Loans from EBTs and other Trusts

[DonkeyRhubarb]

I wouldn't touch a scheme with a barge pole, but I find this thread extremely interesting and very enlightening. HMRC's list will have to change every week, or even day I should think to stay up to date. And the list of scheme user names means you might as well walk around with a neon sign flashing over your head.

The Government may have hoped that BN66 would have killed off these schemes but they are even more popular now than 3 years ago. If the spectre of retrospective legislation wasn't enough to put people off then it's hard to see what would be.

These schemes are highly profitable for the promoters so I can't see them letting up.

Incidentally, the risk of retrospective legislation is greatly reduced under the new Protocol (page 19) and it's extremely unlikely that there would ever be another case like BN66.
http://cdn.hm-treasury.gov.uk/2011bu...xavoidance.pdf

In particular, retrospective legislation would not be allowed just because HMRC had changed their view of the law, as they did with BN66 (page 19, point 3).

A change in HMRC’s interpretation of the law (unless prompted by a Court ruling) will not be regarded as ‘significant new information’.

[Emigre]

The Government may have hoped that BN66 would have killed off these schemes but they are even more popular now than 3 years ago. If the spectre of retrospective legislation wasn't enough to put people off then it's hard to see what would be.

These schemes are highly profitable for the promoters so I can't see them letting up.

Incidentally, the risk of retrospective legislation is greatly reduced under the new Protocol (page 19) and it's extremely unlikely that there would ever be another case like BN66.
http://cdn.hm-treasury.gov.uk/2011bu...xavoidance.pdf

In particular, retrospective legislation would not be allowed just because HMRC had changed their view of the law, as they did with BN66 (page 19, point 3).

There is a very simple reason why these arrangements continue to grow in popularity. When the last Govt introduced IR35 they introduced uncertainty. Prior to that the only uncertainty probably evolved around whether you could get away with this expense or that expense in your Ltd Co. In other words nothing very serious at all. Prior to IR35 people paid a reasonable amount of tax.

Following IR35, people rightly looked for arrangements that in their own opinions offered a greater level of certainty, moving away from the risks of being deemed in or out of IR35 and years of tribunal/court action. At that time the DTA schemes were starting to be marketed on more of a retail basis. Yes, they were more aggressive but that was not the original intent of users; the original intent was the increased certainty that IR35 did not offer. As time went by and HMRC did nothing about pursuing all the enquiries they had opened, certainty of legal success grew and the numbers of participants reflected that.

In 2008, BN66 not only terminated the scheme prospectively but as we know was applied retrospectively to cover the failings and inability of HMRC to do anything about the DTA arrangements for the previous 7 years. TN63 makes quite clear they knew all about it in 2001 yet they did nothing. Who wouldn't be completely confident that the scheme worked? Certainty restored.

IR35 still exists and there is no evidence of any let up in those being attacked regardless of the poor success record of HMRC. Clearly the majority of people are not about to head back into that world. Instead, it was easier to roll the DTA participants into one of the loan arrangements, which once again appears to have the edge over HMRC until they are effectively closed down. Some have been; others appear to still work.

The point here is that the majority of those that got involved with firstly the DTA and more latterly the loan arrangements did so out of a desire for certainty rather than the pure aggressive avoidance angle. Yes, of course its great to minimise one's tax, and the more the better. The point here is that for most it was not the initial driving force. We are where we are today through initial poor legislation (IR35), and the lack of action by HMRC sending the very clear message that the DTA schemes worked.

As of today, there is still more certainty from using a loan arrangement than there is from using a Ltd Co and being uncertain about whether you are in or out of IR35. As a principle, we run our own businesses; we should be able to do that through a Ltd Co in the same way as any other business can be run through a Ltd Co. Take us back to the pre-IR35 world and tax revenues would increase. I for one would revert to Ltd Co.

Until the Exchequer bring certainty back into the tax code they should not sit on the sidelines and bleat about increasing numbers being increasingly aggressive with their tax avoidance. Its cause and effect.

Emigre

[malvolio]

There is perfect certainty available if you want it: simply declare yourself to be inside IR35 and pay the taxes. Or operate as a business outside IR35 and follow the small company taxation rules, or get your work directly from clients as a Shcedule D self-employed worker so IR35 doesn't apply in the first place.

I will never accept that the use of offshore and similarly entangled schemes is driven by anything other than a desire to keep as much of your gross income as you can.

[Alan Jones]

In reality the risk of not getting paid is fairly low, and a promoter wouldn't be able to get away with this for very long.

Being investigated by HMRC on the other hand is highly likely, and even more so in light of this:

http://cdn.hm-treasury.gov.uk/2011bu...xavoidance.pdf

Page 14, Box 3.B - Detection

"working with scheme promoters on a smooth introduction of the new requirement to provide lists of clients who have taken up avoidance schemes, with the first lists being due by 30 April 2011;"

This is part of the DOTAS - disclosure of tax avoidance schemes regime. BUT the new loan schemes are NOT being disclosed because (a) Promoter Offshore and therefore outside of the law and onus falls on the client/contractor, and/or (b) promoters are saying the scheme does not have to be reported. THEREFORE this leads to the potential problem of the client/contractor facing huge fines for non-disclosure if it is decided that the scheme is/was disclosable.

