• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

newbie tax question

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    #11
    Originally posted by SueEllen View Post
    Read the BN66 thread and the Loans from EBTs and other Trusts thread. They are stickies on the board.
    Both threads seem to require prior knowledge, but google and wikipedia suggest that i) the only argument about BN66 is whether it applies retrospectively, and ii) EBTs don't work any more. Both of these illustrate that tax avoidance strategies are short lived. This sort of uncertainty is definitely not something I want to expose myself to for 2k, but at this point I am really not sure if I correctly understand the tradeoff involved. The greedy part of me wonders if a tiny 2k advantage really is enough to sustain that many advertisers.


    Originally posted by SueEllen View Post
    The simplest ways of not having sleepless nights is to pay your tax in the UK if you are a resident here and work here.
    True, and as you might tell from the tone of my article, my philosophy is rather close to that point of view. Basically, I just want to make sure that the peace of mind really costs me just a few k pa.

    Originally posted by SueEllen View Post
    You will probably get one or two employees from people who offer new schemes jumping in this thread as well, but I advise you to read the threads I've mentioned.
    They are most welcome if they are able to explain what they can do for me, and especially if they notice a flaw in the calculation. The way I see it, the absolute maximum of the assumed 100k anyone could keep is £69990 because that is what is left after income tax. So any claim that it is possible to retain more than that is probably dubious.

    However, I now see I might be wrong about dividends being taxed the same as income; the HMRC site says something about a 32.5% dividend upper rate, but then maybe someone would have already pointed that out if it means that dividends really are taxed less than income (I notice there is another reply that suggests this is not the case)?

    Comment


      #12
      Originally posted by ASB View Post
      As a director you do not have to pay NMW. Also employers national insurance seems to have been omitted.
      Many thanks for that. I don't need to use up the personal allowance, so that leaves me an extra £600 odd better off going down the dividend route (but at under £3k the difference is still not worth worrying about).

      Comment


        #13
        Originally posted by geoff from contracta IOM View Post
        The difference between my scheme and using a Ltd Co. is usually about 15 - 20% of contract value, if you are in the position to make generous contributions to your pension through your Ltd. Co. then you can probably achieve approaching this percentage retention in this way.
        Many thanks. Is this in any way specific to being a contractor, or does it also work for anyone in normal employment?

        Comment


          #14
          Originally posted by acitizen View Post
          Many thanks for that. I don't need to use up the personal allowance, so that leaves me an extra £600 odd better off going down the dividend route (but at under £3k the difference is still not worth worrying about).
          The actual difference in available funds between Ltd. Co. and the scheme I represent would be a minimum of 16K on 100K per year it is this large benefit that attracts our clients, we have some clients on 300K PA so the difference to them is about 55K in available funds

          Comment


            #15
            Originally posted by acitizen View Post
            Many thanks. Is this in any way specific to being a contractor, or does it also work for anyone in normal employment?
            It is available to anyone who works through their own Ltd. Co. and if you can load your pension this sounds like your best option
            Last edited by geoff from contracta IOM; 5 September 2011, 08:59.

            Comment


              #16
              Simplisticly (Check rates on HMRC):-

              For a higher rate taxpayer as salary money is this band is as follows:-

              10,000
              1213 Er NI
              8787 Gross Salary

              40% tax, 2% EE Ni 3691

              Net payment = 5096

              The 10,000 is deductible for CT
              -------------------------

              Pay as a dividend

              10,000
              2,000 CT

              8,000 post tax dividend = 8888.88 including 10% tax credit * 32.5% - 888.88 tax credit
              2,000 personal tax to pay = 6000 retained (i.e. the tax rate on the divi is unsurprisingly an effective 40%).

              As I said previously, don't think tax. Think NI.

              Comment


                #17
                Originally posted by geoff from contracta IOM View Post
                I would have to say Mal if any provider claims that they know how long it will be until the gap is closed they are either a fortune teller or fibbing, I think we would all be aware that the issue will be dealt with we just don't know when but until the law is changed it is still a viable option, subject to the usual cautions.
                I don't disagree actually, I'm on record as saying that if HMRC want to close things down they need to do it through properly consulted legislation, which takes time. That said, as we have seen with EBTs, they will be certain to announce the new legislation at the same time as they announce anti-forestalling legislation so any changes can be backdated to the time of the announcement. New parliamentary session stats soon, so expect something to be said in the next month or three.

                But the real point is that it has a significant impact on your potential clients' risk assessment. It's not beyond the bounds of possibility that someone starts off today quite happily but finds out that in a month or two the scheme isn't going to work: or will work, but will be taxed at normal personal rates which rather spoils the benefit.

