Reply to: New Contractor Help......again

[TykeMerc]

So 85% return from an Offshore scheme, against a 70% return from a Ltd (more if your partner is a shareholder).

The questions are: What is your risk profile? Do you feel lucky? Is it worth the hassle/stress/payback for that extra 15%?

In the event that HMRC create a knobble for the EBT's which could easily be retrospective that 70% would look very attractive to someone facing back tax, interest and penalties.
EBTs have always looked like a rediculously high risk to me as it's blatantly obvious that the "loans" are merely disguised income, I'll be very surprised if the whole EBT edifice doesn't collapse in a massive disasterous mess.

I'm not sure that a truly definitive calculator exists for Ltd vs Umbrella as there are so many variables and unknowns, both have their own merits and it depends what your priorities are.

[ChimpMaster]

Right. As unearned income, as offshore earnings already taxed, as a temporary, repayable loan...? Does the next year's SA include the value of the previous years loan repayment...?

I don't care about the machanics, as Lisa has said the whole landscape is littered with HMRC attempts to tax previously untaxable income. While people already in established schemes are probably moderately safe - although I'm not taking that bet - it would be a very foolish person to start one up now. The OP asked for advice, the net advice is use an Umbrella or a UK Ltd Co. Luckily, he seems to have taken note.

So 85% return from an Offshore scheme, against a 70% return from a Ltd (more if your partner is a shareholder).

The questions are: What is your risk profile? Do you feel lucky? Is it worth the hassle/stress/payback for that extra 15%?

[malvolio]

Its all declared on the SA anyway....

Right. As unearned income, as offshore earnings already taxed, as a temporary, repayable loan...? Does the next year's SA include the value of the previous years loan repayment...?

I don't care about the machanics, as Lisa has said the whole landscape is littered with HMRC attempts to tax previously untaxable income. While people already in established schemes are probably moderately safe - although I'm not taking that bet - it would be a very foolish person to start one up now. The OP asked for advice, the net advice is use an Umbrella or a UK Ltd Co. Luckily, he seems to have taken note.

[sal626]

Not interested in BN66, I've had my say on that one. It doesn't change the above scenario, where people make a conscious decision to join one of the EBT schemes as of now. People already in such schemes aren't exactly immune either, although they might escape any retrospective application.

Taxing the loan is simple; in fact it's already in their power. They merely tax you on the perceived benefit to you of having the cash available for use. Before they get that far, there are several scenarios, all bad. UK EBTs are already dead. UK-based loan schemes will find the written-off loan can't be offset againt CT so become uneconomic. Offshore loan schemes will be caught by the extended DTA agreements that make disclosure of off-shore earnings of UK tax residents easily acheivable. When they've done all that, then they use the BIK angle.

Still feel lucky?

A loans not an offshore earning though...its a loan - so don't understand how this applies: "will be caught by the extended DTA agreements that make disclosure of off-shore earnings of UK tax residents easily acheivable."

Its all declared on the SA anyway....

[malvolio]

Not quite.

1. they have tried to argue the ebt case and lost (see the cases mentioned previously).
2. they would have a real hard time taxing loans. whats next a tax on credit card debt, a tax on your mortgage. What if I get a loan from a friend to go gamble in Vegas, is that now taxable. come on, get real
3. the scaremongering on this site from people with an angle to sell or present is quite unbelievable. as with all schemes\systems, do the due dilligence. go with an established copmpany who have longevity and clout in the tax planning industry. be carefull of "some dodgy company" registered at some "dodgy home address" touting some hmrc approved scheme. at the end of the day, assess how you want to play it, not how others want you to go.
4. Stop thinking that bn66 has somehow given the thugs carte blanche to rewrite the past. they havent won that fight yet, not by a long shot

Not interested in BN66, I've had my say on that one. It doesn't change the above scenario, where people make a conscious decision to join one of the EBT schemes as of now. People already in such schemes aren't exactly immune either, although they might escape any retrospective application.

Taxing the loan is simple; in fact it's already in their power. They merely tax you on the perceived benefit to you of having the cash available for use. Before they get that far, there are several scenarios, all bad. UK EBTs are already dead. UK-based loan schemes will find the written-off loan can't be offset againt CT so become uneconomic. Offshore loan schemes will be caught by the extended DTA agreements that make disclosure of off-shore earnings of UK tax residents easily acheivable. When they've done all that, then they use the BIK angle.

Still feel lucky?

[Vallah]

but whats to stop the company going bust and calling in these loans ???

That's the important point. You're not getting a loan from the company, you're getting a loan from the trust, and the trust is set up to act in your best interests. The company therefore, under any circumstances, cannot recall the loans.

[gpc]

but whats to stop the company going bust and calling in these loans ???

[Vallah]

HMRC's own website clearly states that "A loan to a beneficiary is not an emolument."

They've shot themselves in the foot there. All they could possibly do is change the tax law from April 2011 onwards. They wouldn't stand a chance of retrospectively taxing loans that they've said themselves are definitely not emoluments.

[LisaContractorUmbrella]

Not quite.

