I always knew we were right....

[malvolio]

You should be IR35 caught - if not by the letter of the tax law then by the spirit. But you are evading (I mean evading not avoiding) IR35 by hiding behind a loophole.

Rubbish. In fact, so rubbish it's not worthy of a response.

[normalbloke]

Aaah, the old chestnut. You are all doing it so what was wrong in us doing it.

I am surprised that another of your favourite, the speed limit thingummy, hasnt popped up yet to justify your theft.

As Mal pointed out clearly in the earlier posts, governments provide tax breaks to encourage certain enterprises or individuals and the so called scheme providers try to exploit this by claiming that its legal. Where it falls flat is in proving to a judge that you were legal as well as compliant. If a musician is offered 100% tax break to encourage music production, and your dodgy scheme provider sets up fake music company and labels you as a musician to enable you to pay 0% tax, its legal but you are not compliant because you havent got a clue what music is. So have fun proving in court that you did the right thing. I am glad that the judges have used common sense here and realised that this was nothing but blatant tax loophole exploitation.

"I am glad that the judges have used common sense here and realised that this was nothing but blatant tax loophole exploitation"

Point of information. The 'loophole' in question has never been judged in court.

You (along with many others) are confusing the Judicial Review concerning the retrospective legislation with the actual law in question.

As far as I am aware, blatant tax loophole exploitation is not illegal. 'Loophole' is a key word there. If its challenged then let the courts decide. They didn't in the S58 case - they changed the law. Retrospectively.

[eek]

Agreed that tax avoidance is legal. Scheme users would agree. May not be 'right' of course, but its legal.

".. no government has tried to change the rules since .." For since substitute 'yet'. Doesn't mean they won't have another go though.

And whilst Malvolio seems to have a robust business model, I bet 90% of the contractors on this forum don't have anything resembling that. And I bet their spouses don't share any risk in their business either.

The real question becomes what is an artificial construct for tax avoidance purposes. Oh and before you suggest Personal Service Limited Companies are tax avoidance schemes, they are not most people have to use them due to the Agencies Act 1979.

[AtW]

However, what about using a Ltd Company where the only purpose is to minimize tax? That is tax avoidance, right?

Ltd is a commonly accepted and expected way of doing business - it provides meaningful protection to shareholders unlike other structures like non-limited partnerships, also gives more cred than being a sole trader (even if that's just a perception). Also AFAIK being a director limits ability to claim benefits later (perhaps that's changed).

So there are good reasons to use Ltd in this country - corp tax still needs to be paid, so only NICs on dividends that are not paid, but that's how the Parliament intended it - nothing is avoided here.

Now paying oneself minimum wage (avoiding NICs this way) and take all as dividends is questionable in my view. So is paying your wife salary for work she does not do in order to split income (if you ask my view I think UK should be taxing based on household income like in France, in which case such shifting would be unnecessary in the first place).

Ltds is not a major problem for HMRC because most of taxes still need to be paid - it's the people who cut down tax rate to near 0 are the problem.

[porrker]

I have to say some of the comments on here are shocking and show how ill-informed some people truly are......

I really suggest some people have a read of some elements of the Finance Act. Then come back and talk about the schemes being illegal as some clauses are very specific and unequivocal.

Very few schemes get closed down due to them being illegal because they are not! Schemes change due to updates in legislation as we saw in 2010 with EBT's (Montpellier being a very different set of circumstances). They get closed due to scheme users be challenged under Disguised Renumeration as I expect the current crop of EBT challenges will show and that is only because those schemes used a DOTAS reference number. Few schemes today fall under the DOTAS regime.

I also find it a total contradiction that Ltd Co. users talk about reaching 80% retention that seems fairly aggressive to me and I suspect for all the bluster most really fall under IR35 as HMRC really intended it. Oh there is a certain parallel here.... And please stop going on about running a business it's actually funny now!

As for the original post I think HMRC advice is good sound advice.

[AtW]

Most contractors could use a simple PAYE umbrella, so how many genuinely choose Ltd for business/commercial purposes as opposed to reducing tax? Not many that I know.

There are other reasons why Ltd is better - Umbrella can go down and take your money with them.

Why take extra risk and costs with the middleman? So makes sense to have Ltd. Any further tax benefits are linked to Ltd as the Parliament intended.

On the other hand the Parliament clearly NEVER intended for UK residents working in UK for UK companies channel money offshore and pay near 0% tax anywhere. In fact it's easy to argue that the Parliament had CLEAR intention NOT to allow such things in the first place.

[AtW]

What is the commercial purpose for taking dividends? You could draw 100% salary and pay full employers NIC and tax.

It helps establish value for shares - a company that pays 100% as salary to the people who work in it is almost worthless, but company that pays dividends can be viewed is a real business.

[BrilloPad]

There are other reasons why Ltd is better - Umbrella can go down and take your money with them.

Why take extra risk and costs with the middleman? So makes sense to have Ltd. Any further tax benefits are linked to Ltd as the Parliament intended.

On the other hand the Parliament clearly NEVER intended for UK residents working in UK for UK companies channel money offshore and pay near 0% tax anywhere. In fact it's easy to argue that the Parliament had CLEAR intention NOT to allow such things in the first place.

Parliament never intended for Malvolio(or the vast majority of contractors) to evade IR35.

Once you argue that the spirit of the law rathwer than the letter of the law should be upheld then you are on very thin ground. HMRc should have closed the loophole in 2001 when they became aware of it. And retrospective legislate marks the UK as a 3rd world country.

[AtW]

I don't let my money out of my control either. In fact I made it more controllable. Fat lot of good it did me.

You should not have tried to screw HMRC, that's the bit where you went wrong.

[BrilloPad]

It helps establish value for shares - a company that pays 100% as salary to the people who work in it is almost worthless, but company that pays dividends can be viewed is a real business.

So the city analysts have been getting it wrong on FTSE companies all these years have they?