Reply to: EBT & other loan schemes

[pastalista]

Limited Law

That's one reason why I fear an Aussie style 80% rule. I know you've dissed that in the past, but it fits that particular bill.

It would be easy to pass a law that differentiated between different sizes of company. It could be applied to, say, any company with fewer than 3 employees. That would rule out the problems Sue Ellen mentioned but would catch almost all contractors.

There hasn't exactly been a lot of support for contractors recently. I accept that a Labour government wouldn't be expected to be keen or lenient, but the Tories? I know times are hard at the minute but the longer term view needs to be taken. Making it harder and harder for contractors to operate and come out of the deal with some recompense for all of the downsides (I won't bore by listing them here as we all know them) is not a recipe for success.

To have a Tory Chancellor stand up and talk about how "it just isn't fair, these people paying less tax than they should" is incredible. Avoidance was invented by the Tories.

It's a topsy turvy world at the moment for sure.

Pastalista

[Fred Bloggs]

I'm not. The EBT argument is about non-UK solutions. Within UK-based taxation, I think the emphasis may shift to something closer to distinguishing between real contractors and pretend ones. Messing with corporate law has too many ramifications. Best bet is to wait for the budget in March; we'll have a much clearer idea of their thinking then.

That's one reason why I fear an Aussie style 80% rule. I know you've dissed that in the past, but it fits that particular bill.

[SueEllen]

So how long do you think it will be Mal before the payment of dividends to avoid NI is outlawed because it constitutes tax avoidance? I'm convinced that the closer to the end of the funnel we get the more pressure will come on the supposedly "legitimate" forms of avoidance such as this.

They would have a nightmare changing the law to get this through.

Lots of directors of large firms get shares as part of their remuneration packages and that's a couple of million pounds rather than a few thousand.

[malvolio]

So how long do you think it will be Mal before the payment of dividends to avoid NI is outlawed because it constitutes tax avoidance? I'm convinced that the closer to the end of the funnel we get the more pressure will come on the supposedly "legitimate" forms of avoidance such as this.

I'm not. The EBT argument is about non-UK solutions. Within UK-based taxation, I think the emphasis may shift to something closer to distinguishing between real contractors and pretend ones. Messing with corporate law has too many ramifications. Best bet is to wait for the budget in March; we'll have a much clearer idea of their thinking then.

[pastalista]

Snake Oil

The relevant wording is:



I'm guessing they are looking at moving you from being an employee to being self-employed so the restriction on employees doesn't apply and it counts as a commercial transaction. The tricky bit is getting around "income" since self employed pay tax on all their earnings less allowable business expenses anyway. Plus, of course, Hector can already look through commercial transactions that have no direct business benefit

This could get interesting, not least because it puts your earned money even farther away from your control. However, anyone who sticks with the snake oil sellers had better have a damned good savings plan...

So how long do you think it will be Mal before the payment of dividends to avoid NI is outlawed because it constitutes tax avoidance? I'm convinced that the closer to the end of the funnel we get the more pressure will come on the supposedly "legitimate" forms of avoidance such as this.

I don't disagree with your last statement and remuneration trusts are actually meant as an inheritance tax planning system rather than an income tax avoidance scheme (in fact they are not classified as avoidance at all because they are openly reported to Hector) but it is highly likely that many of the scheme providers will adopt this approach as it "sort of" fits the bill.

There is actually a greater element of personal control with a remuneration trust in that the individual controls the allocation of the funds - it is not done on their behalf (direct and sole control of a bank account) but I suspect it won't be long before they too are attacked and successfully this time.

I personally think it is inevitable that eventually the only way that will be considered to be a legitimate vehicle will be PAYE and if rates don't adjust accordingly, who is going to want to be a contractor?

Pastalista

[malvolio]

I actually came across a provider (in the summer) who have been offering the remuneration scheme for over two years. They claim this solution has been around for over 20 years and never been challenged. They were so confident they were even offering full refund of fees if successfully challenged in court. I didn’t join, but I know some contractors who have.

But the point is, all tax avoidance is on the radar now, so eventually all schemes will either be challenged in court or legislated against.

The relevant wording is:

The legislation inserts a new Part 7A into ITEPA 2003. The legislation
ensures that where a third party makes provision for what is in substance
a reward or recognition, or a loan, in connection with the employee’s
current, former, or future employment, an income tax charge arises.
Income tax is charged on the sum of money made available and on the
higher of the cost or market value where an asset is used to deliver the
reward or recognition, for example by transferring or otherwise making
available an asset for the employee’s use and benefit as if the employee
owned the asset. The amount concerned will count as a payment of
employment income and the employer will be required to account for
PAYE.
There will be protection for specified types of arrangements involving
third parties – including registered pension schemes, approved employee
share schemes and ordinary commercial transactions. The tax treatment
of benefits packages which are available across the employer’s workforce
will also be unaffected by the measure, provided that the benefits are
genuinely available to substantially all employees and cannot be accessed
by only specially selected individuals.

I'm guessing they are looking at moving you from being an employee to being self-employed so the restriction on employees doesn't apply and it counts as a commercial transaction. The tricky bit is getting around "income" since self employed pay tax on all their earnings less allowable business expenses anyway. Plus, of course, Hector can already look through commercial transactions that have no direct business benefit

This could get interesting, not least because it puts your earned money even farther away from your control. However, anyone who sticks with the snake oil sellers had better have a damned good savings plan...

