Offshore Option

[ASB]

Another friend - I call him Doubting Thomas - showed this to me:
INTM600020 - Transfer of assets abroad
It can also apply where intangible assets are transferred; for example a UK individual may transfer his services to an offshore company. A transfer may be made by way of sale or purchase of assets, or by way of gift.

I don't think you could get charged under Section 721 or 727 unless something (which is ultimately classed as income) is paid to somebody abroad. However is the transfer does involve the creation of a new trust then there could potentially be charges on settlement.

Of course providers have thought of all this and will believe that they are not affected by them.

It does, however, show that HMRC have quite an extensive armoury of weaponry to challenge arrangements. They can also attack at the lowest and easiest target. The scheme user.

[Tommy Rot]

I don't think you could get charged under Section 721 or 727 unless something (which is ultimately classed as income) is paid to somebody abroad.

..but I think it can be, simply by virtue of the company receiving settlement of its sales invoice.

I wouldn't like to bet against it.

[malvolio]

Now that's worrying...

As our mutual correspondent Malvolio kindly pointed out, we will have to assume that the Ramsey principle doesn't apply & that our relationship and activities are not contrived so as to gain a tax advantage.

Not sure I count as an authority but that aside, Ramsay isn't "applied", it exists. If Hector decides the business arrangement is artificial, he will disregard it and, just like IR35 cases, build a theoretical contract to determine what's really going on and there are good odds that won't be to your advantage. Either way, you cannot assume Ramsay doesn't apply, only that Hector isn't going to invoke it, which is by no means a given.

[DonkeyRhubarb]

The schemes have been approved by a tax barrister who should be fully conversant with the Ramsay principle as it's been around for 30 years. I'd be surprised if there was any mileage in this for HMRC.

[Wanderer]

As our mutual correspondent Malvolio kindly pointed out, we will have to assume that the Ramsey principle doesn't apply & that our relationship and activities are not contrived so as to gain a tax advantage.

Sounds a bit "head in the sand".

I don't know your circumstances (they will obviously differ to mine) but personally, I would find it difficult to come up with a reason to form such a business relationship other than tax avoidance so I guess I would fail this test and would be unable to use such a scheme.

[jmo21]

Sounds a bit "head in the sand".

I don't know your circumstances (they will obviously differ to mine) but personally, I would find it difficult to come up with a reason to form such a business relationship other than tax avoidance so I guess I would fail this test and would be unable to use such a scheme.

[ASB]

..but I think it can be, simply by virtue of the company receiving settlement of its sales invoice.

I wouldn't like to bet against it.

"As a result of the transfer (alone or in conjunction with associated operations), income becomes payable to a person abroad."

This is one of the broad conditions, I don't really see how this criteria could be satisfied. It appeared to me (having briefly read the guidance you linked to) that person did mean precisely that. However, you are far more likely to be right than I am. It's not my job, I'm just an interested observer.

[Alan Jones]

Rolling/Churning EBT loans into new "no-longer-an-employee" scheme

Food for thought 2 – Is this the “hostage to fortune hold” that EBT promoters have over existing clients:

1. Assume contractor in EBT on 9 December on £7.7k per month i.e. gross pay £1k fees £0.7k and loan of £6k.

2. As at 5 April 2011 he has received 4 loans of £6k all caught by the Disguised Remuneration tax “DRT” a total of £24k.

3. However, DRT rules say if £24k loan repaid before 6 April 2012 then NO Tax/NI to pay.

4. SO – contractor joins new scheme on 1st April i.e. Sole Trader fee £1k fees £0.7k and loan of £6k.

5. At this point let’s assume the new set-up passes the DRT rules

6. The Contractor now receives “no-longer-an-employee” loans of £6k per month for say 8 months

7. contractor uses £3k each month from the “no-longer-an-employee” loans to repay the £24k EBT “employee” loan

8. PROMOTER CONFIRMS THE EMPLOYEE LOAN IS FULLY REPAID AND THEREFORE NOT subject to tax because it has been repaid before 6 April 2012

9. Meanwhile the contractor is £24k out of pocket because he has repaid the EBT “ employee” loan

10. SO he receives a new loan of £24k which the promoter says is a “no-longer-an-employee” loan and therefore NO tax- hence the term “rolling”.

11. Many contractors will not be able to be out of pocket by £3k per month for 8 months. SO the
promoter may actually return the £3k as a ““no-longer-an-employee” loan immediately after receiving it as a repayment of the EBT “employee” loan – hence the term “churning”.

12. BUT according to HMRC disguised remuneration rules it is taxable because it can be “traced” back to when the contractor was an employee in the EBT scheme. UNFORTUNATELY this ruse only works if HMRC do NOT find out i.e. they do not investigate BUT

13. the BIG BUT is IF HMRC do find out then NOT only will the contractor be facing a tax bill re £24k – the non-compliance will result in HMRC swarming over both the “ pre- 9 December 2010 EBT” scheme loans and the post 9 Dec 2010 “not quite an EBT” scheme.

SO if you recognise this scenario pick up the phone to your promoter and ask ...........

[Alan Jones]

Clarification

Have Darwin Pay / Sanzar / AML (used to be known as Aston) merged.

They were all offering EBT’s prior to the introduction of “disguised remuneration” on 9 December 2011 and NOW they all seem to be using a scheme (or about to introduce it) where the contractor is a Sole Trader supplying services to an Offshore Partnership (remember BN66) who in turn sub-contracts to "friendly" UK Umbrella company who sub-contracts to UK Agency who sub-contracts to UK End Client.

PLUS it appears one of the above is holding its clients hostage to fortune to ensure they join the new scheme i.e. a client wished to leave the old scheme BUT the promoter stated that any outstanding loans due would be subject to PAYE (income tax/NI). BUT if they stayed and joined the new scheme then the “old employment” related loan would be “rolled/churned” into the new scheme and would be OK and NOT subject to tax.

I have been informed by Darwin Pay (and therefore Sanzar - they appear to be have same owners/managers or the Delivery guys that keep ringing my office bell and asking for Sanzar on 3rd floor when its Darwin Pay on 3rd floor are constantly making mistakes!) THAT they have NOT merged with AML .

So my "hunch" was wrong and happy to put record straight.

[Alan Jones]

Conversion from EBT scheme to "no-longer-an-employee" scheme

Food for thought 3 – Conversion from EBT to “no-longer-an-employee”

Having established that most EBT schemes have now converted or about to convert to a “no-longer-an-employee” scheme let’s take a look at the conversion exercise:

Let’s assume that you (the contractor) were going to cease to be an employee on the 31st January 2011 and commence your “no-longer-an-employee” status on 1 February 2011.

Did your promoter notify you:

A/ before 1 February 2011 of this changeover OR

B/ send you notification/documents at the end of February stating your new status commenced on 1 February and that you were not actually an employee during February although you were NOT aware of this until end of February .

If its B/ then be prepared for HMRC to take a closer look at your tax affairs