Reply to: Anyone ever used a company called Darwin using an offshore trust

[geoff from contracta IOM]

You could, and you would be right. But so long as it doesn't, then it isn't.

Usually the other funds are loans. It is possible to challenge the loans and say, they're not really loans, they're really income. But a properly implemented arrangement includes features that can withstand such an attack. Broadly, this means commercial terms: refusal to lend to high-risk individuals, the charging of interest, a repayment schedule, actual repayments, and so on.

You might say, well, with a scheme like that, where the money's not yours, there's no guarantee you'll get it and even if you do get it, you have to pay it back, who is going to use it? What's the point?

Ah, well, again, a properly implemented arrangement can deal with that. Repayments do not necessarily need to be made any time soon. It could be, for example, on your 70th birthday or on death. Then, if your repayments are to a trust where the trust will use the repayments of capital for specified purposes, and those purposes are in line with your wishes yet do not themselves give rise to taxation, then you are achieving the desired result. It may be that the assets are applied for the benefit of your children, for example. If you died before this happened, not only would you have avoided income tax, but you would avoid inheritance tax as well.

No doubt each individual should consider the arrangements he is entering into very carefully, but there are certainly operators in the market who do know what they are doing and are capable of saving people large sums of money.

Be careful ! even though you have described a commonly used and legal approach to being tax efficent you will probably still get set upon

[Keith Kershaw]

I suppose you could say that if it adds up like income, looks like income and is spent like income, then it is income?

You could, and you would be right. But so long as it doesn't, then it isn't.

Usually the other funds are loans. It is possible to challenge the loans and say, they're not really loans, they're really income. But a properly implemented arrangement includes features that can withstand such an attack. Broadly, this means commercial terms: refusal to lend to high-risk individuals, the charging of interest, a repayment schedule, actual repayments, and so on.

You might say, well, with a scheme like that, where the money's not yours, there's no guarantee you'll get it and even if you do get it, you have to pay it back, who is going to use it? What's the point?

Ah, well, again, a properly implemented arrangement can deal with that. Repayments do not necessarily need to be made any time soon. It could be, for example, on your 70th birthday or on death. Then, if your repayments are to a trust where the trust will use the repayments of capital for specified purposes, and those purposes are in line with your wishes yet do not themselves give rise to taxation, then you are achieving the desired result. It may be that the assets are applied for the benefit of your children, for example. If you died before this happened, not only would you have avoided income tax, but you would avoid inheritance tax as well.

No doubt each individual should consider the arrangements he is entering into very carefully, but there are certainly operators in the market who do know what they are doing and are capable of saving people large sums of money.

[Fred Bloggs]

I suppose you could say that if it adds up like income, looks like income and is spent like income, then it is income?

[LisaContractorUmbrella]

One circumstance might be if the individual doesn't receive any remuneration. Key to how the successfully-implemented offshore schemes work is that there is reduced remuneration and therefore reduced taxation. Since the Disguised Remuneration legislation was introduced, it is essential that individuals using the arrangements can pass self-employment tests. These are substantially the same as the IR35 tests: that is, the individual must be in business on his own account. But, so long as he is, there is nothing to stop him reducing his income and thus his taxation. If as a result, he gains access to other funds that he might otherwise have had, then provided those other funds are not remuneration, then he maintains or even increases the funds at his disposal without suffering corresponding tax consequences.

Perhaps you could be slightly more specific about 'other funds'? But I definitely agree with your first assertion, if you don't receive any money, you definitely won't pay any tax

[Keith Kershaw]

"Perhaps you could clarify under what circumstances someone who is a resident of the UK and works in the UK would not be liable for tax in the UK?"

One circumstance might be if the individual doesn't receive any remuneration. Key to how the successfully-implemented offshore schemes work is that there is reduced remuneration and therefore reduced taxation. Since the Disguised Remuneration legislation was introduced, it is essential that individuals using the arrangements can pass self-employment tests. These are substantially the same as the IR35 tests: that is, the individual must be in business on his own account. But, so long as he is, there is nothing to stop him reducing his income and thus his taxation. If as a result, he gains access to other funds that he might otherwise have had, then provided those other funds are not remuneration, then he maintains or even increases the funds at his disposal without suffering corresponding tax consequences.

