Reply to: EBT's etc

[pastalista]

Do you live in London by any chance and Drive a car by any chance? If so, do you go out of London regularly to fill up your car tank with the cheapest possible petrol? If your car uses Diesel, do you use the Red Diesel (or whatever its called)? I'd be surprised if you don't attempt to get the VAT and fuel tax taken off the petrol cost when you go and pay. I also wouldn't be surprised if you don't have insurance, tax or MOT on your car. I mean using your logic, why bother having them, right? Not having any of these doesn't pose any danger to other road users, right?

Back to the point. Shopping around is one thing, looking for ways to evade tax or ways to break the spirit of the law in tax avoidance is wrong. I don't mind paying Corp Tax. If I have to pay Income Tax and National Insurance, then I don't see the problem. I don't look for ways of avoiding my responsibilities. There is nothing immorral in paying ones dues. If you want to bury your head in the sand and hope the issue goes away without paying a penny to the Taxman, good luck to you. (And if you want to live the imorral lifestyle supported by Lord Clyde, then go for it. I just hope you get caught).

Wow.

I'm totally unclear what point your are trying to make, but I think you have actually made mine.

No, I don't live in London but if I did, what would be wrong with filling my car up at whatever the cheapest petrol station was? There's nothing wrong with that - if you want to try to take a moral line on it then surely it is immoral of a petrol company to uplift the charges at one station over another?

In terms of your other comments, I think this is where you make my point rather than your own. Using red diesel on the road is illegal. Driving without insurance, tax and MOT is illegal. Not having them poses a massive risk to other people and it would be reckless and irresponsible not to have them. Fuel tax and VAT are legal taxes charged at the point of sale and there is no avoiding them. To do so, or to attempt to so do would be illegal. My car is insured, taxed, has an MOT, I fill up with diesel from a pump at a fuel station, not from a stash on a farm, I wouldn't dream of trying to argue that VAT should be deducted from a bill and so on. I am completely unclear how you can extrapolate from the post that you quote that I am some kind of irrepsonsible person that simply doesn't care about anyone or anything else.

I am not a law breaker. There is no such thing as the "spirit" of a law. Something is either legal or it is not. Lawyers of course make their money arguing over the grey areas which laws inevitably create. The tax authorities would of course like people to make the moral case regarding taxation by constantly talking about fairness but laws are created for a reason. Tax avoidance is not illegal, tax evasion is. Avoidance is about structuring one's affairs to pay the least amount of tax possible and by nature it tends to be the preserve of the better off.

Further still there is the argument that the more disposable income one has, the more tax is ultimately paid because of things like VAT, sales tax on vehicles, stamp duty on more expensive homes and so on. This is not a line I would use as a defence, I'm merely pointing it out.

If you "choose" to pay the maximum amount of tax that you can out of some sense of "fair play" then good luck to you. I'm sure you are aware that you can make voluntary payments to HMRC if you wish, just because you want to help out more. I presume also that you contract via PAYE rather than limited company - wouldn't want to pay lower NI rates by paying yourself dividends and under £6400 per year in salary would you?

There is nothing immoral about Lord Clyde's statement. He is stating the law, not an opinion. You may not agree with the law that is of course your right. What is not your right is to accuse me of illegal acts when you know nothing about me, my life or my approach to the world.

Finally, as to your "I hope you get caught" - rest easy - I did. I was investigated by HMRC for 4 years and it financially ruined me. Not in terms of the outstanding tax which was not significant because nothing I had done was illegal but in the hideous accountancy and legal bills that I had to pay to defend myself. My life changed beyond all recognition and the consequences were (and continue to be) devastating. I'm glad that you will feel better knowing that.

Thanks for your understanding and support. It's attitudes like your's that are making this country great.

[NotAllThere]

... looking for ways to ... break the spirit of the law in tax avoidance is wrong...

If HMRC worked in the same way you might have had a point. But they review tax law to find new ways to apply it. The whole income splitting debacle came about because of that. Despite the FACT that the spirit of the law HMRC were trying to apply was stated in the Commons to not affect married couples.

As far as HMRC doing what they like, IR35 was mooted to the Tories several times before 1997, and was knocked back. It was only when New Labour took power, that it came into being - it fitting nicely into their politics of greed, and their naivity in thinking the the civil service worked for them.

