Composites What Do People Think Will Happen

[Nixon Williams]

A sane person would say that they are doomed, although the Revenue do not appear to know what is going on at the moment so they may survive yet...having said that I would not think they will last much longer as they are clearly being abused.

Alan

[BoredBloke]

To ad my 2p. This sums up what is so unfair in the UK. We have a group of companies offering a service which they quote as being 100% legit and safe to use. It is sold to individuals on that basis. Then in a PBR the govt decides to target these companies and the people using them. All the while the companies are allowed to continue trading and pull more people into their organisation. All the while the amount of money which could be owed to the govt builds up. As we all know, govt reviews take forever. So the net effect is that when the rules get changed and the taxman comes knocking, the financial effect on the individual concerned is massive. As with Section 660A, the indiviudual faces financial ruin for simply following the advice given to him.

[tim123]

The same applies with these umbrella companies that pay out inflated expenses. If the promoters suspect that an "employee" is claiming inflated expenses then they have a duty to report it to the police through SOCA. A suspicion is enough. So if the promoters of the scheme don't report it they are committing a criminal offence and the Revenue/police will go after them first.

Of course you are right that the Police will be able to prosecute them for the incorrect reporting, but that reporting offence doesn't move the tax liability.

The brolly operator can be given a fine for the criminal offence. The "employee" will still be the one who is chased for the un-paid tax.

tim

[ASB]

but I was under the impression a large chunk of your money was tied up as shares so they could pay out large dividends.

Not shares generally, but retained funds. That which has not been paid out could be at risk.

As Bradley says it is generally difficult for the revenue to transfer liabilities - but it is by no means unknown. If the employer has not been handing over PAYE payments these are difficult to stiff the individual with. If the composite has only been paying CT at the lower 19% rate rather than the full 30% rate it will be difficult (although there was a suggestion the HMRC have recently done exactly that, difficult to see it holding up if challenged by the tax payer).

If dividends have not been paid out of profits it is difficult to get them back.

The exceptions to this are that the taxpayer can be proved to have known it was happening.

I expect the easiest attack will be IR35. Although this is aimed initially at the employer ultimately it is a personal tax - and can get directed at the individual.

[malvolio]

must admit i don't reall know how they work, but I was under the impression a large chunk of your money was tied up as shares so they could pay out large dividends. But then as I don't intend on getting involved with composites I really don't have to worry about my lack of understanding of them

It's not about shares or shareholding, it's about dividends withdrawn to avoid NICs. If the dividend payments are ruled unlawful, since they are either unrelated to the overall company's business or are a pure tax avoidance and not a reflection of profitability, you will be asked for the NICs on all such income. If that's only a liability of £10, someone's been doing something wrong...

[Ardesco]

must admit i don't reall know how they work, but I was under the impression a large chunk of your money was tied up as shares so they could pay out large dividends. But then as I don't intend on getting involved with composites I really don't have to worry about my lack of understanding of them

[Bradley]

That's not how it works

If all your contracting money is tied up as share capital in the composite when it goes under that can be quite a lot to loose.....

The typical composite company will never give you more than say £10 sharecapital i.e. the most you would lose is £10

[Ardesco]

If all your contracting money is tied up as share capital in the composite when it goes under that can be quite a lot to loose.....

[Bradley]

Didn't anything I said sink in then?

The bulk of the money is owned by the shareholders, not the composite whose business is almost certainly fully legal and fully taxed, and it is the shareholders who will be liable for any missing payments.

Shareholders have their liability limited to the amount of share capital they have. That's one of the advantages of incorporation. The Revenue can only go after the shareholders if there's evidence that they knew what they were doing was wrong i.e. what I've said above!!

The managers of the scheme knew that what they were doing was contrary to published Revenue guidance and they should have known better. The Revenue can and will go after them personally.

[DaveB]

Doomed.

[malvolio]

You're assuming a composite will remain a valid business model. Indications in the last PBR are that HMRC sees them as purely a method to avoid tax by incorporating without taking any business risk or investment (and I personally find it hard to diagree with that view). It's quite likely the model will be closed down or its tax status changed to make it economically pointless. The bulk of the money is owned by the shareholders, not the composite whose business is almost certainly fully legal and fully taxed, and it is the shareholders who will be liable for any missing payments.

As for umbrellas and expenses, people who get that wrong aren't reading the information properly. Even our usual suspect company say (not very clearly, I have to admit!) that you should keep receipts and only claim what you spend. It's not their fault if people are greedy and/or illiterate. They are not your managers, they have no responsibility for what you do, they merely run your invoicing and payroll.

[Bradley]

Culpable

As per normal the people running the composites will disappear ie administration and its the poor individulals who will bear the brunt of HMRC

I'd have to disagree here. If the employee/shareholder was taking advice from the people running the composite then they would have done enough to avoid the NIC charge. Its only if you knew what you were doing was wrong and more importantly the Revenue could prove it, that would mean that the Revenue would come after you for the NIC.

The Revenue and/or police usually go after the promoters of the scheme who should have known better.

The same applies with these umbrella companies that pay out inflated expenses. If the promoters suspect that an "employee" is claiming inflated expenses then they have a duty to report it to the police through SOCA. A suspicion is enough. So if the promoters of the scheme don't report it they are committing a criminal offence and the Revenue/police will go after them first.

[gravesendboy]

Composites

As per normal the people running the composites will disappear ie administration and its the poor individulals who will bear the brunt of HMRC

[malvolio]

Who owes the tax? The comp's business model is valid - they are merely providing a service - and they are probably paying all the CT they are supposed to. If you are a member of a composite and the structure is declared to be an invalid sham, it won't be the administrators, it will be the director-in-name-only tax avoiders who will be the ones in the firing line, backdated to Dec 2004.

No evidence it's actually happening yet, of course, but one sort-of composite has already been done for not paying its bills and it's the members that are being chased by the administrator.

[Ivor1]

What do people think is going to happen to composite companies once the HRMC have done there review, will they back date and go after the individuals, or go after the people running the composite ?

The article on the recent updates 'Taxman Failing To Enforce IR35...' has a quote from the Insitute of accountants saying they could do one or the other. Going after the runners of the scheme would be easier for them though If they did go for the runners of the scheme would users still be liable ?