Commercial Loan Schemes

[DownButNotOut]

Dear All

Your thoughts please on the following scheme.

I been approached by ****

They are offering the following scheme and quoting the usual 85% return. Has anybody else been offered this or is currently working under this particular scheme?

"**** offers pioneering and market-leading new contractor tax solution, designed to meet the needs of successful contractors and consultants in the UK. Our umbrella company alternative offers consultants and contractors a remuneration package that is not only fully compliant with HMRC tax legislation and current employment legislation, but also uses that same legislation to significantly increase the gross-to-net ratio of our contractors’ take home pay. Hundreds of consultants and contractors have already signed on with ****. It doesn’t matter if you’re currently working under a Limited or Umbrella Company structure, **** can help you maximise your earnings

As I explained the commercial loan is a loan between the Employer and the Employee. The loan does not appear in the public domain and is not credit scored. It is essentially a private loan between you and ****.

This is a commercial loan and as such it carries a loan term and an interest rate is applied to the loan. The interest is applied at the end of the loan term and is not payable during the term of the loan. The loan term is 10 years and at the end of the 10 years you have the option to request for the loan be rolled for a further 10 years. There’s no limitation on how many times you can request to extend the term of the loan. Because this is a commercial loan, the funds are not taxable so no additional taxes or charges will apply to these funds at all, and you do not have to include it on your tax return.

The way the solution works is that you become an employee of **** consulting which exempts you from the IR35 legislation.

There are 2 elements that make up your remuneration:

1. The 1st portion is a payment which is not classed as income or revenue and is therefore non-taxable. This payment is generally sent on the first Friday of every month.

2 You will receive a salary portion (approximately 15% of the gross contract value) which is where you’re PAYE & NI is deducted meaning you are fully compliant with current legislation. You will receive the salary on 25th of every month."


If your not declaring this on your tax return isn't this tax evasion rather then avoidance?

[malvolio]

If your not declaring this on your tax return isn't this tax evasion rather then avoidance?

Yes. Walk away. Quickly.

HTH

[xing]

Another risk is that the scheme provider may ask you to repay the "loan" at some point. They can potentially keep 85% of your earning!

[prozak]

There are 2 elements that make up your remuneration:

1. The 1st portion is a payment which is not classed as income or revenue and is therefore non-taxable. This payment is generally sent on the first Friday of every month.

2 You will receive a salary portion (approximately 15% of the gross contract value) which is where you’re PAYE & NI is deducted meaning you are fully compliant with current legislation. You will receive the salary on 25th of every month."


If your not declaring this on your tax return isn't this tax evasion rather then avoidance?

No this is not Evasion. It is agressive avoidance.

The point number 1 above is your loan.

Walk away regardless. What the scheme providers never tell you is that the risk if it goes wrong is all yours. The scheme has to be worth the risk. Quite frankly 85% isn't a good enough return to take on that risk.

[BlasterBates]

What happens if the company ceases to trade or becomes insolvent?

Since this is a commercial loan I can see that whoever takes over the loan as an asset wouldn't necessarily be obliged to extend it. In other words you could end up being forced to pay the loan back.

I wouldn't touch this with a barge pole. Paying tax is painful, but handing over your money to someonelse not to pay it is taking things too far.