[normalbloke]

There is perfect certainty available if you want it: simply declare yourself to be inside IR35 and pay the taxes. Or operate as a business outside IR35 and follow the small company taxation rules, or get your work directly from clients as a Shcedule D self-employed worker so IR35 doesn't apply in the first place.

I will never accept that the use of offshore and similarly entangled schemes is driven by anything other than a desire to keep as much of your gross income as you can.

Forgive me for saying so, but thats very simplistic, which coming from someone who has spent a fair portion of his life fighting the 'uncertainty' of IR35 is surprising

"Or operate as a business outside IR35 and follow the small company taxation rules.." Yeah, you can get your contract reviewed by Egos, PCG or whomever and they will reassure you. Unfortunately HMRC may not have the same view and some faceless HR person when quizzed on the actual working practices may contradict what the contract says. You also have the hassle of going to a tribunal/court. Where's the 'perfect certainty' in that? The main difference is you maybe can get insurance to cover you if your contract says the right things.

As for getting the work direct, you are having a laugh for those of us with specialist skills who have contracts with large blue-chips. I've been in this game for 15 years and have asked companies numerous times direct about a B2B contract. They just point you to HR or 'Procurement' who laugh in your face and direct you to their preferred supplier agencies.

And to paraphrase, I will never accept that the use of Ltd companies for the majority of contractors is driven by anything other than a desire to keep as much of their gross income as they can.

And precisely what is wrong with that if its within the law? Of course how the law is interpreted by HMRC is a bit of a lottery...

[malvolio]

Forgive me for saying so, but thats very simplistic, which coming from someone who has spent a fair portion of his life fighting the 'uncertainty' of IR35 is surprising

"Or operate as a business outside IR35 and follow the small company taxation rules.." Yeah, you can get your contract reviewed by Egos, PCG or whomever and they will reassure you. Unfortunately HMRC may not have the same view and some faceless HR person when quizzed on the actual working practices may contradict what the contract says. You also have the hassle of going to a tribunal/court. Where's the 'perfect certainty' in that? The main difference is you maybe can get insurance to cover you if your contract says the right things.

As for getting the work direct, you are having a laugh for those of us with specialist skills who have contracts with large blue-chips. I've been in this game for 15 years and have asked companies numerous times direct about a B2B contract. They just point you to HR or 'Procurement' who laugh in your face and direct you to their preferred supplier agencies.

And to paraphrase, I will never accept that the use of Ltd companies for the majority of contractors is driven by anything other than a desire to keep as much of their gross income as they can.

And precisely what is wrong with that if its within the law? Of course how the law is interpreted by HMRC is a bit of a lottery...

I didn't say it was easy. Of course IR35 is not certain, and anyone has to take a stand on how they are going to deal with. I'm merely countering the suggestion that a complex offshore payment vehicle is used simply to avoid the complications of IR35. That's bollocks, it's to save taxes, pure and simple. If you're only worried about being in breach of IR35 laws then pay up under its provisions and you will never be investigated.

Then again, with a close to 99% success rate for PCG-supported IR35 cases, I think I have a reasonable handle on the certainty of MyCo as a vehicle as well.

[DonkeyRhubarb]

What's the difference in retention between a scheme and a well run Ltd? About 10%?

I can't believe anyone would risk a scheme for 10% if it wasn't for IR35.

I've talked to various promoters over the years and they all say the same thing - the schemes wouldn't have been viable without IR35.

IR35 has been an absolute goldmine for them.

If it disappeared tomorrow the schemes would be dead in the water.

[normalbloke]

I I'm merely countering the suggestion that a complex offshore payment vehicle is used simply to avoid the complications of IR35. That's bollocks, it's to save taxes, pure and simple. .

Maybe it is 'bollocks' nowadays, but in the first years after IR35 was introduced schemes WERE used as a certainty option. I know, I was in a few of them so it wasn't bollocks at all.... many of us hadn't a clue how to 'work round' any of the inconvenient points IR35 may or may not have applied to. 10 years down the line its far more understood (by the minority that use these forums and are members of the PGC anyway).

[malvolio]

I've talked to various promoters over the years and they all say the same thing - the schemes wouldn't have been viable without IR35.

Ah but - they would say that, wouldn't they...

They didn't sell their schemes on the basis of avoiding taxes to freelance contractors, they kept that pitch for the highly paid bonus earners who think they're above paying tax. They needed a better USP for us, so pitched it as an IR35 defence. That's wearing thin now, so the focus is back on tax avoidance; look how many sell their services as an umbrella (they aren't) with a magic retention percentage.

[DonkeyRhubarb]

Ah but - they would say that, wouldn't they...

They didn't sell their schemes on the basis of avoiding taxes to freelance contractors, they kept that pitch for the highly paid bonus earners who think they're above paying tax. They needed a better USP for us, so pitched it as an IR35 defence. That's wearing thin now, so the focus is back on tax avoidance; look how many sell their services as an umbrella (they aren't) with a magic retention percentage.

OK, let me try a different tack.

Why do so many people still use PAYE umbrellas if IR35 is such a non-issue? Surely you'd be silly to pay more tax/nic than you need to?

I still think the promoters would have a much harder time selling these schemes if there was no IR35.