Loans from EBTs and other Trusts

[TykeMerc]

Like Mal I have a MyCo Ltd as I'm unable to do business with agents as a Sole Trader (which I have been for 2 decades). I manage my Ltd so that it's as tax efficient as it reasonably can be, but it's a trading entity and not a tax avoidance mechanism to me.
For a period of several years my life was complicated enough without managing a MyCo and so I used an Umbrella which was less tax efficient, but convenient and suited my requirements at the time.

Esoteric tax schemes carry more risk than I'm prepared to take and are potentially a lot more complicated in the long run so I'm content to leave them to people who think they're a fabulous idea.

[LisaContractorUmbrella]

I think what some people on here forget is that we're not all "professional contractors" - we're "professional developers", "professional dba's", "professional project managers", etc. When you start out, you're focusing on your CV, on your roles, and on building a network. Invoicing, getting paid, and all the admin are towards the back of your mind, and you don't always do the research you should do on the basis that it's just admin that everyone does so it must be well documented. With so many companies out there offering what seem to be well established schemes (be it umbrella, EBT, or anything else) it's natural and human to trust what they say, especially if they have been established for some time.

Over many years, you become more versed in accounting and legal matters (as can be seen by the comments of some of the more... mature... posters on here - I won't name them but you'll be able to see their names when they flame me in a bit ), at which point, it's easy to critizise (which they do!). It makes me smile to read posts from various ones on here berating EBT scheme members, only to promote the use of Ltd companies to reduce their tax liability. It puts me in mind of the type of driver that thinks everyone that goes faster than them is a maniac, and everyone that goes slower than them is a doddery old fool. They're in ltd companies because they want to pay less tax. Yes, EBTs have turned out to be a little too risky, but if wanting to pay as little tax as legally possible is wrong, why are these people paying low wages and taking dividends?

I can see how naivety could lead to confusion about the schemes that are on offer but if you sign up with someone who promises you can take home 90% of your earnings and keep the tax man happy you must know that there is a risk attached. Unless you enter the contracting world straight from school you would have had a payslip at some point and have an idea of the percentage tax that you have paid; I think most people would question someone who then promised to cut their tax bill in half. Everyone wants to be persuaded by offers which seem to good to be true (hence why so many people give money to Nigerian millionaires who have fallen on difficult times) but most of us know that if it seems too good to be true it probably is and we walk away; if you don't walk away you potentially take high reward but for extremely high risk.

[meanttobeworking]

I can see how naivety could lead to confusion about the schemes that are on offer but if you sign up with someone who promises you can take home 90% of your earnings and keep the tax man happy you must know that there is a risk attached.

Agreed, but to someone starting out, taking home 90% via a managed scheme doesn't seem THAT different to taking home 75-80% from a Ltd (in that both of them allow you to pay less tax than a standard PAYE employee), so you'd go for the "best" one, knowing no better. I'm not saying this is an *accurate* view, just an understandable one.

Malvolio - I take it you pay yourself via PAYE then, and don't go near dividends And considering 90% of people don't use ltd companies to reduce their tax liability (apparently), there's an awful lot of talk about in on this board!

For the record, I'm not promoting EBT schemes - I was in one for a few months when I started out, dropped it like a hot potato post 9/12, opting to pay PAYE (plus their fees) for 2 months worth of invoices rather than go for their new, "improved" scheme. In my case, I was recommended to the scheme my a friend who had used them for 4 years, the company had been running for 7 years - all of which lended them (excuse the pun ) a sense of credibility. I'm not saying it was the most astute financial decision I ever made, I'm just saying don't go after people with pitchforks for buying the hype.

[malvolio]

Agreed, but to someone starting out, taking home 90% via a managed scheme doesn't seem THAT different to taking home 75-80% from a Ltd (in that both of them allow you to pay less tax than a standard PAYE employee), so you'd go for the "best" one, knowing no better. I'm not saying this is an *accurate* view, just an understandable one.

Malvolio - I take it you pay yourself via PAYE then, and don't go near dividends And considering 90% of people don't use ltd companies to reduce their tax liability (apparently), there's an awful lot of talk about in on this board!

For the record, I'm not promoting EBT schemes - I was in one for a few months when I started out, dropped it like a hot potato post 9/12, opting to pay PAYE (plus their fees) for 2 months worth of invoices rather than go for their new, "improved" scheme. In my case, I was recommended to the scheme my a friend who had used them for 4 years, the company had been running for 7 years - all of which lended them (excuse the pun ) a sense of credibility. I'm not saying it was the most astute financial decision I ever made, I'm just saying don't go after people with pitchforks for buying the hype.

You need to do some reading. No I don't take everything as PAYE: for one thing why the hell should I? But there is a basic principle at stake, that says if you live in the UK, work in the UK and earn money in the UK you should pay UK taxes, which I do. There's another principle that says you are under no obligation to pay any more taxes than you need to. Which I don't, I simply pay all the taxes I am liable for.

