Letter from HMRC regarding possible involvement in Tax avoidance

[webberg]

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.

So you're discussing 2020/21 tax year - your original post suggested that you were paying a pension in 2020/21 and expecting it to reduce the 2019/20 tax bill - hence my confusion.

In net cash terms then the comparison is:

Do nothing except pay the tax on the disguised remuneration. Gross income = £80,000. Tax paid at source £7,500. Tax due on DR = £12,000. Net is £80,000 less £19,500 = £60,500.

Pay a pension of a net £24,000. gross income £80,000. Tax paid at source £7,500. Tax due on DR £6,000. Cash to pension company £24,000. Net is £80,000 less £37,500 = £42,500. (Increase in pension fund £30,000)

If you have the resources, why not?

[Albert49]

So you're discussing 2020/21 tax year - your original post suggested that you were paying a pension in 2020/21 and expecting it to reduce the 2019/20 tax bill - hence my confusion.

In net cash terms then the comparison is:

Do nothing except pay the tax on the disguised remuneration. Gross income = £80,000. Tax paid at source £7,500. Tax due on DR = £12,000. Net is £80,000 less £19,500 = £60,500.

Pay a pension of a net £24,000. gross income £80,000. Tax paid at source £7,500. Tax due on DR £6,000. Cash to pension company £24,000. Net is £80,000 less £37,500 = £42,500. (Increase in pension fund £30,000)

If you have the resources, why not?

Webberg, thanks for the view of a tax professional (is that good enough Eek ? )

I will point out however that I did not suggest a pension contribution this year would effect last year's tax, in fact my original post said:

"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."

This year being 2020/21, last year being 2019/20

[DealorNoDeal]

And, actually, this raises another point.

If you want to pay as little tax as possible...

Use approved reliefs (like pensions) instead of dodgy schemes.

[EBTContractor]

Has anyone non-UK resident made pension contributions from overseas? I'm in SE Asia and want to pay into my UK pension as the the LC amount is relevant earnings for the purpose of the pensions relief. I won't be able to bring down the LC tax, however, I might as well make a contribution and take advantage of the relief.

If anyone could share please, or PM me if they've spoken to any professional pensions adviser(s).

[eek]

Has anyone non-UK resident made pension contributions from overseas? I'm in SE Asia and want to pay into my UK pension as the the LC amount is relevant earnings for the purpose of the pensions relief. I won't be able to bring down the LC tax, however, I might as well make a contribution and take advantage of the relief.

If anyone could share please, or PM me if they've spoken to any professional pensions adviser(s).

You've left this question a bit late as today is the last day of the 2020/21 tax year and you need to make those pension contributions in the 2019/20 tax year..

[DealorNoDeal]

You've left this question a bit late as today is the last day of the 2020/21 tax year and you need to make those pension contributions in the 2019/20 tax year..

Yes, even if someone elected to have the loan charge spread over 3 tax years, today is the last day they could make a pension contribution and get tax relief.

https://www.litrg.org.uk/latest-news...ere-are-we-now

"Another major outcome of the review is that for the loans that remain within the loan charge, there is the option to make an irrevocable election to spread the remaining loan income over three years. This means that rather than having all your outstanding loans treated as income in the 2018/19 tax year, you can have a 1/3rd treated as income in 2018/19, a 1/3rd in 2019/20 and a 1/3rd in 2020/21."

[zulucod]

Hi Brickwall5, I am in a similar position to yourself. If you are a layman regarding tax issues like myself I would recommend to contact HMRC to understand what you need to pay back or what they consider DR. I actually sent them an example pay check and they identified which was the DR (I agreed with their judgement). At this stage they allow you to make the calculation and declare what needs to be taxed which seems very trusting of them. I don’t think you will get a better offer. But obviously if can afford a tax advisor then that would be best. I personally got some great supportive advice from WTT and will follow them up once HMRC give a settlement option.

Also for those more aware of how this goes, when settling with HMRC do we have to pay the employers NIC or is it simply just the my unpaid tax and NI?

[DealorNoDeal]

Also for those more aware of how this goes, when settling with HMRC do we have to pay the employers NIC or is it simply just the my unpaid tax and NI?

I think you only have to pay any NI if you were in a self-employed scheme (class 4 NICS).

In addition to tax, you will have to pay late payment interest.

[zulucod]

I think you only have to pay any NI if you were in a self-employed scheme (class 4 NICS).

In addition to tax, you will have to pay late payment interest.

Thanks for this. I also called HMRC today and they confirmed I will have to pay back the Tax, my personal NIC and the late payment fee. I submitted my settlement a month ago and still no update when I called in, apparently they have bit of a delay and could be over 6 weeks.

[Jumper]

I think you only have to pay any NI if you were in a self-employed scheme (class 4 NICS).

In addition to tax, you will have to pay late payment interest.

Would you not need to pay personal and employer NICs if you were self-employed? I thought those that were in self-employed schemes were also classed as employed too?

I’m still waiting to settle myself and just drawing some comparisons here as I was classed as self-employed as well as employed therefore I believe I’m liable for bother personal NICs contributions as well employer NICs contributions.

I was employed by my limited company but also self-employed with my provider therefore received both a salary, a self-employed income and then my loan in addition.