This is not tax avoidance, this is just the way it works.

[webberg]

https://www.gov.uk/government/public...dent-in-the-uk

Look at item 4.

"This is not tax avoidance; this is just the way corporation tax works"

Words sometimes fail me.

If this is true for Google and others, why is it not true for contractors.

[DaveB]

https://www.gov.uk/government/public...dent-in-the-uk

Look at item 4.

"This is not tax avoidance; this is just the way corporation tax works"

Words sometimes fail me.

If this is true for Google and others, why is it not true for contractors.

I'm no tax expert but the issues for Contractors generally arise from Personal Taxation not Corporate Taxation. You could arrange your companies corporate tax affairs in the same way.

Consider:

MyCo. Intl. is based in the Bahamas (or Ireland or Lichtenstein or wherever) and sells services via the internet to UK clients.

The Clients pay £X to MyCo. Intl.

MyCo Intl. outsources delivery of those services to MyCo. UK. It pays MyCo UK £0.5X, which happens to be just enough to cover operating costs for delivering those services. Salary, associated expenses etc.

MyCo. UK then declares minimal profits and pays minimal Corporation Tax.

MyCo Intl. Declares it's profits in the Bahamas (Or Ireland, or Lichtenstein etc) and pays minimal Corporation Tax.

All open and above board according to the current Corporation Tax Regime.

MyCo Intl. then pays me Dividends and I pay Income Tax accordingly based on my UK earnings as a UK Tax Resident.

If MyCo. Intl. were to pay that money into an offshore trust that then provided me with loans or other "tax mitigation" then HMRC will take an interest in my personal tax arrangements, which are separate from the company tax arrangements, and it's time to get the lube out.

In practice Agencies won't touch non UK registered companies, you'd have to rely on dealing direct, but you could do it.

[webberg]

All very true and not that far from how these work.

However, there is a lot of "finger in the air" costs and management of effective tax rates.

For example if you are trading under a brand and have to pay for that privilege, how much is that? If the payment goes t a place that does not tax IP rentals?

Is there a loan involved and if so what interest rate? Is it a loan or just equity and therefore no interest deduction?

There are a lot of items here that are at the edges and perhaps more than you would see in a the personal tax world.

I'm not suggesting that there is a direct read across but when I question HMRC on why some get better treatment than others, I'll be raising similarities and asking for fairness.

[DaveB]

All very true and not that far from how these work.

However, there is a lot of "finger in the air" costs and management of effective tax rates.

For example if you are trading under a brand and have to pay for that privilege, how much is that? If the payment goes t a place that does not tax IP rentals?

Is there a loan involved and if so what interest rate? Is it a loan or just equity and therefore no interest deduction?

There are a lot of items here that are at the edges and perhaps more than you would see in a the personal tax world.

I'm not suggesting that there is a direct read across but when I question HMRC on why some get better treatment than others, I'll be raising similarities and asking for fairness.

I think we have to be careful about comparing Apples to Apples. In our case the main reason Contractors like us don't operate that way is not because HMRC treat us differently from a CT perspective, but because it would be difficult to win business via agencies who rightly or wrongly won't touch overseas companies.

[webberg]

I think we have to be careful about comparing Apples to Apples. In our case the main reason Contractors like us don't operate that way is not because HMRC treat us differently from a CT perspective, but because it would be difficult to win business via agencies who rightly or wrongly won't touch overseas companies.

Very true.

I wonder if that will change when rates start to rise as more contractors get dragged into a higher effective tax rate and pass that on to their clients?

[ASB]

I'm no tax expert but the issues for Contractors generally arise from Personal Taxation not Corporate Taxation.

All true. The issue is not so much getting profits into a zero tax regime - though their are issues with ensuring the corporate body does not become UK resident. The issues are getting your mitts on it without suffering personal taxation.

Though, it does seem to me the profits should be taxed where they arise. Some of the practices - whilst within the rules - relating to IP transfer and licencing thereof - artificially distort this.

[DotasScandal]

I wonder if that will change when rates start to rise (...)

"rate rise"
Graham, this will not be happening. Most firms in the financial services sector have been in cost-cutting mode for the past 2 or 3 years. FACT.
Don't even get me started about the energy sector.
The cold hard reality is that there is only one way rates are going, and it's DOWN. No amount of legislative changes around contractor taxation can change this.
Contracting (in the UK) is dying.

[squirrel]

"This is not tax avoidance, this is just the way it works."

I don't think the underlying analysis of corporation tax compared to income tax compared to etc etc etc is the issue here. It's the above statement.

It's not tax avoidance it this is just the way it works ... so a big company can get away with it.

For little man it is tax avoidance, regardless of the way it works, so we'll crucify them because they can't fight back.

It doesn't matter what the "it" actually is, it's the manner in which the "it" is subsequently addressed.

[DotasScandal]

"This is not tax avoidance, this is just the way it works."

I don't think the underlying analysis of corporation tax compared to income tax compared to etc etc etc is the issue here. It's the above statement.

It's not tax avoidance it this is just the way it works ... so a big company can get away with it.

For little man it is tax avoidance, regardless of the way it works, so we'll crucify them because they can't fight back.

It doesn't matter what the "it" actually is, it's the manner in which the "it" is subsequently addressed.

Precisely.
We have gotten to the point where HMRC can do away with facts altogether and decide that 'it' is an apple or 'it' is an orange, depending on what suits their agenda or the requirement du jour.

[flamel]

"rate rise"
Graham, this will not be happening. Most firms in the financial services sector have been in cost-cutting mode for the past 2 or 3 years. FACT.
Don't even get me started about the energy sector.
The cold hard reality is that there is only one way rates are going, and it's DOWN. No amount of legislative changes around contractor taxation can change this.
Contracting (in the UK) is dying.

Not sure about that - the main reason that rates have gone down is that many contractors won't now touch government contracts because of IR35. Since Capita won the contract to administer all contract staff, they have come up with lots of rate reductions for many roles, making government contracts even less attractive. Those contractors then compete for work in the private sector meaning a temporary glut of staff. By the end of the year, rates will go up again, in my opinion, as contractors pull out of the market and go perm or get made bankrupt by HMRC so can't work.