The offshore schemes violate both principles. I'm not saying they're right or wrong, and if you're dim enough t o think them a good idea, I could care less how much grief you;re lining yourself up for in the future. In fact almost all the offshore schemes are liable to the tax at some point, possibly after your death, so you're not actually escaping anything.

The problem is people who haven't done the research or had the bad experiences who look at what is basically a misleading advert for snake oil and buy into it. That's what we are trying to point out to the more naive among our number.

Incidentally I'm getting around 82% from MyCo's earnings, without fiddling expenses and without breaking any laws or principles. Perhaps I'm just a bit smarter than you think I am.

[meanttobeworking]

You need to do some reading. No I don't take everything as PAYE: for one thing why the hell should I? But there is a basic principle at stake, that says if you live in the UK, work in the UK and earn money in the UK you should pay UK taxes, which I do. There's another principle that says you are under no obligation to pay any more taxes than you need to. Which I don't, I simply pay all the taxes I am liable for.

The offshore schemes violate both principles. I'm not saying they're right or wrong, and if you're dim enough t o think them a good idea, I could care less how much grief you;re lining yourself up for in the future. In fact almost all the offshore schemes are liable to the tax at some point, possibly after your death, so you're not actually escaping anything.

The problem is people who haven't done the research or had the bad experiences who look at what is basically a misleading advert for snake oil and buy into it. That's what we are trying to point out to the more naive among our number.

Incidentally I'm getting around 82% from MyCo's earnings, without fiddling expenses and without breaking any laws or principles. Perhaps I'm just a bit smarter than you think I am.

I just find it slightly hypocritical to claim that your main reason for running a ltd is S44-47 ITEPA 2003 (inferring that all the financial benefits are just an annoying side effect), to imply that anyone using EBTs or similar are unethical and unprincipled, only to then go on to boast that you're only paying about 5% more tax than them anyway - that's hardly going to pay for a new hospital

I don't have anything against you, or your earnings, I just found your reply to be a bit self-righteous. I do totally agree with the comment about the advertising - full of promises and guarantees and no indication of the risks. Buyer Beware indeed

[malvolio]

I just find it slightly hypocritical to claim that your main reason for running a ltd is S44-47 ITEPA 2003 (inferring that all the financial benefits are just an annoying side effect), to imply that anyone using EBTs or similar are unethical and unprincipled, only to then go on to boast that you're only paying about 5% more tax than them anyway - that's hardly going to pay for a new hospital

I don't have anything against you, or your earnings, I just found your reply to be a bit self-righteous. I do totally agree with the comment about the advertising - full of promises and guarantees and no indication of the risks. Buyer Beware indeed

I could as easily avoid S44-47 by using an umbrella, or by becoming an employee of the agency or getting a permanent role; plenty of people do. But since I am a long term freelance, there is absolutely no reason to tie myself down like that. Of course I get more take home as a result - and that is a bad thing why? - but that's merely applied common sense and offsets the greatly increased risks I face by doing my own thing; it's absolutely not why MyCo exists.

[meanttobeworking]

Not asking you to justify it (I think you're worth every penny ), I just think the final figures that go to the tax man (regardless of the ethical 'feel' for the route taken to achieve them) are not much different, so not sure why there's such a witch-hunt for EBT'ers based on the "you're not paying enough tax, you're damaging our country" angle. The "you should have researched it more, particularly in relation to your personal liability vs. the scheme manager" definitely holds water though - and I include myself in that. I just don't appreciate people (NOT you, I hasten to add) wishing I end up contracting a deadly disease in an underfunded hospital, when they're only paying fractionly more tax than me anyway.

[pastalista]

The Glasshouse

I could as easily avoid S44-47 by using an umbrella, or by becoming an employee of the agency or getting a permanent role; plenty of people do. But since I am a long term freelance, there is absolutely no reason to tie myself down like that. Of course I get more take home as a result - and that is a bad thing why? - but that's merely applied common sense and offsets the greatly increased risks I face by doing my own thing; it's absolutely not why MyCo exists.

My fear though is that what is legal and acceptable today won't be tomorrow - as happened with the EBTs. Whatever we might say about limited companies and the reasons that people use them, it cannot be denied that getting 82% (and you should publish a book on how you achieve that - I know a lot of people who would buy it) from a legal vehicle is fairly pleasant. What happens though when they've finished annihilating the trust side of the business and they're feeling a little bored? You think they might take another little look at the "unfair" practice of contractors taking dividends to avoid NI? Maybe make it illegal?

Then what? Does everybody on here criticising the EBT guys and gals sit back and say "ah well, it was a good ride while it lasted, here's my 52% Hector" or do they come on here and be outraged that something that was legal (and beneficial) is now not?

I personally live in a glass house and I'm not about to start throwing rocks.

Just mho of course.

Pastalista

[malvolio]

... it cannot be denied that getting 82% (and you should publish a book on how you achieve that - I know a lot of people who would buy it) from a legal vehicle is fairly pleasant...

Hint: It helps if you're as old as me...

[meanttobeworking]

@pastalista : You've hit the nail on the head, and in a much more succinct way than me