[pastalista]

Hi Pastalist,

What you say is quite correct however the point I made earlier in the thread is that the two (small sample yes but they're two companies quite widely used here and had colleagues working via them) EBT providers I looked at had a completely contrived setup - and not contrived in what I believe was/is a legal sense - they where saying one thing and writing another - i.e. the written contract details where not reflected to what was verbally written...I believe if the ebt provider is guaranteeing you will receive say x% of your income as a loan each month and you never have to repay it then its a sham setup - the HMRC bods can upick this as far back as they like -i.e. prior to dec 9th 2010 - as what these schemes are doing may prove to be illegal. Again - I'm not a lawyer so could be wrong - but just looked too dodgy to me.

Well, clearly an EBT setup for a UK based contractor who works in the UK is somewhat "contrived" but was legal. If a scheme provider is saying one thing and doing another then obviously members of that scheme are likely to be in trouble.

The point I have been trying to make on a couple of areas of this forum is that legal or not, HMRC takes the view that all of this comes under the banner of "aggressive avoidance" and is therefore challengable by them as far back as they want (but in practice, 20 years).

Pastalista

[slogger]

Hi Pastalist,

What you say is quite correct however the point I made earlier in the thread is that the two (small sample yes but they're two companies quite widely used here and had colleagues working via them) EBT providers I looked at had a completely contrived setup - and not contrived in what I believe was/is a legal sense - they where saying one thing and writing another - i.e. the written contract details where not reflected to what was verbally written...I believe if the ebt provider is guaranteeing you will receive say x% of your income as a loan each month and you never have to repay it then its a sham setup - the HMRC bods can upick this as far back as they like -i.e. prior to dec 9th 2010 - as what these schemes are doing may prove to be illegal. Again - I'm not a lawyer so could be wrong - but just looked too dodgy to me.

I appreciate that you are saying this is a "personal" view but when looking around to see what is available in terms of payment vehicles, most contractors shop around for the best available deal. Some choose total security (PAYE), some go limited (safe but the rules shift around a lot), umbrella (safe but HMRC challenging dispensations) and some choose the offshore options which were (still are as vehicles but no longer tax efficient) completely legal.

If people want to introduce morality into taxation then that is clearly their choice but as Lord Clyde said "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue". EBT was a perfectly legal way of ensuring that Hector got some money but not as much as he would have liked. Whether one morally agrees or not, the law is the law.

Now that the law has changed, people who continue to use EBT can expect a letter at some point. It would be perfectly reasonable to say to anyone who now begins to use an EBT in the hope that they can avoid tax that they are foolish and indeed illegal (if they don't declare the income) but prior to 09/12/2010 it was perfectly fine. Lord Clyde made it perfectly clear that there was no moral reason for somebody to pay the maximum amount of tax that HMRC would like. In fact, using a limited company is a tax avoidance vehicle due to the lower NI contributions so presumably it won't now be long before more people are making moral judgments about that.

On a practical level, if an EBT provider were approached for outstanding tax they would state that it was the responsibility of the individual, not them as an entity. It is up to all of us to ensure that any scheme we use stands up in law. With the introduction of the "aggressive avoidance" approach from HMRC, that became much more difficult.

Most contractors will now either use an umbrella or a limited company to manage their finances, which is of course precisely what HMRC wanted.

Pastalista

[pmeswani]

I appreciate that you are saying this is a "personal" view but when looking around to see what is available in terms of payment vehicles, most contractors shop around for the best available deal. Some choose total security (PAYE), some go limited (safe but the rules shift around a lot), umbrella (safe but HMRC challenging dispensations) and some choose the offshore options which were (still are as vehicles but no longer tax efficient) completely legal.

If people want to introduce morality into taxation then that is clearly their choice but as Lord Clyde said "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue". EBT was a perfectly legal way of ensuring that Hector got some money but not as much as he would have liked. Whether one morally agrees or not, the law is the law.