1. they have tried to argue the ebt case and lost (see the cases mentioned previously).
2. they would have a real hard time taxing loans. whats next a tax on credit card debt, a tax on your mortgage. What if I get a loan from a friend to go gamble in Vegas, is that now taxable. come on, get real
3. the scaremongering on this site from people with an angle to sell or present is quite unbelievable. as with all schemes\systems, do the due dilligence. go with an established copmpany who have longevity and clout in the tax planning industry. be carefull of "some dodgy company" registered at some "dodgy home address" touting some hmrc approved scheme. at the end of the day, assess how you want to play it, not how others want you to go.
4. Stop thinking that bn66 has somehow given the thugs carte blanche to rewrite the past. they havent won that fight yet, not by a long shot

It is not scaremongering - it is an opinion. I would agree that taxing of a loan is a ridiculous idea but the taxing of an amount of money that had been earned in the UK that had been called a loan by an offshore company that has no intention of recalling the loan as they realise the tax impliactions for the individual is a different matter entirely.

At the end of the day we all know that HMR&C have been moving goalposts like nobody's business over the last couple of years and they view absolutely everything in terms of 'fairness'. The fact that their definition of fair seems to differ somewhat from everyone else's is irrelavent. It may be that HMR&C will be overturned and retrospective taxation will be made illegal. It may be that IR35 will be revoked. However, it is equally possible that any kind of 'scheme' will be seen as a way for HMR&C to replenish their coffers.

I just think that it is a good idea to make people aware of the potential risks in the same way that the scheme's operators advertise their potential benefits.

[Vallah]

Not quite.

1. they have tried to argue the ebt case and lost (see the cases mentioned previously).
2. they would have a real hard time taxing loans. whats next a tax on credit card debt, a tax on your mortgage. What if I get a loan from a friend to go gamble in Vegas, is that now taxable. come on, get real
3. the scaremongering on this site from people with an angle to sell or present is quite unbelievable. as with all schemes\systems, do the due dilligence. go with an established copmpany who have longevity and clout in the tax planning industry. be carefull of "some dodgy company" registered at some "dodgy home address" touting some hmrc approved scheme. at the end of the day, assess how you want to play it, not how others want you to go.
4. Stop thinking that bn66 has somehow given the thugs carte blanche to rewrite the past. they havent won that fight yet, not by a long shot

Quite so. There are several large, well established companies who have been providing good service for years.

[gpc]

Surely if you had done your research here as you say you would have come across this question more than a number of times. I believe there is a thread on this very question active at the moment let alone what is hidden in the deepest darkest corners of the search option.

There is no straight comparison option as they are different depending on your circumstances, duration of contracting career, type of contract, you aversion to paperwork and filing for a LTD etc etc

Trust me...I have been doing plenty of research!!!

I was simply asking if anyone knew of a calculator that has a really good like for like comparison of the 2 options and gives a side by side listing of pros and cons for each for the circumstances, salary etc . I have found plenty of calcs, but was wondering if there is a super duper one that someone has used and the figures have been proved correct by their real life experience or subsequent contract.

However, I shall keep looking and speak to a few more specialist accountants

Thanks again
gpc

[RockTheBoat]

There is no reason why HMR&C couldn't apply legislation retrospectively - you have just said yourself that EBT's do not apply tax correctly; therefore it is avoidance and therefore HMR&C will see EBT's as a viable target.

Not quite.

1. they have tried to argue the ebt case and lost (see the cases mentioned previously).
2. they would have a real hard time taxing loans. whats next a tax on credit card debt, a tax on your mortgage. What if I get a loan from a friend to go gamble in Vegas, is that now taxable. come on, get real
3. the scaremongering on this site from people with an angle to sell or present is quite unbelievable. as with all schemes\systems, do the due dilligence. go with an established copmpany who have longevity and clout in the tax planning industry. be carefull of "some dodgy company" registered at some "dodgy home address" touting some hmrc approved scheme. at the end of the day, assess how you want to play it, not how others want you to go.
4. Stop thinking that bn66 has somehow given the thugs carte blanche to rewrite the past. they havent won that fight yet, not by a long shot

[northernladuk]

Thanks for all the advice,

I dont want to open a can of worms re EBTs etc as its a big can and a lot of worms!!!

I think these EBTs are out as they seem too risky at the moment.....

So I think its down to either an umbrella or LTD company,

Anyone know of a really good comparison site. Ive tried several so far but nothing that really compares a like for like between the 2.

Thanks again all

Surely if you had done your research here as you say you would have come across this question more than a number of times. I believe there is a thread on this very question active at the moment let alone what is hidden in the deepest darkest corners of the search option.

There is no straight comparison option as they are different depending on your circumstances, duration of contracting career, type of contract, you aversion to paperwork and filing for a LTD etc etc

[gpc]

Thanks for all the advice,

I dont want to open a can of worms re EBTs etc as its a big can and a lot of worms!!!

I think these EBTs are out as they seem too risky at the moment.....

So I think its down to either an umbrella or LTD company,

Anyone know of a really good comparison site. Ive tried several so far but nothing that really compares a like for like between the 2.

Thanks again all

[malvolio]

Don't be too sure. Thre's only a small gap between the BN66 retrospection and doing it again for EBTs.

They have given clear and unambiguous warning that they are to be killed off in April 2011. It is not beyond the realms of possibility that they will consider anybody not getting out of existing EBTs now or setting up new ones in the face of that notice to have deliberately evaded paying legal taxes for no justifiable business reason.