Reply to: One for the 90% take home pay crowd

[Fred Bloggs]

The waters here are further muddied by so called "Brollies" who insist to potential clients that they are not using tax avoidance, do not need a DOTAS declaration and are fully compliant with all UK legislation. I can understand users being attracted by such claims. They sound very credible.

[TykeMerc]

Fair points Centurian and I agree with your post, but the crucial difference is whether an approach can be proven to bend a rule past the point where it could almost be termed evasion.

With the way the avoidance word has been abused, demonised and corrupted we could actually do with another word to avoid the connotations. There are some every day non aggressive avoidances like pension contributions and ISA's and the other extremes such as the lunatic schemes based around grossly artificial structures.

[centurian]

Tax avoidance, even aggressive tax avoidance is legal and remains legal. If you use a tax avoidance vehicle you won't be prosecuted for tax evasion, you do not risk a criminal record.

Some tax avoidance works in the eyes of the courts, with regard to the legislation. Some tax avoidance doesn't work - it rests on an interpretation that the courts don't agree with, or is scuppered by (retrospective!) legislation. If yours doesn't work, then you have to pay the tax you owe + interest + penalties. ISA is tax avoidance that does work.

As good a definition as I have seen.

But I still cannot square the statements of "tax avoidance that does not work" and "tax avoidance is legal" - I appreciate these are not your statements.

If it's legal, you shouldn't have to pay a penny extra. If it doesn't work, then it must break some law somewhere - there has to be a law which says you must pay the money - and you are in breach of that law - perhaps not to a criminal level, but it's still a law which is being broken.

The "tax avoidance is legal" banner does annoy me in that it assumes and conveys that whenever a provider advertises a "tax avoidance" scheme, it must automatically be legal, simply because the provider says it is - and HMRC are overstepping their authority in daring to question the arrangements.

[Fred Bloggs]

The t&s relief and divi tax plans that are going through at the moment are going to tempt a lot of contractors away from limited co into these schemes. As well hung for a sheep as a lamb.

Agreed, the providers are on a feeding frenzy just now judging by the number of emails I get lately about so called "fully compliant keep up to 90%" schemes.

[BrilloPad]

Guys,

Going back to the original question on this thread;

- I went on a course a couple of years ago with a number of other contractors
- At lunch on the second day, one of them started moaning about an HMRC investigation on him
- We were supportive of him, felt bad for the guy until...
- He explained he had joined one of those "keep 85-90% of your rate" for a few years
- Instantly all of us asked him "what the hell did you expect to happen!?!". HMRC apparently has automated recon systems looking for Ltd companies who do exactly that.

We basically all agreed that it is dumb and not really fair to the rest of us for people to try and play the system like that

- He confirmed that he had a tax bill coming his way of nearly £80k...

A good lesson for all of us.

I wouldn't touch those "keep 90%" deals as they are not fair to the UK or us. I don't think we as small Ltd Companies get that bad a deal and going for one of these smacks of greed to me. We can try and call it "tax efficient" or whatever, but it doesnt pass the "does this feel right?" check...

So you all decide what is fair and what is not?

Personally I leave fair up to the courts. If the scheme works then fine. If not then fine. Certainly he should not be surprised that HMRC are investigating.

So when will you fight HMRC? When HMRC decide that all contractors are within IR35? When they use APNs to presume guilt? When they take the money directly from bank accounts?

HMRC could go after the big companies using tax schemes. Close loopholes. Instead they go after the who cannot defend themselves. Using bullying. And you support them.

Nice....

[Alan @ BroomeAffinity]

The t&s relief and divi tax plans that are going through at the moment are going to tempt a lot of contractors away from limited co into these schemes. As well hung for a sheep as a lamb.

[WordIsBond]

I wouldn't touch those "keep 90%" deals as they are not fair to the UK or us. I don't think we as small Ltd Companies get that bad a deal and going for one of these smacks of greed to me.

Exactly.