Now that the law has changed, people who continue to use EBT can expect a letter at some point. It would be perfectly reasonable to say to anyone who now begins to use an EBT in the hope that they can avoid tax that they are foolish and indeed illegal (if they don't declare the income) but prior to 09/12/2010 it was perfectly fine. Lord Clyde made it perfectly clear that there was no moral reason for somebody to pay the maximum amount of tax that HMRC would like. In fact, using a limited company is a tax avoidance vehicle due to the lower NI contributions so presumably it won't now be long before more people are making moral judgments about that.

On a practical level, if an EBT provider were approached for outstanding tax they would state that it was the responsibility of the individual, not them as an entity. It is up to all of us to ensure that any scheme we use stands up in law. With the introduction of the "aggressive avoidance" approach from HMRC, that became much more difficult.

Most contractors will now either use an umbrella or a limited company to manage their finances, which is of course precisely what HMRC wanted.

Pastalista

Do you live in London by any chance and Drive a car by any chance? If so, do you go out of London regularly to fill up your car tank with the cheapest possible petrol? If your car uses Diesel, do you use the Red Diesel (or whatever its called)? I'd be surprised if you don't attempt to get the VAT and fuel tax taken off the petrol cost when you go and pay. I also wouldn't be surprised if you don't have insurance, tax or MOT on your car. I mean using your logic, why bother having them, right? Not having any of these doesn't pose any danger to other road users, right?

Back to the point. Shopping around is one thing, looking for ways to evade tax or ways to break the spirit of the law in tax avoidance is wrong. I don't mind paying Corp Tax. If I have to pay Income Tax and National Insurance, then I don't see the problem. I don't look for ways of avoiding my responsibilities. There is nothing immorral in paying ones dues. If you want to bury your head in the sand and hope the issue goes away without paying a penny to the Taxman, good luck to you. (And if you want to live the imorral lifestyle supported by Lord Clyde, then go for it. I just hope you get caught).

[malvolio]

I think you'll find 99% of one man bands who use Ltd Cos do so because the people who control the jobs market won't deal with them other than through an intermediary company because of S44-47 ITEPA 2003 (S143c as was). Before we get hung up on the idea of a Ltd Co as being tax efficient (which it is, of course, if properly managed), first we must allow that they are the only viable option of you don't want to be an employee of someone else and find work through agencies.

Incidentally, working at the level I do, I would probably get more take home as a permie these days, with a lot less hassle. Rates are pretty much the same as they always have been, whereas senior salaries have gone up significantly. Add in pensions and holidays, and the economic justification for freelancing gets increasingly tenuous. And given the amount of personal, corporate and Value Added taxes I generate in a year, if I'm a tax avoider, I'm really not a very good one...

[pastalista]

Who chose the scheme?

Personally speaking? Who chose the solution. You or the EBT provider? I am guessing you did. Therefore you were looking for ways of not paying any forms of tax. As a result, the liability falls with you and not the provider, hence why I believe HMRC should chase you and not the provider. In any case, a lot of the EBT providers trade overseas and HMRC do not have any authority to chase payment from the providers, so it would be easier for them to chase the contractor rather than the company who provided the solution as the chances are the contractor is based in the UK.

But that is my personal view.

I appreciate that you are saying this is a "personal" view but when looking around to see what is available in terms of payment vehicles, most contractors shop around for the best available deal. Some choose total security (PAYE), some go limited (safe but the rules shift around a lot), umbrella (safe but HMRC challenging dispensations) and some choose the offshore options which were (still are as vehicles but no longer tax efficient) completely legal.

If people want to introduce morality into taxation then that is clearly their choice but as Lord Clyde said "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue". EBT was a perfectly legal way of ensuring that Hector got some money but not as much as he would have liked. Whether one morally agrees or not, the law is the law.

Now that the law has changed, people who continue to use EBT can expect a letter at some point. It would be perfectly reasonable to say to anyone who now begins to use an EBT in the hope that they can avoid tax that they are foolish and indeed illegal (if they don't declare the income) but prior to 09/12/2010 it was perfectly fine. Lord Clyde made it perfectly clear that there was no moral reason for somebody to pay the maximum amount of tax that HMRC would like. In fact, using a limited company is a tax avoidance vehicle due to the lower NI contributions so presumably it won't now be long before more people are making moral judgments about that.