                I still say the best long-term solution is your own UK Ltd Co. Others may disagree. Tant pis...
                Blog? What blog...?

                Comment


                  #18
                  The intention is abundantly clear and therefore the risk is significantly higher with the introduction of the disguised remuneration legislation:

                  Spotlight 12: Taxing the rewards for work carried out for a UK based employer (23 August 2011)
                  HMRC are aware that new tax avoidance schemes that seek to avoid Income Tax and National Insurance contributions (NICs) are being advertised to contractors, highly paid employees and those using recruitment agencies. It is claimed that these schemes get around new disguised remuneration rules.

                  Arrangements may involve payments passing through a series of companies, loans from a third party or an offshore alleged employer, a deed of covenant, secondments from one employer company to another or claims of self employment, etc. In HMRC’s opinion these arrangements do not succeed in avoiding the tax and NICs due. HMRC will challenge these arrangements and litigate where necessary to recover unpaid tax and NICs.

                  Current legislation ensures that rewards and recognition from working for UK-based businesses are charged appropriately to UK Income Tax and NICs. This legislation applies whether the rewards are routed through employee benefit trusts, employer funded retirement benefit schemes or through any other intermediaries, either as loans, transfers of assets or other payments. The legislation will also apply to such third party arrangements where an employment is disguised as self employment or a contractual arrangement.

                  Those intent on avoiding Income Tax and NICs by using trust arrangements should also be aware that there could be adverse Inheritance Tax (IHT) and trust tax consequences regardless of whether they themselves set up the trust. These include IHT charges when contributions are made to the trust, when funds are transferred from a trust to a sub-trust or removed from the sub-trust, when uncommercial loans are made by the trustees and at the ten year anniversary of the trust.
                  Connect with me on LinkedIn

                  Follow us on Twitter.

                  ContractorUK Best Forum Advisor 2015

                  Comment


                    #19
                    Originally posted by LisaContractorUmbrella View Post
                    The intention is abundantly clear and therefore the risk is significantly higher with the introduction of the disguised remuneration legislation:

                    Spotlight 12: Taxing the rewards for work carried out for a UK based employer (23 August 2011)
                    HMRC are aware that new tax avoidance schemes that seek to avoid Income Tax and National Insurance contributions (NICs) are being advertised to contractors, highly paid employees and those using recruitment agencies. It is claimed that these schemes get around new disguised remuneration rules.

                    Arrangements may involve payments passing through a series of companies, loans from a third party or an offshore alleged employer, a deed of covenant, secondments from one employer company to another or claims of self employment, etc. In HMRC’s opinion these arrangements do not succeed in avoiding the tax and NICs due. HMRC will challenge these arrangements and litigate where necessary to recover unpaid tax and NICs.

                    Current legislation ensures that rewards and recognition from working for UK-based businesses are charged appropriately to UK Income Tax and NICs. This legislation applies whether the rewards are routed through employee benefit trusts, employer funded retirement benefit schemes or through any other intermediaries, either as loans, transfers of assets or other payments. The legislation will also apply to such third party arrangements where an employment is disguised as self employment or a contractual arrangement.

                    Those intent on avoiding Income Tax and NICs by using trust arrangements should also be aware that there could be adverse Inheritance Tax (IHT) and trust tax consequences regardless of whether they themselves set up the trust. These include IHT charges when contributions are made to the trust, when funds are transferred from a trust to a sub-trust or removed from the sub-trust, when uncommercial loans are made by the trustees and at the ten year anniversary of the trust.
                    Hi Lisa, they can say the sun is going to fall out of the sky but until they have it on the statute books what they say is irrevelant, it is what is legal that counts. I've mentioned it before, if HMRC are corrrect in THEIR assesment why are the majority of QC's and CTA's saying something different everyone is looking at the same laws ?
                    Last edited by geoff from contracta IOM; 5 September 2011, 09:22.

                    Comment


                      #20
                      Originally posted by geoff from contracta IOM View Post
                      Hi Lisa, they can say the sun is going to fall out of the sky but until they have it on the statute books what they say is irrevelant, it is what is legal that counts. I've mentioned it before, if HMRC are corrrect in THEIR assesment why are the majority of QC's and CTA's saying something different everyone is looking at the same laws ?
                      Because they're saying it to people who are paying them to say it? If there is any doubt at all, of course they will favour the interpretation their client wants to hear, that way they get repeat business and protect their backs. It's only if there is no ambiguity at all that they will say no.

                      At the end of the day, it's only an opinion, it has no existence in law until it is challenged in court and found to be correct or not. At which point all previous opinions will be rapidly withdrawn or re-stated.

                      HTH
                      Blog? What blog...?

                      Comment

                      Working...
                      X