Reply to: Dynamic Management Services

[malvolio]

So you are actually right at the end of the bell curve in terms of required income, and of course you can maximise your tax savings if you don't actually take any salary (or not very much). Sadly not the case for most of us!

Going back to the point in question though, a lot has happened in five years and Hector is still looking at corporate structures solely inteded to avoid paying the correct amount of income tax, so I will not be pursuing DMS's offerings. As someone has already pointed out, if you are an employee, IR35 doesn't apply anyway - although you can still be done for tax evasion if you are not properly declaring your income, so if DMS's scheme works out, when it matures you get a thumping great tax bill for that year anyway.

[ChimpMaster]

I'm living off 5K plus savings, plus my wife was relatively recently persuaded to start contributing to household expenses.

Although I will be gradually running down my non-pension savings to pay household bills, if you include what the company is putting into the pension in my savings, then my overall savings are increasing. I have 13 years to go before I can get at the pension money - my non-pension savings will easily carry me through to then. (Ignoring any potential expenses related to divorce and children.)

If you get divorced can your partner get at your pension? If not, then this is a great way to stash away your cash!

[IR35 Avoider]

You mentioned that you pay £5K and put the rest in a comp pension.

Does that mean you're living of the £5K + savings? If not, how do you get away with 1% tax? I don't mean to pry into specifics just a general gist will do.

I'm living off 5K plus savings, plus my wife was relatively recently persuaded to start contributing to household expenses.

Although I will be gradually running down my non-pension savings to pay household bills, if you include what the company is putting into the pension in my savings, then my overall savings are increasing. I have 13 years to go before I can get at the pension money - my non-pension savings will easily carry me through to then. (Ignoring any potential expenses related to divorce and children.)

[Pondlife]

I haven't, because I have my own one-man scheme under which I pay less than 1% of my turnover in tax, as documented earlier.

You mentioned that you pay £5K and put the rest in a comp pension.

Does that mean you're living of the £5K + savings? If not, how do you get away with 1% tax? I don't mean to pry into specifics just a general gist will do.

[IR35 Avoider]

A nice long discussion indeed -- but has anyone actually spoken to DMS to ascertain their method of operation and payment?

I haven't, because I have my own one-man scheme under which I pay less than 1% of my turnover in tax, as documented earlier.

Having looked at their web-site, some of the language made me think they are precisely the same people who were running a scheme I looked at five years ago. That's why I'm assuming it's the same kind of scheme. If it is the same people, I do trust them, and wish them luck. If they really have 800 people signed up then it looks like the second time round they have solved the marketing problem, probably helped by clampdowns with all the anti-avoidance legislation that's got rid of a lot of the competition.

On the other hand, five years ago PCG members didn't yet have the confidence many do today that they can avoid being IR35 caught by structuring their relationship with their clients correctly. I've always been a pessimist about this route, since I believe 95% of contractors are disguised employees, but in practise it does seem to be working for people. Fifteen years at the same client doing non-project related role make it a bit more difficult for me. Actually, now that I'm part-time, but with almost complete lack of MOO, I'm probably in a position to go down this route, but I can't be bothered, due to aforementioned one-man scheme, which is much more Hector-proof.

[IR35 Avoider]

In the mean time the guys running the scheme get to stick "your" money in the bank and rake off the interest.

If they're not ripping off the fees in the first place, they're hardly going to bother with the interest. The fees and the interest will be mingled together; the question is to what extent they end up in the worker's pockets or the scheme organiser's pockets (or Gordon's.)

The consultancy's shares ought to be owned by a trust, apart from any owned by employees, with the scheme organisers being paid a defined amount in salaries or accountancy fees. Don't know if that's how this one is structured.

[DaveB]

A nice long discussion indeed -- but has anyone actually spoken to DMS to ascertain their method of operation and payment?

You mean actually base an argument on solid, documented facts?

Begone Sir, lest your madness prove infectious!

[IR35 Avoider]

it doesnt look like a very efficient way of avoiding tax.

Depends what you mean by efficient. 10% tax is not bad, though I suppose there must be some underlying corporation tax as well.

If by inefficient you are referring to the complexity, risk and delay, I won't argue with that.

[DaveB]

Yes, I recall that you did have to tie up "your" money for a number of years, for the share options to work.

I think you can see why this scheme is only of interest to a minority of contractors.

Yep, those that dont mind not getting paid today on the off chance that they may or may not get paid in 3 years time. All for the sake of a couple of grand a year.

In the mean time the guys running the scheme get to stick "your" money in the bank and rake off the interest.

[ChimpMaster]

A nice long discussion indeed -- but has anyone actually spoken to DMS to ascertain their method of operation and payment?

[IR35 Avoider]

Yes, I recall that you did have to tie up "your" money for a number of years, for the share options to work.

I think you can see why this scheme is only of interest to a minority of contractors.

[DaveB]

Government-approved share and share option schemes. (Unless this has changed since I looked at it five years ago.)

Currently any share options excersised outside of an approved scheme are liable for income tax on the full value of the shares at the time the option is exercised.

Share options excercised within an approved scheme are liable for income tax if the option is excercised within 3 years or after 10 years from the date of the option being granted.

So yes, they can give you share options but you only avoid tax if you retain those shares for at least 3 years. Add the fact that there is no guarentee the company will still be around in 3 years and the fact that there is no guarentee of the share price when you sell and it doesnt look like a very efficient way of avoiding tax.

Source : http://www.hmrc.gov.uk/bulletins/taxationso.htm

[ASB]

Government-approved share and share option schemes. (Unless this has changed since I looked at it five years ago.)

Been tightened. Not sure how efficient they are now (and likely to be of bugger all use to a contractor anyway).

[ASB]

You need to read the IR35 legislation in detail. It does not apply if there is no caught intermediary. A consultancy paying its employees via PAYE as well as non-PAYE methods such that the payments cannot be reasonably taken to be remuneration for work at a particular client is not a caught intermediary. Even if there are fail-IR35 circumstances, if there are no relevant payments hence no intermediary IR35 cannot apply. Of course it's a big if - that's why lawyers are needed.

Quite right. The challenge is to get the non paye payments outwith the taxation regime (or into a more benign one).

In most cases in an IR35 situation the "seen as" is a challenge (although a large offering is much more likely to have got it right and be able to defend it). Much the same way as big corporates who choose to make bonus payments as anything other than salary (mine doesn#t ) still face the same scrutiny.

[IR35 Avoider]

Having worked with them yes I do. They do pay bonuses, but as I said before bonuses are taxable. Don't know if they give share options but even if they do AFAIK you end up paying tax on value of the shares when you sell them anyway.

So far you have not given any details on the other incentives that are apparently available to big complanies. Come on, let us in on the secret.

Government-approved share and share option schemes. (Unless this has changed since I looked at it five years ago.) Glad you can confirm that this is what Accenture et al do. Of course this consultancy may have a slightly different balance between salary and share options, but that's a question of degree rather than principle.

I did mention shares and share options in an early post, which I invited you recently to re-read. I don't blame you for missing it the first time, but I think if you're going to adopt a bolshie tone you should go back and check when invited to do so, rather than just banging on.

If I remember correctly, CGT is at most 10% on securities held for long enough. Five years ago when I checked, CGT was the only tax due on such shares - I'm sure you will point out if there have been any change since then. And of course if you have a small number of shares in your employer, you will get some dividends as well.