UMBRELLAS- Anyone heard of AML ?

[malvolio]

They are compliant if they issue you with all the relevant documents P60 and P11. This means if they
declare all your earnings and deductions to HMRC they are compliant.
If they do not then they are non compliant .

But only assuming that they correctly declare all your UK earnings. The leeway is between tax paid elsewhere that can be offset against UK-owed taxes under DTT agreements (which can be rescinded, of course). Or, if a loan-based scheme, HMRC would probably consider that you were benefitting from the use of the cash hence it is not a loan but earned income. Being compliant does not necessarily mean someone is telling all of the truth. Those gaps are where the baristers earn their money.

There are many and various wrinkles and workarounds. Be very sure you understand all of them.

[Jet Setter]

But only assuming that they correctly declare all your UK earnings. The leeway is between tax paid elsewhere that can be offset against UK-owed taxes under DTT agreements (which can be rescinded, of course). Or, if a loan-based scheme, HMRC would probably consider that you were benefitting from the use of the cash hence it is not a loan but earned income. Being compliant does not necessarily mean someone is telling all of the truth. Those gaps are where the baristers earn their money.

There are many and various wrinkles and workarounds. Be very sure you understand all of them.

I'm not sure that benefitting from the cash would mean that loans are reclassified as income. When I take a loan from a bank I benefit when I buy a house, does that mean it's no longer a loan? The validity of loans has been tested a couple of times and HRMC have been unsuccessful. It's likely that they'll be legislated against next year but until then, I'm happy to keep using a loan structure.

Brussels Slumdog's definition was closer to the mark.

Most people bagging these arrangement don't understand how they work. I did my homework and was satisfied but obviously it's not for everyone. I don't use AML by the way so I can't comment on how they do things, whether they issue a p11d or not, but I can say the company I use do.

[malvolio]

I'm not sure that benefitting from the cash would mean that loans are reclassified as income. When I take a loan from a bank I benefit when I buy a house, does that mean it's no longer a loan? The validity of loans has been tested a couple of times and HRMC have been unsuccessful. It's likely that they'll be legislated against next year but until then, I'm happy to keep using a loan structure.

Two points:

As soon as HMRC deduce that the loan is not going to be repaid, they could treat it as income; loans and mortgages are very clearly meant to be repaid at some finite point; an enduring, automagically recurring loan isn't.

Also, with all due respect, you ain't dead yet (or if you are you've worked out how to post from the Other Place ) and there have been instances where HMRC has taken the tax owed from the accrued benefit of a loan arrangement out of the loanee's final estate.

As for next year, from memory the plans are in place to turn off non-repayable loans. Just pray they don't work out a way to make that retrospective and come after you for the last six years' benefits... Anyway, as I've said before, people in such schemes already probably have a reasonable defence. I would really not recommend anyone starting one up in the face of the impending clampdowns on loans and EBTs though. That would be asking for trouble.

[Jet Setter]

Two points:

As soon as HMRC deduce that the loan is not going to be repaid, they could treat it as income; loans and mortgages are very clearly meant to be repaid at some finite point; an enduring, automagically recurring loan isn't.

Also, with all due respect, you ain't dead yet (or if you are you've worked out how to post from the Other Place ) and there have been instances where HMRC has taken the tax owed from the accrued benefit of a loan arrangement out of the loanee's final estate.

As for next year, from memory the plans are in place to turn off non-repayable loans. Just pray they don't work out a way to make that retrospective and come after you for the last six years' benefits... Anyway, as I've said before, people in such schemes already probably have a reasonable defence. I would really not recommend anyone starting one up in the face of the impending clampdowns on loans and EBTs though. That would be asking for trouble.

Valid points indeed Malvolio.

I've assessed my risk and I'm comfortable with it. The problem that I have is when people slate these arrangements with spurious arguments.

I doubt they will be able to go retrospective given Special Commissioners has found loans should be taxed as loans in both Dextra and Sempra Metals. There is no Padmore to go back to, like in the case of BN66. I don't agree with that either, but that's the rationale that the government used to go 'retrospective' in this case.

These structures, so long as they are well run can work. Some of the points that Lisa from Contractor Umbrella makes show that she's never done the research to understand how they work. I know they're not for everyone, but equally (as you often do Malvolio), people need to get their facts straight.