[Fred Bloggs]

Move along now, nothing to see here folks............ Here we have a "chartered tax adviser" who doesn't understand how UK National Insurance deductions work!

[Mozart]

It appears CTA is not trying to drum up business because he has made himself uncontactable but I want him to be my tax accountant :-)

[cojak]

Sounds like this thread is going off topic and you are trying to drum up business....

Of course he/she is. Our wariness of such schemes means that they are less like to get business off this forum.

The fact that many of us scrutinise our tax liabilities (current and future) and also seek clarification from tax specialists means that they have to try harder here.

They won't get many takers though - we've seen what happens when these schemes go belly up...

[LisaContractorUmbrella]

Firstly Lisa - you now ask a different question!. When you now ask me "for a UK resident" then you've supplied MORE information than your first statement. That EXACTLY proves my point in my last post!.

The situation for a UK Resident working in the UK is totally different to a Non-Dom or someone on a working Visa, for example HSMP? You mentioned none of this in your first statement which is why I replied, your knee jerk reaction with a wide sweeping statement just does no good.

It makes your comment too general and therefore wrong!

To tackle the further points - if someone has a SPECIFIC question I'll do my best. The truth is that I can only comment on a SPECIFIC Scheme where I know all the details.

"Perhaps you could clarify under what circumstances someone who is a resident of the UK and works in the UK would not be liable for tax in the UK?"

How much more specific would you like me to be?

[bananarepublic]

[...
Oh and if you don't mind - can we dispel this ridiculous myth about 'retrospective taxation' by HMRC in the BN66 case. The Government argues that the legislation put in place in 1987 is what is being applied, NOT that FA2008 has some NEW legislation being applied back in time! Again, the internet is awash with statements that "offshore businesses, Trusts, Tax Avoidance and the fact that HMRC can now create laws and apply them back in time" means we're all doomed - utter nonsense...
...]

Sounds like this thread is going off topic and you are trying to drum up business....

Can't see how you can claim that BN66 isn't retrospective taxation. Without the "clarification" of BN66 and the subsequent FA I don't believe HMRC would have challenged the scheme. Why? Because they thought they would lose. They had to rely on a change which "always" had affect to make the challenge. Perhaps my grasp of the English Language isn't very good but isn't that retrospection? [ There is plenty of info in the BN66 threads about the timelines of all this ... ]

It appears that the "retrospection" is catching, wasn't there an announcement last week about a loophole for foreign manufactured dividends being closed "retrospectively"?

BTW Your example regarding NI and 63.8% tax is wrong, more like (40+1+12.8)/(100+12.8) = 47.7% marginal rate. (Admittedly going up soon - April 2011 to 66.6%! for someone on 100K)

[TykeMerc]

Our new friend seems to have overlooked the fact that anyone who is taxed on income in the UK has an upper limit to the amount of National Insurance they have to pay at 11% above which you pay 1% on all additional earnings.

National Insurance Rates.

Which a "CharteredTaxAdviser" (normally advisor in the UK) really should understand.

Yet another feeble troll I'm afraid.

Like Mal my view on offshore payment schemes for someone living and working in the UK is that they're very risky and stand a very strong chance of being knobbled in the long run by HMRC with loads of back tax, insurance and possibly punitive penalties to pay.

Tax avoidance is perfectly moral and reasonable until the measures used dance so close to evasion.

[Fred Bloggs]

Our new friend seems to have overlooked the fact that anyone who is taxed on income in the UK has an upper limit to the amount of National Insurance they have to pay at 11% above which you pay 1% on all additional earnings.

National Insurance Rates.

[BolshieBastard]

I'll try and pick up some of your points....

Firstly Lisa - you now ask a different question!. When you now ask me "for a UK resident" then you've supplied MORE information than your first statement. That EXACTLY proves my point in my last post!.

The situation for a UK Resident working in the UK is totally different to a Non-Dom or someone on a working Visa, for example HSMP? You mentioned none of this in your first statement which is why I replied, your knee jerk reaction with a wide sweeping statement just does no good.

It makes your comment too general and therefore wrong!

To tackle the further points - if someone has a SPECIFIC question I'll do my best. The truth is that I can only comment on a SPECIFIC Scheme where I know all the details.