[sal626]

I actually came across a provider (in the summer) who have been offering the remuneration scheme for over two years. They claim this solution has been around for over 20 years and never been challenged. They were so confident they were even offering full refund of fees if successfully challenged in court. I didn’t join, but I know some contractors who have.

But the point is, all tax avoidance is on the radar now, so eventually all schemes will either be challenged in court or legislated against.

[pastalista]

Maybe so, but the new rules do not apply only to EBTs: they are potentially very wide ranging.

Indeed, but remuneration trusts are not classed as tax avoidance vehicles, are fully disclosed to Hector and don't involve (in fact specifically exclude) pension contributions. They are used for inheritance tax planning but can in fact be utilised for other things along the way.

They haven't ever been successfully challenged in court, which of course doesn't mean they won't be at some point.

Looking at the December 9th details, it is hard to see how they are caught by the change in legislation.

We will see I suppose.

Pastalista

[malvolio]

I am wondering if they are looking to use remuneration trusts rather than employee benefit trusts.

And so the wheel turns......

Pastalista

Maybe so, but the new rules do not apply only to EBTs: they are potentially very wide ranging.

[pastalista]

Providers working on new solutions

No prob.

Not one to hang around. I left as soon as news broke.

I believe most providers will have developed a new solution by now which probably makes a few of your other points slightly inaccurate also for people who stayed with a provider.

Lots of providers seemed to be caught unawares by this announcement. I have a talked to a couple of them who are saying "we are finalising a new scheme that is even more beneficial from a tax saving perspective than EBT". They insist that they are just awaiting leading counsel opinion before opening the schemes up.

The schemes that they appear to be working on still seem to utilise trusts but not EBT - they also seem to be reliant on the end user now being a sole trader rather than an employee of the organisation as under the EBT schemes.

I am wondering if they are looking to use remuneration trusts rather than employee benefit trusts.

And so the wheel turns......

Pastalista

[prozak]

No prob.

Not one to hang around. I left as soon as news broke.

I believe most providers will have developed a new solution by now which probably makes a few of your other points slightly inaccurate also for people who stayed with a provider.

[malvolio]

a)incorrect not relevent to me.
b)incorrect not relevent to me
c)incorrect you do not understand what they are busy with.
d)correct but no longer relevent to me

How are you doing? - I'll give you half marks for point d). So 12.5%. Fail.

I left the scheme. And had my agency to retro-date my contract and stop all payments.

There is a small amount remaining - pre 9th December - that I did not draw down as a loan that is caught.

No major drama, but not worth drawing down and paying full paye/NI on just yet.

OK, fairy nuff, but to be clear I am correct even if it is not relevant to your particular situation. Perhaps you should explain thing more clearly up front: I got the impression you were still in the scheme and waiting to see what happened (like someone else earlier in the thread).

But come back in April and let us know what happened.

[prozak]

The facts are that (a) any income you take from the scheme after Dec 9th will be treated as normal earned income at tax year end, (b) you will have to pay the necessary PAYE and NIC contributions by April 12th, (c) you joined the scheme to be paid a given amount regularly and your provider is "too busy" to worry about doing so and (d) you signed your income over to them (else the scheme wouldn't work at all) and they loan it back to you in some shape or form, so you may have problems getting the initial money back and using it another way.

How am I doing..?

Your point is that you may get your stake back untouched and start again. My point is you may be disappointed and even if you do you still face a big tax bill (as in "any payment from them after Dec 9th"). The other point is you need to get some other arrangement in place now, it will do no good to sit on your hands and hope for a miracle to occur. But hey, it's your money and your life. IDGAS if you won't listen.

a)incorrect not relevent to me.
b)incorrect not relevent to me
c)incorrect you do not understand what they are busy with.
d)correct but no longer relevent to me

How are you doing? - I'll give you half marks for point d). So 12.5%. Fail.

I left the scheme. And had my agency to retro-date my contract and stop all payments.

There is a small amount remaining - pre 9th December - that I did not draw down as a loan that is caught.

No major drama, but not worth drawing down and paying full paye/NI on just yet.

[malvolio]

Facts are usually useful when people decide to make judgements.

You have none of the relevent facts for my situation and indeed seem to totally misunderstand my point.

The facts are that (a) any income you take from the scheme after Dec 9th will be treated as normal earned income at tax year end, (b) you will have to pay the necessary PAYE and NIC contributions by April 12th, (c) you joined the scheme to be paid a given amount regularly and your provider is "too busy" to worry about doing so and (d) you signed your income over to them (else the scheme wouldn't work at all) and they loan it back to you in some shape or form, so you may have problems getting the initial money back and using it another way.

How am I doing..?

Your point is that you may get your stake back untouched and start again. My point is you may be disappointed and even if you do you still face a big tax bill (as in "any payment from them after Dec 9th"). The other point is you need to get some other arrangement in place now, it will do no good to sit on your hands and hope for a miracle to occur. But hey, it's your money and your life. IDGAS if you won't listen.

[prozak]

Oh do wake up... Hate to say it, but if you think paying you your own income is somehow not their highest priority, when that is what you are paying them to do, then you are sadly deluded and should go back to being a permie. Which bit of "it stopped on Dec 9th " did you not understand?

Facts are usually useful when people decide to make judgements.

You have none of the relevent facts for my situation and indeed seem to totally misunderstand my point.