I've enjoyed the upside of this type of structure for a number of years and I acknowledge that I will also wear the downside if there is one. I just happen to be comfortable that other than not being able to continue with the arrangement, there shouldn't be one.

[Green]

What if these loans are asked to be repaid?

[Vallah]

Valid points indeed Malvolio.

I've assessed my risk and I'm comfortable with it. The problem that I have is when people slate these arrangements with spurious arguments.

I doubt they will be able to go retrospective given Special Commissioners has found loans should be taxed as loans in both Dextra and Sempra Metals. There is no Padmore to go back to, like in the case of BN66. I don't agree with that either, but that's the rationale that the government used to go 'retrospective' in this case.

These structures, so long as they are well run can work. Some of the points that Lisa from Contractor Umbrella makes show that she's never done the research to understand how they work. I know they're not for everyone, but equally (as you often do Malvolio), people need to get their facts straight.

I've enjoyed the upside of this type of structure for a number of years and I acknowledge that I will also wear the downside if there is one. I just happen to be comfortable that other than not being able to continue with the arrangement, there shouldn't be one.

At last, somebody with a bit of balance when it comes to EBT schemes.

In answer to Lisa's post on the previous page: my company's EBT scheme pays a basic salary and the rest as loans as from an EBT. UK tax is paid on the salary, and UK tax is paid on the BIK arising from the loan. All necessary forms (P60s, P11Ds etc) are submitted.

Look forward to the kind offer of free advertising on your site!

[Vallah]

What if these loans are asked to be repaid?

Who is going to recall them and why?

[LisaContractorUmbrella]

At last, somebody with a bit of balance when it comes to EBT schemes.

In answer to Lisa's post on the previous page: my company's EBT scheme pays a basic salary and the rest as loans as from an EBT. UK tax is paid on the salary, and UK tax is paid on the BIK arising from the loan. All necessary forms (P60s, P11Ds etc) are submitted.

Look forward to the kind offer of free advertising on your site!

With regard to your assumption that I have no researched the umbrella company alternatives - do you not think that as the Managing Director of an umbrella company it is not in my interest to research the competition thoroughly? And as a business woman do you not think I would have made the investment in an EBT scheme if I thought it was a safe and sound investment?

If your company's intention is that the loan will never be repayable then it will be classified as an avoidance scheme by HMR&C:

BIM44535 - Specific deductions: Employee benefit trusts: general purpose EBTs
In this guidance a ‘general purpose’ EBT means a trust set up to provide employees with benefits other than:

•share-related benefits under employee share schemes set up to give employees a stake in the company or group by which they are employed - see BIM44515,
•pension and other benefits under retirement benefit schemes - see BIM44520,
•accident benefits - see BIM44525,
•healthcare benefits - see BIM44530.
General purpose EBTs may be set up for clear business reasons, such as setting money aside to pay redundancy and other benefits to employees if their employment is terminated.

However, EBTs have increasingly been used for avoidance purposes, with the aim of providing employees and directors with benefits in ways that aim to defer, minimise or avoid:

•income tax (and PAYE) liability on amounts received by employees and directors; and / or
•employers’ Class 1 or Class 1A National Insurance Contributions (NICs) on amounts paid to employees and directors
whilst still securing an immediate deduction for the employer’s contributions to the EBT.

Avoidance uses
Typical avoidance uses of general purpose EBTs include:

•payment of bonuses via an offshore trust in an attempt to avoid employers’ NICs,
•payment of remuneration by way of loans, which may be written off before they become repayable,
•making loans in depreciating currency such as Turkish Lira from which the borrower may make a foreign exchange gain before the loan becomes repayable,
•creating an offshore ‘moneybox’ for director / shareholders of close companies, with the aim of avoiding inheritance tax on value transferred out of the company through contributions to the EBT,
•allowing employees to use assets (such as cars) owned by the EBT, the costs of acquiring which would be capital expenditure if they were owned by the employing company,
•providing benefits in the form of shares (not in the employing company) whose values can be most easily manipulated before or after they are transferred from the EBT to employees or directors

I would be interested to hear your comments

[Vallah]

With regard to your assumption that I have no researched the umbrella company alternatives - do you not think that as the Managing Director of an umbrella company it is not in my interest to research the competition thoroughly? And as a business woman do you not think I would have made the investment in an EBT scheme if I thought it was a safe and sound investment?