I stand by my statements. Tax Avoidance is not illegal. You have to accept that. It is more prevalent than most people realise and more complicated than most realise, its here to stay and in fact will likely increase with impending 50% IT rates for over £150k and effective 60% IT rates between £100k and £110k.

You guys don't seem to have REALLY considered where you personally draw YOUR line of acceptability in Tax Mitigation Strategies, you seem to follow Lisa's approach of "its all bad, wrong, illegal whatever". I'll give you an example to prove my point (using general figures plz)

If you are about to take a BONUS payment from your own Ltd Co of £100k, then you'll have to pay 40% Tax (assuming you've already had £37,400 of PAYE salary), 12.8% Employers NI, 11% Employees NI - total tax take 63.8%. If you decide to pay it out as a dividend avoiding the NI contribution - you've legally avoided some Tax!

You have to accept that you've made an informed choice and mitigated your Tax Bill. Then again, you could decide to sell some shares in your Co to someone else and pay Capital Gains Tax at 18% - is that now horrendous Tax Avoidance that you all want to get up in arms about? NO!

If you qualify, then you can utilise Entrepreneurs Relief and pay 10% CGT. Are you now so far down the Tax Avoidance route that you're to be pilloried because you're only paying 10% instead of 63.8% - of course, not. you'll say that you've cleverly utilised the Tax Laws as they are written.

There are various scenarios for UK Residents where items are Taxed at 0%, go look in a Tolley's and hunt them out. A Tax Avoidance Scheme utilising these elements is as allowable as someone deciding to reduce his Tax Burden from 63.8% to 10%! You've just found something that Taxes at 0% instead of 63.8%

You all need to think a little more deeply, research a bit more before making wild claims that "Tax Avoidance is wrong", "if you live in the UK you have to pay PAYE on all your income" etc etc

We are now beginning to see FTSE 100 companies moving offshore now. Shire Pharma was the first FTSE 100 company to move to Jersey and there have been reports that another 6 in the FTSE are looking or have plans. A recent article in the Times explained how there are 400 individuals in the UK that earned over £10m per annum. Of those only 65 paid Tax...

Lisa would not like me to make wide sweeping statements about her industry so I'm saying, be careful of what you say Lisa, you are NOT an expert (I presume so as you didn't answer my question about having any qualifications in Tax or Legal?)

I'll give you an example of me trampling all over your industry...

If I'm a contractor and pay full PAYE on my contract income (with zero expenses) why won't I get EXACTLY the same example payslip from EVERY Umbrella Company in the industry? They should all get the same result, surely. The only difference in that Marketplace is how much Umbrella Co's cheat and lie about the expenses that can be claimed. The only true difference between them all should be the fee...

As I said - seek an expert, as forums are full of 'pretend ones'. At least if you pay me or anyone else a fee - you've got some legal recourse.

And I also apologise to Lisa as this all appears to be a personal attack - unfortunately in this thread its the best example I can find of my point about defamatory statements about an industry touted as fact.

[...
Oh and if you don't mind - can we dispel this ridiculous myth about 'retrospective taxation' by HMRC in the BN66 case. The Government argues that the legislation put in place in 1987 is what is being applied, NOT that FA2008 has some NEW legislation being applied back in time! Again, the internet is awash with statements that "offshore businesses, Trusts, Tax Avoidance and the fact that HMRC can now create laws and apply them back in time" means we're all doomed - utter nonsense...
...]

Weird!! After reading all that, I was certain it was written by someone who knew what they were talking about. Then, that last para made me think the writer is either AtW or more likely Incognito!

[malvolio]

Actually most of us understand avoidance pretty clearly. Might be something to do with many of us being directors of limited companies and understanding the legal duties that imposes. Or possibly from having sought expert advice from a range of sources including specialist accountants so we understand the taxation landscape as part of our general IR35 defences. We also know it is not illegal.

That is not the issue here. I for one have never said "Dn't use an offshore", all I've said is "Be aware of the additional risks that entails". Those risks do vary with the scheme in question, of course, but they still exist.

As for

To tackle the further points - if someone has a SPECIFIC question I'll do my best. The truth is that I can only comment on a SPECIFIC Scheme where I know all the details.

That's the same cop-out answer we always get. It's also why PCG, for one, will not give advice beyond "Be careful", since otherwise they would have to get expert opinion on over 100 schemes. But you could pick one you do know about and explain that one. Or at least why it is immune to current and potential future legislation which, as we now know, can be backdated.

