Reply to: Is CUK advertising dodgy schemes again

[eazy]

Ramsay Principle & tax Avoidance

Ramsay Principle
PAYE avoidance: application of the Ramsay principle

The Ramsay principle is the shorthand name given to the decision of the House of Lords in two important cases in the field of UK tax, reported in 1982. The principle has evolved through case law. If one is looking at a tax avoidance scheme which involves a transaction effected via a series of steps, one should look at the effect of the whole series and not at the tax position of each individual step. The principle can only be applied when the legislation requires this approach and each step need not be a sham for the principle to apply, so this adds greatly to make interesting legal argument.

United Kingdom House of Lords Decisions : WT Ramsay Ltd v Inland Revenue Commissioners [1981] UKHL 1 (12 March 1981)

The House of Lords decided that where a transaction has pre-arranged artificial steps that serve no commercial purpose other than to save tax, the proper approach is to tax the effect of the transaction as a whole. The decision is not limited to capital gains tax, but applies to all forms of direct taxation, and is an important restraint on the ability of taxpayers to engage in creative tax planning.

Development of the Ramsay principle

The Ramsay list of tax avoidance characteristics and circumstances was modified in subsequent House of Lords decisions. In IRC v Burmah Oil Co Ltd ([1982] STC 30), the Lords held that the Ramsay principle applied to a scheme devised by the taxpayer's advisers, involving the taxpayer's own funds. Lord Diplock considered that, in order for the Ramsay principle to apply, there must be:

1) a series of transactions; which are
2) pre-ordained; and
3) into which there are inserted steps that have no commercial purpose apart from tax avoidance.

The Ramsay principle had hitherto been confined to tax avoidance in the form of artificial schemes containing steps that were, in effect, self-cancelling. However, in Furniss v Dawson ([1984] STC 153), the House of Lords applied the Ramsay approach to a scheme of tax deferral as opposed to avoidance, which was not circular or self-cancelling. Referring to the previous criteria for the Ramsay principle to apply as set out in the Burmah case above, Lord Brightman redefined the necessary conditions:

1)a preordained series of transactions (or one single composite transaction); into which there must be

2) steps inserted which have no commercial (business) purpose (as distinct from a business effect) apart from the avoidance (or deferral) of a liability to tax.

[kal]

This line from their website tells you all you need to know about where Network One are coming from

'Limited companies are not very tax efficient'...

Seriously, who signs up with these snake oil merchants these days, would be less painful to place a precious body part in a vice and wait for HMRC to come along and begin tightening it!

[ASB]

Only moderately

It is always difficult to convey irony.

[LisaContractorUmbrella]

I think that one ends up with shares in a completely seperate entity and these are paying a dividend. Not unlike a normal employee share schemes in that respects.

Except for the fact that the divis will be disproportionate, some shares get sold etc etc.

I am moderately sceptical that it might not pass muster under a serious challenge.

Only moderately

[cojak]

Still doesn't answer the original question of why such a scheme is allowed to advertise on CUK - by doing so you are essentially endorsing the product (Indeed I notice that the Network One site has CUK proudly emblazoned across its home page - pretty much implying as much).

Its all well and good to tell peeps "do at your own peril, but don't come crying when it goes bang as you'll get little sympathy", but if you are the one promoting the thing in the first place, its more than a little unethical.

Surely CUK should be saying "Thanks but no thanks" and find better sources of revenue?

So why don't you ask Admin? I'm sure he'll reply.

[CDJ]

Still doesn't answer the original question of why such a scheme is allowed to advertise on CUK - by doing so you are essentially endorsing the product (Indeed I notice that the Network One site has CUK proudly emblazoned across its home page - pretty much implying as much).

Its all well and good to tell peeps "do at your own peril, but don't come crying when it goes bang as you'll get little sympathy", but if you are the one promoting the thing in the first place, its more than a little unethical.

Surely CUK should be saying "Thanks but no thanks" and find better sources of revenue?

