£1,000 more take-home pay

[absoft]

Am I a mug? Another contractor at my site on the exact same rate takes £1,000 per month more than me home. This is solely due to him using a different umbrella company. Mine is UK based and his is based in the I.O.M., they pay a basic salary of £200 and the rest as dividends so he only pays abut £29 tax per month while I am paying something like £1,400 !. Can they get away with that? Apparently so. They claim to have only ever lost one tax challenge because the person concerned decided to take the side of Hector. Another aquaintance has been doing this for many years without any problem and has made a fortune.
Yeah I know Hector might investigate and all that but isn't it a case of Heads you win and tails you don't lose because even if Hector does take the trouble to investigate then usually you only have to pay up the difference in tax which is what you would have paid anyway with an onshore brollie? How do these companies manage to keep going only paying a salary of £200 and the rest as dividends? Either it is OK or it isn't and if it isn't why is Hector not doing something about it?

[scotspine]

who knows? not me but i trust that your board name is not as indicative of where you contract as it might apppear to be. that would be quite revealing...

[Rebecca Loos]

Yeah I know Hector might investigate and all that but isn't it a case of Heads you win and tails you don't lose because even if Hector does take the trouble to investigate then usually you only have to pay up the difference in tax which is what you would have paid anyway with an onshore brollie?

No. If Hector investigates and decides you're in the wrong, you'll also have penalties to pay, as well as all the tax you should have paid. Oh, and interest.

How do these companies manage to keep going only paying a salary of £200 and the rest as dividends? Either it is OK or it isn't and if it isn't why is Hector not doing something about it?

Errr... because Hector is not actually that efficient and his records are, now how can I put it,..., a bit messy, shall we say. Let's say they are not the best at keeping structured information in a way that's useful. Which is good for us, of course
(I worked there and I've seen it)

[boredsenseless]

Yeah I know Hector might investigate and all that but isn't it a case of Heads you win and tails you don't lose because even if Hector does take the trouble to investigate then usually you only have to pay up the difference in tax which is what you would have paid anyway with an onshore brollie?

No. If Hector investigates and decides you're in the wrong, you'll also have penalties to pay, as well as all the tax you should have paid. Oh, and interest.

How do these companies manage to keep going only paying a salary of £200 and the rest as dividends? Either it is OK or it isn't and if it isn't why is Hector not doing something about it?

Errr... because Hector is not actually that efficient and his records are, now how can I put it,..., a bit messy, shall we say. Let's say they are not the best at keeping structured information in a way that's useful. Which is good for us, of course
(I worked there and I've seen it)

And they've got six years to come after you, so your not safe for quite some time, all you need is to become ill and have to claim something like incapcity benefit and they then check your tax history.

Then you are f@@ked.

Think about it, if it really was 100% legal (yes I know technically its legal but it does stretch the boundary considerably) surely every company in the country would employ their staff via Isle of Man holding companies.

Go for it if you want, but bear in mind the penalties that can be imposed rise exponentially with the amount outstanding. At 50,000 GBP you can quite easily be sent away to hectors own hotel.

[Daywalker]

What is the name of the umbrella company on the I.O.M?

[absoft]

There are several I think. This particular one is Hexagon Services.

[Ivor1]

The thing is I read in the Financial Times a week or to ago about the deal Hector had done with the banks over employee bonuses. When I was a permy when you got a £10k plus bonus they paid it in the same way alot of composites do, ie via dividends in a company you become an employee of and with one share.

The IR came after these setups, but in the end the IR agreed that the DIDNT have to pay the outstanding TAX or PENALTIES or INTEREST, but only the outstanding NI. I think the next person who gets stung for IR35 should use these cases, dont think the IR could talk there way out of that.

[malvolio]

Where do you start...?

I can't even be bothered to write a Malvolio-style bad termpered reply to that!

[absoft]

Strange DoubleTalk

I asked the following straightforward questions of Hexagon:
'Are your services appropriate for a UK contractor working inside IR35?. Please can you say what is meant by 'IR35 friendly' in the description of your Composite Service ? Does it mean the service is meant for contracts caught by IR35 or not?'

and got the following reply which in total was:

'We are IR35 friendly, however it is up to the individual Contractor ( you ) to
ensure you remain that way ( as we will not be with you at your place of
work )'

I am none the wiser !

[malvolio]

They are emphasising Hector's view that it is the actual working arrangements that count, at the end of the day, and that the contract is merely there to cover the gaps. To take a simple (if extreme) example, if the contract says nothing about hours of work but the manager says you have to be there between 9 and 5 and you accept that condition in reality they you have estabished Direction by the client, are a disguised employee, and are liable for IR35.

British Law is intended to make the contract the ulitmate arbiter of reality. Sadly, agencies regularly issue contracts that are not aligned to the real world, and a few are honest enough (or naive enough) that they say so.