How safe are high returns when using a Ltd Co?

[Greg@CapitalCity]

Apparently this type of return is not unreasonable, perfectly compliant and "unchallengeable".

This sits uncomfortably with me. There are so many factors that influence this, I don't think you can say this applies with a broad brush for all.

Surely though, if the Revenue are able to apply retrospective legislation to Tax Schemes, they could also apply retrospective legislation to Ltd Co regulations (or even Umbrella regulations) leaving everyone open to uncertainty, whatever method of recieving payment someone uses?

So lets look at this;
(a) Offshore scheme involving loan payments. If caught on the wrong side of HMRC, loans to be treated as income, and taxed as such. Yes, this creates an enormous amount of uncertainty for contractors using schemes such as these - and it also helps explain why not many contractors go for this sort of thing;
(b) Limited companies - If caught on the wrong side of HMRC, dividends to be treated as 'deemed payments' ala IR35 (I know that is not quite how it works, but the analogy is close enough). The legislation already exists for this - there is no need to apply any retrospective legislation. The risks here are well known, and have been tested numerous times now in the courts;
(c) Umbrella companies - If caught on the wrong side of HMRC, ummm, well nothing really. Income through Umbrellas is taxed as...income. I guess there could be an attack on the use of expense dispensations, but again the legislation already exists for this, and the risks involved with 'cooking' your expense claims are well known. So I would argue there is not a great deal of uncertainty here either.

So to be fair Subsignal, I am not too sure what your main point is here.

[cojak]

Are you selling something yourself Subsignal?

[Subsignal]

Are you selling something yourself Subsignal?

No - not selling anything.

Just playing devil's advocate really.

I understand that schemes are percieved as more risky but it always seems to me as if some of the arguments against schemes could be applied to Ltd Companies ie retrospective legislation and the use of "loopholes" ( and by "loopholes" surely that means "complying with the existing legislation"). I worry that Ltd Companies for contractors aren't as safe as some here would make out!

[northernladuk]

No - not selling anything.

Just playing devil's advocate really.

I understand that schemes are percieved as more risky but it always seems to me as if some of the arguments against schemes could be applied to Ltd Companies ie retrospective legislation and the use of "loopholes" ( and by "loopholes" surely that means "complying with the existing legislation"). I worry that Ltd Companies for contractors aren't as safe as some here would make out!

You are right to worry to a certain extent. This means you will probably spend time mitigating the risk, something a majority of 'contractor's don't do. We have a pretty clear picture of what we need to do to be safe and what to do/not and just needs some time and effort. If you have a good knowledge of IR35 and can get your working conditions and contract outside your risk is tiny. The actual rules around how a LTD works is pretty black and white. Get a good accountant and you got most of it covered. Most of everything I have covered has been proven in court numerous times. It's not like we don't know the situation.

If you are still worrying you need to go Umbrella. Life is too short to worry about factors with such a low risk if you do it right.

[simondolan]

No - not selling anything.

Just playing devil's advocate really.

I understand that schemes are percieved as more risky but it always seems to me as if some of the arguments against schemes could be applied to Ltd Companies ie retrospective legislation and the use of "loopholes" ( and by "loopholes" surely that means "complying with the existing legislation"). I worry that Ltd Companies for contractors aren't as safe as some here would make out!

Its not a question of being "safe" or indeed having "high" returns. Contractors are not permies who have cooked up some complex tax avoidance scheme. The contractor market exists because of the project basis of the roles - by definition they are not permanent. A retrospective, fundamental change in tax legislation on Ltd Companies would affect millions of people and undermine the entire basis of taxation. There is more chance of the country becoming communist. (Granted we are half way there already!)

[BenDover]

Although I am new to the site I have read it for about 3 years so pretty much know who is who etc.

Personally I run through my Ltd co, not so many expenses but my return seems acceptable I suppose. I have heard and know of people that use schemes but have never actually taken the step to call or investigate any further. I can only comment on what I am told by colleagues that use them and that is, they always seem happy with their high returns and the people they operate through . When you ask them about retrospective changes to legislation they just shrug their shoulders and tell me that "The law is the law" now I am no legal expert but do you not think they have a point to some degree?

If HMR&C are seen to recover monies by the use of retrospective changes does this not open the door for others to do the same? e.g. The police could then retrospectively change a 30mph to a 20mph and further penalise any motorist that paid a fine for driving at 40mph? Maybe a bad example but I guess you will get what I mean.

I always feel guilty when claiming an expense that has not been for business use but I do it anyway as I know it will reduce my tax bill, do we not all do that?

It is my opinion that if HMR&C do start to progress and succeed in the use of retrospective legislation then they will continue to wipe the floor with everyone until we are all working through PAYE thus giving them at least half our earnings!!

[LisaContractorUmbrella]

Although I am new to the site I have read it for about 3 years so pretty much know who is who etc.

Personally I run through my Ltd co, not so many expenses but my return seems acceptable I suppose. I have heard and know of people that use schemes but have never actually taken the step to call or investigate any further. I can only comment on what I am told by colleagues that use them and that is, they always seem happy with their high returns and the people they operate through . When you ask them about retrospective changes to legislation they just shrug their shoulders and tell me that "The law is the law" now I am no legal expert but do you not think they have a point to some degree?

If HMR&C are seen to recover monies by the use of retrospective changes does this not open the door for others to do the same? e.g. The police could then retrospectively change a 30mph to a 20mph and further penalise any motorist that paid a fine for driving at 40mph? Maybe a bad example but I guess you will get what I mean.

I always feel guilty when claiming an expense that has not been for business use but I do it anyway as I know it will reduce my tax bill, do we not all do that?

It is my opinion that if HMR&C do start to progress and succeed in the use of retrospective legislation then they will continue to wipe the floor with everyone until we are all working through PAYE thus giving them at least half our earnings!!

The law is the law and HMR&C are HMR&C

[BenDover]

The law is the law and HMR&C are HMR&C

Not quite sure what you mean by that Lisa, are you saying that HMR&C are above the law?

If this is the case then what chance do any of us stand!

[LisaContractorUmbrella]

Not quite sure what you mean by that Lisa, are you saying that HMR&C are above the law?

If this is the case then what chance do any of us stand!

You may think that Ben, I couldn't possibly comment

[BenDover]

You may think that Ben, I couldn't possibly comment

Lisa, I don't think that and I would like to believe that nobody is above the law. You made the statement that "The law is the law and HMR&C are HMR&C", I ask you if that is what you think and you say you can't comment?

Oh well, never mind.