[PermMCCon]

Guys,

Going back to the original question on this thread;

- I went on a course a couple of years ago with a number of other contractors
- At lunch on the second day, one of them started moaning about an HMRC investigation on him
- We were supportive of him, felt bad for the guy until...
- He explained he had joined one of those "keep 85-90% of your rate" for a few years
- Instantly all of us asked him "what the hell did you expect to happen!?!". HMRC apparently has automated recon systems looking for Ltd companies who do exactly that.

We basically all agreed that it is dumb and not really fair to the rest of us for people to try and play the system like that

- He confirmed that he had a tax bill coming his way of nearly £80k...

A good lesson for all of us.

I wouldn't touch those "keep 90%" deals as they are not fair to the UK or us. I don't think we as small Ltd Companies get that bad a deal and going for one of these smacks of greed to me. We can try and call it "tax efficient" or whatever, but it doesnt pass the "does this feel right?" check...

[WordIsBond]

The distinction between "tax planning" and "tax avoidance" is absurd.

The cited definition acknowledges that "tax avoidance" is using "legally permissible" tax planning.

It rarely ends well when courts are left with the responsibility of divining intent.

In seeking to criminalise "aggressive tax avoidance" our legislators are showing just how lazy they are. Instead of prosecuting people who are doing things which are "legally permissible," fix your stupid laws to close the loopholes.

Then you can have "rule of law" where people are found guilty for actually breaking the law instead of "rule of judges" who find someone guilty based on their surmise as to whether the person had bad intentions.

[BrilloPad]

Ah, but the permie 'man on the street' also uses ISA's, so that's fair in their eyes...

Trial by the man on the street. I think Jeremy Clarkson was in favour of that.

"Should Caravans be allowed on the roads during daylight?" - definitely not....

[TykeMerc]

Just had another one land in my inbox from Contract Recruit.

Take home up to 90% after fees, tax and NI.

Oh, and it's 100% HMRC compliant. Natch.

Fill yer boots lad. It can only end well

[northernladuk]

you've almost quoted word for word the definition of avoidance

Let me google that for you

Indeed but again when we are discussing the more arguable elements of avoidance lumping ISA's and other standard products open to everyone as part of everyday tax planning is not helpful.

Where the generlistic definition might be correct it still comes in many different guises so important that these distinctions are clear. A better definition would be...

Tax planning may be defined as an arrangement of one's financial affairs to take full advantage of all eligible tax exemptions, deductions, concessions, rebates, allowances permitted under the Income-Tax Act ,1961, so that the tax burden is minimised in the hands of the taxpayer without violating the legal provisions.

For instance, tax planning can be done by investing in specified permissible avenues eligible for deduction under section 80C or investment in an SEZ unit. It is legitimate as the legislature intends optimum utilisation of these deductions and exemptions to promote economic activity in the country.

Tax avoidance is reducing or negating tax liability in legally permissible ways by structuring one's affairs. Any such transaction would be valid only if it has commercial substance and is not a colourable device. The Supreme Court, in M/s McDowell and Co Ltd Vs Commercial Tax officer, 1985, (154 ITR 148(SC), held that for tax planning to be legitimate it must be within the legal framework and colourable devices cannot be part of tax planning. In deciding whether a transaction is a genuine or colourable device, it is open for the tax authorities to go behind the transaction and examine the "substance" and not merely the "form".

[DaveB]

Just had another one land in my inbox from Contract Recruit.

Take home up to 90% after fees, tax and NI.

Oh, and it's 100% HMRC compliant. Natch.

[NotAllThere]

Tax avoidance, even aggressive tax avoidance is legal and remains legal. If you use a tax avoidance vehicle you won't be prosecuted for tax evasion, you do not risk a criminal record.

Some tax avoidance works in the eyes of the courts, with regard to the legislation. Some tax avoidance doesn't work - it rests on an interpretation that the courts don't agree with, or is scuppered by (retrospective!) legislation. If yours doesn't work, then you have to pay the tax you owe + interest + penalties. ISA is tax avoidance that does work.

[pr1]

You are misusing the word avoid. Avoidance is linked to using loop holes within the bounds of the law. What you are doing by picking a different approved product is reducing your tax liability through tax planning.
.

you've almost quoted word for word the definition of avoidance

Let me google that for you