Letter from HMRC regarding possible involvement in Tax avoidance

[DealorNoDeal]

Completely irrelevant - HMRC will be treating it as untaxed income.

Leave this umbrella, find a proper one (see the umbrella forum for ideas) and start saving to pay the tax bill HMRC are about to send you.

^^^
This.

To work out what you may end up owing, put your total income (wage+loans) into this tax calculator and deduct the tax you've already paid through PAYE.
Tax Calculator | UK Tax Calculators

[eek]

As others have said move asap to a reputable umbrella, you can't do much about last year's tax, but if you have the funds you might want to consider making a pension contribution equal to the loan amount received this year, or at least the amount of your total income this year (including the loans) over 50k . If you can manage the first any tax payable on the loan will go into your pension, if the 2nd then any 40% rate tax will go into your pension.
I would also suggest you consider doing this soon in case the chancellor decides to cut pension tax relief to pay for Covid19.

Get proper professional advice on that - that advice was given to cover the very specific situation of the loan charge and may be completely and utterly wrong for everything else.

[Albert49]

Pension Offset

Get proper professional advice on that - that advice was given to cover the very specific situation of the loan charge and may be completely and utterly wrong for everything else.

The use of pension contributions to offset tax on earned income is standard tax planning and is NOT specific to the loan charge.

[eek]

The use of pension contributions to offset tax on earned income is standard tax planning and is NOT specific to the loan charge.

But if you owe money in 2019/20 how does paying into a pension in the tax year 2020/21 help you?

We don't know enough to give that sort of advice which is why I was questioning it and tax advice from strangers where you haven't checked their actual qualifications isn't the brightest idea given that these people have already made that mistake once.

[Albert49]

But if you owe money in 2019/20 how does paying into a pension in the tax year 2020/21 help you?

We don't know enough to give that sort of advice which is why I was questioning it...

Perhaps you should reread my post:
As others have said move asap to a reputable umbrella, you can't do much about last year's tax, but if you have the funds you might want to consider making a pension contribution equal to the loan amount received this year, or at least the amount of your total income this year (including the loans) over 50k . If you can manage the first any tax payable on the loan will go into your pension, if the 2nd then any 40% rate tax will go into your pension.

[webberg]

Perhaps you should reread my post:
As others have said move asap to a reputable umbrella, you can't do much about last year's tax, but if you have the funds you might want to consider making a pension contribution equal to the loan amount received this year, or at least the amount of your total income this year (including the loans) over 50k . If you can manage the first any tax payable on the loan will go into your pension, if the 2nd then any 40% rate tax will go into your pension.

Perhaps I'm being a bit dim (it is Monday) but could I ask you to give an example of how you think this works please?

[Albert49]

Perhaps I'm being a bit dim (it is Monday) but could I ask you to give an example of how you think this works please?

Ignoring NI, and agency fees
assuming Min wage =£10 per hour
Contract rate £40 per hour (£30 per hour undeclared)
40 hour week
25 weeks (Apr 20 to SEP 20) with current umbrella
25 weeks with legit umbrella (Oct 20 to Mar 21)

Declared income at end of mar 21= £10 * 40 hours * 25 weeks
+ £40 * 40 hours * 25 weeks = £50k

Undeclared income = £30 * 40 hours * 25 weeks= £30k.


HMRC will say £30k is taxable at 40% = £12k tax

Alternative contribute £30k gross into pension (£24k net pension company add £6k tax relief) , £12k tax bill is reduced to £6k by £30k extension of 20% tax band due to pension contribution.
Result £30k in pension, which includes the £12k tax that was due.

[eek]

Ignoring NI, and agency fees
assuming Min wage =£10 per hour
Contract rate £40 per hour (£30 per hour undeclared)
40 hour week
25 weeks (Apr 20 to SEP 20) with current umbrella
25 weeks with legit umbrella (Oct 20 to Mar 21)

Declared income at end of mar 21= £10 * 40 hours * 25 weeks
+ £40 * 40 hours * 25 weeks = £50k

Undeclared income = £30 * 40 hours * 25 weeks= £30k.


HMRC will say £30k is taxable at 40% = £12k tax

Alternative contribute £30k gross into pension (£24k net pension company add £6k tax relief) , £12k tax bill is reduced to £6k by £30k extension of 20% tax band due to pension contribution.
Result £30k in pension, which includes the £12k tax that was due.

Where is that tax relief coming from? As I said before if you are planning to do this you need professional advice as while you can use this technique you have to get everything correct to avoid creating another mess.

[Albert49]

Where is that tax relief coming from...

Are you referring to £6k tax relief pension company add ?
If so, they are claiming it from HMRC, it is the same £6k tax (reduced from 12k) you pay to HMRC.

[DealorNoDeal]

Some people used pension contributions, in a similar way, to relieve the loan charge but obviously you had to make the contributions during the 2018/19 tax year. I guess some may have had to unwind the contributions after the Govt removed pre-2010 loans from the loan charge.