC challenging dispensations) and some choose the offshore options which were (still are as vehicles but no longer tax efficient) completely legal.

If people want to introduce morality into taxation then that is clearly their choice but as Lord Clyde said "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue". EBT was a perfectly legal way of ensuring that Hector got some money but not as much as he would have liked. Whether one morally agrees or not, the law is the law.

Now that the law has changed, people who continue to use EBT can expect a letter at some point. It would be perfectly reasonable to say to anyone who now begins to use an EBT in the hope that they can avoid tax that they are foolish and indeed illegal (if they don't declare the income) but prior to 09/12/2010 it was perfectly fine. Lord Clyde made it perfectly clear that there was no moral reason for somebody to pay the maximum amount of tax that HMRC would like. In fact, using a limited company is a tax avoidance vehicle due to the lower NI contributions so presumably it won't now be long before more people are making moral judgments about that.

On a practical level, if an EBT provider were approached for outstanding tax they would state that it was the responsibility of the individual, not them as an entity. It is up to all of us to ensure that any scheme we use stands up in law. With the introduction of the "aggressive avoidance" approach from HMRC, that became much more difficult.

Most contractors will now either use an umbrella or a limited company to manage their finances, which is of course precisely what HMRC wanted.

Pastalista