[ASB]

If you are receiving dividends from what is, in effect, an intermediary then it is likely that they scheme would fall foul of the MSC legislation regardless of the structure. Even if it didn't it would be viewed by HMRC as nothing other than a sham arrangement to avoid paying tax and would therefore be likely to fall under GAAR

I think that one ends up with shares in a completely seperate entity and these are paying a dividend. Not unlike a normal employee share schemes in that respects.

Except for the fact that the divis will be disproportionate, some shares get sold etc etc.

I am moderately sceptical that it might not pass muster under a serious challenge.

[LisaContractorUmbrella]

Err it was named in the OP and is being advertised on your home page with a link! Anyway I just wanted to know a bit more but will probably just end up going with a paye option for peace of mind.
It's a scheme in which you own joint shares with the brolly and they pay you a small paye amount plus dividends on the shares and also then sell the shares back to utilise your annual CGT allowance. I don't know the exact maths but they work it out at around 80% retention.

If you are receiving dividends from what is, in effect, an intermediary then it is likely that they scheme would fall foul of the MSC legislation regardless of the structure. Even if it didn't it would be viewed by HMRC as nothing other than a sham arrangement to avoid paying tax and would therefore be likely to fall under GAAR

[cojak]

Err it was named in the OP and is being advertised on your home page with a link! Anyway I just wanted to know a bit more but will probably just end up going with a paye option for peace of mind.
It's a scheme in which you own joint shares with the brolly and they pay you a small paye amount plus dividends on the shares and also then sell the shares back to utilise your annual CGT allowance. I don't know the exact maths but they work it out at around 80% retention.

Oh, right you are. I missed the connection. My other bit still applies though. Search for the Breeze thread..

[ASB]

I suspect that has more holes in it than gruyere.

ir35 status at end client, dividend amount linked to fees generated, no commercial reasons, disguised remuneration regs all look to be ways of attacking it. In effect the only gain compared to being outside ir35 would be cgt saving on the share disposal. So it would potentially save 2k or 4k a year.

[mmmBeer]

Post away - but if you name names and it looks like advertising I'll permaban you immediately (solving you the problem of my previous post).

Err it was named in the OP and is being advertised on your home page with a link! Anyway I just wanted to know a bit more but will probably just end up going with a paye option for peace of mind.
It's a scheme in which you own joint shares with the brolly and they pay you a small paye amount plus dividends on the shares and also then sell the shares back to utilise your annual CGT allowance. I don't know the exact maths but they work it out at around 80% retention.

[mudskipper]

"We offer the best tax management and salary packages legally available to todays contractor"

Missing apostrophe. For that reason, I'm out.

[centurian]

Well if HMRC do bite you on the arse you're going to have to dump your current login if you come back crying because we WILL point and laugh at you if you don't.

Yeah, I also thought about telling him not to come back whining like a baby if it all went wrong, but somehow I suspect he would have come crawling back under a new name anyway, in order to plead complete ignorance.

One can sympathise with some of those caught up in the schemes - having been totally bamboozled by the sales pitch in the early days. But there are also a sizeable chunk, who are just high risk in nature - and would have jumped into the scheme anyway - heck, some even jumped into other schemes. Up until 18 months ago, I had to put up with contractors within earshot constantly bragging about how they were paying almost no tax - even when a guy in the next row was being nailed for BN66.

The bragging has gone quiet recently though...

[cojak]

Post away - but if you name names and it looks like advertising I'll permaban you immediately (solving you the problem of my previous post).

[cojak]

Is CUK advertising dodgy schemes again

Yes Im thinking of switching to a brolly for a year so enquired for more details.
I think the JL 'unusual structure' is exactly the core of the scheme and why it would be hard to challenge without opening a can of worms.
To be honest I havent ruled our using them so would like to hear from some of the accountants on here what their view is as well. Can I put the broad details up without breaking any forum rules?

Well if HMRC do bite you on the arse you're going to have to dump your current login if you come back crying because we WILL point and laugh at you if you don't.