If your company's intention is that the loan will never be repayable then it will be classified as an avoidance scheme by HMR&C:

BIM44535 - Specific deductions: Employee benefit trusts: general purpose EBTs
In this guidance a ‘general purpose’ EBT means a trust set up to provide employees with benefits other than:

•share-related benefits under employee share schemes set up to give employees a stake in the company or group by which they are employed - see BIM44515,
•pension and other benefits under retirement benefit schemes - see BIM44520,
•accident benefits - see BIM44525,
•healthcare benefits - see BIM44530.
General purpose EBTs may be set up for clear business reasons, such as setting money aside to pay redundancy and other benefits to employees if their employment is terminated.

However, EBTs have increasingly been used for avoidance purposes, with the aim of providing employees and directors with benefits in ways that aim to defer, minimise or avoid:

•income tax (and PAYE) liability on amounts received by employees and directors; and / or
•employers’ Class 1 or Class 1A National Insurance Contributions (NICs) on amounts paid to employees and directors
whilst still securing an immediate deduction for the employer’s contributions to the EBT.

Avoidance uses
Typical avoidance uses of general purpose EBTs include:

•payment of bonuses via an offshore trust in an attempt to avoid employers’ NICs,
•payment of remuneration by way of loans, which may be written off before they become repayable,
•making loans in depreciating currency such as Turkish Lira from which the borrower may make a foreign exchange gain before the loan becomes repayable,
•creating an offshore ‘moneybox’ for director / shareholders of close companies, with the aim of avoiding inheritance tax on value transferred out of the company through contributions to the EBT,
•allowing employees to use assets (such as cars) owned by the EBT, the costs of acquiring which would be capital expenditure if they were owned by the employing company,
•providing benefits in the form of shares (not in the employing company) whose values can be most easily manipulated before or after they are transferred from the EBT to employees or directors

I would be interested to hear your comments

As the Finance Director of an EBT provider, and as a qualified accountant (ex-Big 4) I also have done lots of research into the contractor remuneration industry. Yes we offer a tax avoidance product, I've never made any bones about that. However, the law as it stands makes it quite clear that what we offer is perfectly legal and above board, and is in all cases, fully disclosed to HMRC. Our contractor employees therefore perfectly legally take home on average 85% of their income, on which UK tax has been paid on all the elements.

There are obviously many people who see this as too risky, and that's perfectly reasonable, and for those people, I'm sure the service you offer Lisa is a very good, professional alternative. However, there are also people who are more than happy to use our service, and recommend us to their friends and colleagues, and we also provide a very high level of service.

There are of course lots of small unscrupulous EBT providers about, just as there are lots of dodgy umbrella companies. I wouldn't personally touch either with a barge pole, but a large umbrella organisation, or a large well run EBT firm are both legitimate ways of paying less tax depending on your risk appetite.

[LisaContractorUmbrella]

As the Finance Director of an EBT provider, and as a qualified accountant (ex-Big 4) I also have done lots of research into the contractor remuneration industry. Yes we offer a tax avoidance product, I've never made any bones about that. However, the law as it stands makes it quite clear that what we offer is perfectly legal and above board, and is in all cases, fully disclosed to HMRC. Our contractor employees therefore perfectly legally take home on average 85% of their income, on which UK tax has been paid on all the elements.

There are obviously many people who see this as too risky, and that's perfectly reasonable, and for those people, I'm sure the service you offer Lisa is a very good, professional alternative. However, there are also people who are more than happy to use our service, and recommend us to their friends and colleagues, and we also provide a very high level of service.

There are of course lots of small unscrupulous EBT providers about, just as there are lots of dodgy umbrella companies. I wouldn't personally touch either with a barge pole, but a large umbrella organisation, or a large well run EBT firm are both legitimate ways of paying less tax depending on your risk appetite.

That's fine Vallah and I have no issue with it just as long as the contractors know the risks that they are taking which was the point of my original post - most of those contractors who used the Montpelier scheme were told they were doing nothing illegal at the time but it has not stopped HMR&C applying restrospective legislation years down the line which has resulted in huge financial and emotional trauma for those involved.

I agree with you that there are unscrupulous companies in the umbrella world as well and I have been just as vocal when some of them offer 85% take home 'guaranteed' without knowing the contractors circumstances or explaining how this amazing return can be achieved in clear and concise detail.