breeze

[ChimpMaster]

This has turned into a rather interesting discussion, and thanks to Phil for coming in and answering questions. I must say I know a fair number of contractors who were using schemes that moved into commercial loans, after HMRC starting clamping down on other 'offerings'. So perhaps it does work.

Personally though, I don't see the point for 84% retention. This must mean that something like 10% of your earnings are paid as a fee to Breeze. Play your cards right with a Ltd Co and you could retain close to 80% anyway, so in my view it's just not work the potential risk or hassle for an extra 4 or 5 %.

Edit: oh and it's still technically a loan, right?

[LisaContractorUmbrella]

Spotlights
Introduction
'Spotlights' is all about tax avoidance.

It has a 'consumer protection' role in helping you to avoid unwittingly entering into arrangements that HM Revenue & Customs (HMRC) are likely to see as tax avoidance. It does this by identifying the types of arrangements or scheme which HMRC are likely to challenge. HMRC will do this both by providing you with some help to understand how they distinguish between artificial avoidance schemes and ordinary sensible tax planning and by describing specific schemes. Where HMRC think there may be particular drawbacks to a scheme that might not otherwise be obvious, including the fact that other taxpayers are no longer pursuing their arguments on an avoidance scheme, HMRC will tell you.

In Spotlights HMRC will:

Provide some advice on tax planning to be wary of, listing some indicators that HMRC see as suggesting that a scheme may involve tax avoidance and which it is likely to investigate.
Identify specific schemes which, in HMRC's view, are not likely to deliver the tax savings advertised. Where HMRC see such schemes being used, subject to the particular facts, they will make a challenge and seek to ensure full payment of the right tax with the right due date.
Set out below are a number of indicators of tax planning to be wary of. The inclusion of one of these features does not necessarily mean that tax avoidance is involved, but the more of these features that are present, the more likely it is that HMRC would see the arrangements as tax avoidance and challenge your Self Assessment. If you have doubts about a scheme then you should check with a reputable tax adviser.

Tax planning to be wary of:

It sounds too good to be true.
Artificial or contrived arrangements are involved.
It seems very complex given what you want to do.
There are guaranteed returns with apparently no risk.
There are secrecy or confidentiality agreements.
Upfront fees are payable or the arrangement is on a no win/no fee basis.
The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
The scheme is said to be approved by HMRC (it does not follow that this is true).
Taxation of income is delayed or tax deductions accelerated.
Tax benefits are disproportionate to the commercial activity.
Offshore companies or trusts are involved for no sound commercial reason.
The involvement of professional trustees is claimed to guarantee that the arrangements succeed.
A tax haven or banking secrecy country is involved without any sound commercial reason.
Tax exempt entities, such as pension funds, are involved inappropriately.
It contains exit arrangements designed to sidestep tax consequences.
It involves money going in a circle back to where it started.
Low risk loans to be paid off by future earnings are involved.
The scheme promoter lends the funding needed.
There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits.

Particular schemes
The schemes featured in Spotlights are generally those which HMRC consider have the widest implications and about which there is the greatest need to warn potential users. They will often be schemes that have been disclosed to HMRC and have been given a Scheme Reference Number (SRN). Please note that the issue of a SRN does not mean either that HMRC 'approves' the scheme or that HMRC accept that the scheme achieves its intended tax advantage. These articles are limited exceptions to the usual rule that HMRC do not comment on tax avoidance. No further comment will be made. Only a minority of schemes will appear in Spotlights. In particular, HMRC will not include schemes aimed at very specialised areas, with a limited scope or where HMRC estimate not much tax loss is involved. A scheme that has not featured in Spotlights may still be challenged. You may wish to consider it in the light of the advice above on 'tax planning to be wary of' and consult a reputable tax adviser.

Contents
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

[dezze]

Our insurance cannot cover tax liabilities, this would be non-compliant with MSC legislation, however as stated previously the fee reimursement leaves our clients with 100% of their money and the tax bill they would have had anyway, so the "risk free" claim is justified IMO?

Please correct me if I'm wrong, but the problem with your last statement is that people have a tendency to spend the money they receive. Therefore if HMRC did successfully challenge this scheme, you would return any fees you took but the scheme user would have to pay to HMRC any monies owed. I assume HMRC would tax the user as an employee with full tax and NI?

Sorry, IMO I think the claim 'risk free' is not justified as on first viewing, my understanding was that it covered all potential liabilities in the event of the scheme being challenged. Others may have a different view?

[speling bee]

Please correct me if I'm wrong, but the problem with your last statement is that people have a tendency to spend the money they receive. Therefore if HMRC did successfully challenge this scheme, you would return any fees you took but the scheme user would have to pay to HMRC any monies owed. I assume HMRC would tax the user as an employee with full tax and NI?