On a practical level, if an EBT provider were approached for outstanding tax they would state that it was the responsibility of the individual, not them as an entity. It is up to all of us to ensure that any scheme we use stands up in law. With the introduction of the "aggressive avoidance" approach from HMRC, that became much more difficult.

Most contractors will now either use an umbrella or a limited company to manage their finances, which is of course precisely what HMRC wanted.

Pastalista

[SueEllen]

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

HM Revenue & Customs: Do you need to complete a tax return?

[pmeswani]

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

S.

Personally speaking? Who chose the solution. You or the EBT provider? I am guessing you did. Therefore you were looking for ways of not paying any forms of tax. As a result, the liability falls with you and not the provider, hence why I believe HMRC should chase you and not the provider. In any case, a lot of the EBT providers trade overseas and HMRC do not have any authority to chase payment from the providers, so it would be easier for them to chase the contractor rather than the company who provided the solution as the chances are the contractor is based in the UK.

But that is my personal view.

[malvolio]

Nope, don't want to jeopardise either my status (even though ive now left) or that of others still in the scheme.

If a chartered accountant with 30 years experience is telling me and others that the EBT scheme is still robust then I am going to have to trust him.

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

S.

Because it's your personal tax that they see as having gone missing, not the EBT providers' corporate tax? Also, on the same basis, it's your personal responsibility to pay the correct amount of tax, nobody else's. You can sub the calculation to someone else, but if they get it wrong, you get the fines. And sorry but if you don't understand that basic rule of self assessment, then you aren't in a position to judge the worth, or not, of an EBT.

And as I've said before, the scheme's are still robust and still have an entirely legitimate purpose, it's only the tax position that's changed. But if they're not telling you that, clearly and simply, then what else aren't they telling you? Don't suppose they're possibly more interested in their revenue stream than your take home, do you...?

[Tomo1971]

Can you expand on this Tomo1971?

Nope, don't want to jeopardise either my status (even though ive now left) or that of others still in the scheme.

If a chartered accountant with 30 years experience is telling me and others that the EBT scheme is still robust then I am going to have to trust him.

Why would the revenue go after hundreds or many thousands of people in the EBT schemes for lost PAYE when they could easily just go to the handful of EBT providers and get the lost PAYE from them. It was explained to me that the responsibility of calculating PAYE is on the employer and not the employee, if its done wrong then its the employer that is liable, not the employee. Is that not right?

S.

[craig1]

I thought this would be an appropriate place to stick this article: How the EBT and EFRBS changes are affecting sport, specifically the two rugby codes. Not specifically relevant to us but still interesting to see the wider impacts of the changes.

[malvolio]

Although the OTS has been asked to look at IR35, it has been made equally clear that it will not simply go away but be replaced by something as yet unknown. Who knows if it will be any better / fairer?

You need to look at who is on the advisory panel to the OTS looking at this whole area for an answer to that question. I don't think Anne Redston nor Chris Bryce (PCG Chairman) will let things slip by them for a start.

The really important change is that HMG accept that we are genuine workers, not simply tax evaders by another name. Politicallly they can't back out IR35 and get us back to 1999, that won't happen. They can, however, limit and clarify its applicability

[pastalista]

Law unto themselves

Cameron's written endorsement of the freelance business model on PCG's National Freelance Day, the specific exclusion of Ltd Co Contractors from the AWD and the similarly specific brief to the OTS to consider IR35 are three...

Malvolio

Whilst I agree with your statements, there is a big difference between Cameron endorsing the freelance business model and HMRC not doing something else entirely. Hector has proved to be a law unto himself for sometime now and governments come and governments go but Hector is always there. There are always some MPs / ministers who will be easily convinced by Hector that crushing contractors further still is a good thing whatever they might have said from the cheap seats of opposition.

Although the OTS has been asked to look at IR35, it has been made equally clear that it will not simply go away but be replaced by something as yet unknown. Who knows if it will be any better / fairer?

I hope that it is just the after effects of being battered by Hector for 4 years making me doubt everything and that contractors will finally be allowed to conduct their business as a business.

Pastalista

[malvolio]

What signs Mal?

Cameron's written endorsement of the freelance business model on PCG's National Freelance Day, the specific exclusion of Ltd Co Contractors from the AWD and the similarly specific brief to the OTS to consider IR35 are three...