And we understand the "restrospection" aspect of BN66 fairly clearly, come to that. That case has ceased to be about retrospection and is in the realms of human rights. Do try and keep up.

[CharteredTaxAdviser]

Fact or Fiction

I'll try and pick up some of your points....

Firstly Lisa - you now ask a different question!. When you now ask me "for a UK resident" then you've supplied MORE information than your first statement. That EXACTLY proves my point in my last post!.

The situation for a UK Resident working in the UK is totally different to a Non-Dom or someone on a working Visa, for example HSMP? You mentioned none of this in your first statement which is why I replied, your knee jerk reaction with a wide sweeping statement just does no good.

It makes your comment too general and therefore wrong!

To tackle the further points - if someone has a SPECIFIC question I'll do my best. The truth is that I can only comment on a SPECIFIC Scheme where I know all the details.

I stand by my statements. Tax Avoidance is not illegal. You have to accept that. It is more prevalent than most people realise and more complicated than most realise, its here to stay and in fact will likely increase with impending 50% IT rates for over £150k and effective 60% IT rates between £100k and £110k.

You guys don't seem to have REALLY considered where you personally draw YOUR line of acceptability in Tax Mitigation Strategies, you seem to follow Lisa's approach of "its all bad, wrong, illegal whatever". I'll give you an example to prove my point (using general figures plz)

If you are about to take a BONUS payment from your own Ltd Co of £100k, then you'll have to pay 40% Tax (assuming you've already had £37,400 of PAYE salary), 12.8% Employers NI, 11% Employees NI - total tax take 63.8%. If you decide to pay it out as a dividend avoiding the NI contribution - you've legally avoided some Tax!

You have to accept that you've made an informed choice and mitigated your Tax Bill. Then again, you could decide to sell some shares in your Co to someone else and pay Capital Gains Tax at 18% - is that now horrendous Tax Avoidance that you all want to get up in arms about? NO!

If you qualify, then you can utilise Entrepreneurs Relief and pay 10% CGT. Are you now so far down the Tax Avoidance route that you're to be pilloried because you're only paying 10% instead of 63.8% - of course, not. you'll say that you've cleverly utilised the Tax Laws as they are written.

There are various scenarios for UK Residents where items are Taxed at 0%, go look in a Tolley's and hunt them out. A Tax Avoidance Scheme utilising these elements is as allowable as someone deciding to reduce his Tax Burden from 63.8% to 10%! You've just found something that Taxes at 0% instead of 63.8%

You all need to think a little more deeply, research a bit more before making wild claims that "Tax Avoidance is wrong", "if you live in the UK you have to pay PAYE on all your income" etc etc

We are now beginning to see FTSE 100 companies moving offshore now. Shire Pharma was the first FTSE 100 company to move to Jersey and there have been reports that another 6 in the FTSE are looking or have plans. A recent article in the Times explained how there are 400 individuals in the UK that earned over £10m per annum. Of those only 65 paid Tax...

Lisa would not like me to make wide sweeping statements about her industry so I'm saying, be careful of what you say Lisa, you are NOT an expert (I presume so as you didn't answer my question about having any qualifications in Tax or Legal?)

I'll give you an example of me trampling all over your industry...

If I'm a contractor and pay full PAYE on my contract income (with zero expenses) why won't I get EXACTLY the same example payslip from EVERY Umbrella Company in the industry? They should all get the same result, surely. The only difference in that Marketplace is how much Umbrella Co's cheat and lie about the expenses that can be claimed. The only true difference between them all should be the fee...

As I said - seek an expert, as forums are full of 'pretend ones'. At least if you pay me or anyone else a fee - you've got some legal recourse.

And I also apologise to Lisa as this all appears to be a personal attack - unfortunately in this thread its the best example I can find of my point about defamatory statements about an industry touted as fact.

[...
Oh and if you don't mind - can we dispel this ridiculous myth about 'retrospective taxation' by HMRC in the BN66 case. The Government argues that the legislation put in place in 1987 is what is being applied, NOT that FA2008 has some NEW legislation being applied back in time! Again, the internet is awash with statements that "offshore businesses, Trusts, Tax Avoidance and the fact that HMRC can now create laws and apply them back in time" means we're all doomed - utter nonsense...
...]