Sorry, IMO I think the claim 'risk free' is not justified as on first viewing, my understanding was that it covered all potential liabilities in the event of the scheme being challenged. Others may have a different view?

And is it 8% interest now?

[speling bee]

And is it 8% interest now?

I think that's enough for an ASA complaint. Will keep you all updated.

[PhilBreeze]

Good morning Lisa. A lot there to cover but cutting to one of the more important points:

The legislation will also apply to such third party arrangements where an employment is disguised as self employment or a contractual arrangement.

There are several providers out there offering self-employed solutions to contractors, claiming they are Finance Act 2011 compliant. "FA2011 only applies to employees" is their logic, however they seem to have overlooked the fact that self-employment is not a choice, as most contractors will be aware, your employment status is derived from an inherently complex set of criteria itself derived from years of employment and tax tribunal decisions.

In other words, you can only set yourself up as self-employed if you are "outside IR35", and most contractors can't hand-on-heart claim to be 100% certain of their of their employment status..

These self-employed trust solutions seem to get around Finance Act 2011 but consider what happens if HMRC investigate your self-employed status and determine you're actually a deemed employee of your client? Suddenly your only defense against FA2011 has disintegrated and HMRC can potentially apply the legislation to your newfound "deemed employment"..

This is my interpretation of HMRC's intent above and indeed they wouldn't even need new legislation to act, just a bunch of contractors they are confident will fail an employment status review.

I would only use one of the self-employed structures if I was 100% certain of self-employed status, and I'm surprised how frequently this key criterion is being overlooked by the promoters offering them. I've mystery shopped some of them and asked the direct question and been told it doesn't really matter....

As for the rest, I've got two House of Lords decisions in favour of our product that I reckon trump your vague loosely targeted HMRC propaganda.. however if you know of any actual legislation or case law that our product does not comply with, I would be interested (staggered) to hear it back to you...

[speling bee]

Good morning Lisa. A lot there to cover but cutting to one of the more important points:



There are several providers out there offering self-employed solutions to contractors, claiming they are Finance Act 2011 compliant. "FA2011 only applies to employees" is their logic, however they seem to have overlooked the fact that self-employment is not a choice, as most contractors will be aware, your employment status is derived from an inherently complex set of criteria itself derived from years of employment and tax tribunal decisions.

In other words, you can only set yourself up as self-employed if you are "outside IR35", and most contractors can't hand-on-heart claim to be 100% certain of their of their employment status..

These self-employed trust solutions seem to get around Finance Act 2011 but consider what happens if HMRC investigate your self-employed status and determine you're actually a deemed employee of your client? Suddenly your only defense against FA2011 has disintegrated and HMRC can potentially apply the legislation to your newfound "deemed employment"..

This is my interpretation of HMRC's intent above and indeed they wouldn't even need new legislation to act, just a bunch of contractors they are confident will fail an employment status review.

I would only use one of the self-employed structures if I was 100% certain of self-employed status, and I'm surprised how frequently this key criterion is being overlooked by the promoters offering them. I've mystery shopped some of them and asked the direct question and been told it doesn't really matter....

As for the rest, I've got two House of Lords decisions in favour of our product that I reckon trump your vague loosely targeted HMRC propaganda.. however if you know of any actual legislation or case law that our product does not comply with, I would be interested (staggered) to hear it back to you...

Linky for House of Lords decisions please?

[administrator]

Just in case no-one spots it, Mark from Breeze has responded here:
http://forums.contractoruk.com/accou...ml#post1594380

[LisaContractorUmbrella]

Linky for House of Lords decisions please?

X2 please

[PhilBreeze]

Please correct me if I'm wrong, but the problem with your last statement is that people have a tendency to spend the money they receive. Therefore if HMRC did successfully challenge this scheme, you would return any fees you took but the scheme user would have to pay to HMRC any monies owed. I assume HMRC would tax the user as an employee with full tax and NI?

Sorry, IMO I think the claim 'risk free' is not justified as on first viewing, my understanding was that it covered all potential liabilities in the event of the scheme being challenged. Others may have a different view?

The insurances are there for peace of mind more than anything else - the great thing about trusts is they are governed by a written deed that can be amended to take changes in legislation into account. We never expect our clients to need the insurance - we wouldn't have much faith in our product if we did - but it does provide a lot of people with comfort, and not everyone has the time or inclination to go through legal due diligence on the product. The fact that someone at Lloyd's has, and then agreed to underwrite it, says something in of itself.

Of course if one were being prudent they would retain any funds over and above their original liability in a high interest savings account, under the floorboards or do something else with it other than spending it* however the same argument holds true for IR35 with which the returns are lower and the risk can be much higher dependent on the terms of your contract.

In the ultra hypothetical situation where HMRC are applying additional tax, they would be required to calculate this in line with your employment status & expenses. It wouldn't usually mean full employed tax & NICs.

* Disclaimer - example purposes only, not to be construed as financial advice