EBT loan scheme to "no-longer-an-employee" loan scheme HEALTH WARNING

[Old Greg]

I can honestly assure those concerned that any area of the scheme that has potential to cause a problem we have identified the area of risk and addressed it , we have been providing similar services for 12 years without challenge from HMRC further to a previous post about alan jones it for the exact reason that we don't know who reads the forum that we don't reveal the intricate details , if HMRC want to know exactly how it is structured they will at least have to do a bit of work to find out.

Honestly? Do we have your word as an off-shore contractor independent loan payment trust facilitation service provider on this?

[geoff from contracta IOM]

I can honestly assure those concerned that any area of the scheme that has potential to cause a problem we have identified the area of risk and addressed it , we have been providing similar services for 12 years without challenge from HMRC further to a previous post about alan jones it for the exact reason that we don't know who reads the forum that we don't reveal the intricate details , if HMRC want to know exactly how it is structured they will at least have to do a bit of work to find out.

[DonkeyRhubarb]

I think that's the main point. HMRC will examine the working relationship between the user and the client. If they deem that as one of employment - bang, you must pay up. Previously, AIUI, the user was an employee of the scheme provider, and so IR35 absolutely did not apply - any more than it would if the user were an employee of a large consultancy. I note on Geoff's company's website, there's no mention of IR35.

I don't believe they will do that.

Why?

Because they would have to conduct several thousand individual investigations, which would clog up the Tribunal system for years.

They will be looking for a generic way to defeat the scheme which catches everyone in one fell swoop.

PS. this is also the reason (in hindsight) why IR35 itself was always going to be unenforceable because individual investigations are hugely resource intensive and they could only ever conduct a token number

PPS. with several thousand already in these schemes, HMRC are going to need to shut them down PDQ which probably means legislation

[NotAllThere]

<rant on>I have an axe to grind and genuine concern for contractors - the two are not mutually exclusive. I think these schemes are sold in such a way that contractors are not really aware of the risks involved. This is only to be expected as the people selling the schemes want to make money out of it, and are salesman - they're not going to really make a big deal out of the risks, and will represent themselves as the friend of contractors, trying to help. The scheme promotors set up the scheme to make money. The scheme promotors only risk is not being able to sell it to enough people.

It's all legal of course. It's not a scam, it's not fraud. Caveat Emptor most definitely applies, but I do find that the apologists for these schemes are rather disingenous.<rant off>

Agencies can't be invoiced direct from self employed contractors, as they have to deduct tax and NI. Any scheme that negates the need for this (eg lots of existing gross pay providers) and there isn't a problem. It won't be the contractors issuing invoices themselves. .

That is what I would have thought, but Alan said:

I had a phone call only this week about an Agency cancelling all its contracts with a promoter/one of its vehicles because the Agency found out the contractor was a Sole Trader/self employed and this Agency said it would not touch Sole Traders (anywhere in the supply chain) with a "barge pole".

Whether they need to worry about this or not is irrelevant. Agencies probably don't need to check our identities either. But doing so makes them feel safer. A blanket "No sole trader" rule, will also make them feel safer, and won't impact their profits.

And I suspect that most EBT users are blissfully unaware of the impact of what is being sold as a trivial change of status.

I think that's the main point. HMRC will examine the working relationship between the user and the client. If they deem that as one of employment - bang, you must pay up. Previously, AIUI, the user was an employee of the scheme provider, and so IR35 absolutely did not apply - any more than it would if the user were an employee of a large consultancy. I note on Geoff's company's website, there's no mention of IR35.

[Vallah]

However, Alan's other point - that agencies will not deal with self-employed workers - does cause me some concern. And I suspect that most EBT users are blissfully unaware of the impact of what is being sold as a trivial change of status.

Agencies can't be invoiced direct from self employed contractors, as they have to deduct tax and NI. Any scheme that negates the need for this (eg lots of existing gross pay providers) and there isn't a problem. It won't be the contractors issuing invoices themselves.

[malvolio]

I agree that schemes should fully explain the IR35 issue to contractors, as it wasn't an issue under the old EBT schemes due to the contract of employment being in place. But anybody leaving an EBT scheme is going to have the same issue with IR35 whether they sign up for a new scheme or not, surely? Unless they go down the umbrella route of course.

However, Alan's other point - that agencies will not deal with self-employed workers - does cause me some concern. And I suspect that most EBT users are blissfully unaware of the impact of what is being sold as a trivial change of status.

[Vallah]

I agree that schemes should fully explain the IR35 issue to contractors, as it wasn't an issue under the old EBT schemes due to the contract of employment being in place. But anybody leaving an EBT scheme is going to have the same issue with IR35 whether they sign up for a new scheme or not, surely? Unless they go down the umbrella route of course.

[Alan Jones]

Fatal Flaw

Can I ask what your interest in all this is Alan? Is it genuine concern for contractors, or do you have an axe to grind for some reason?

Genuine reason that Contractors are being conned. These new schemes using Sole Traders and Partnerships/Companies do NOT even avoid the IR35 rules.
Most promoters' Tax Opinions/Counsel Opinions work on the basis that the instructions to Counsel say
(i) The nature of the working arrangement between the worker and the end client is one that if he was working directly for the client he would NOT be regarded as an employee AND Counsel Opinion says
(ii) On basis of my instructions IR35 would not apply.

The FD of one scheme recently said to me "caveat emptor". I agree BUT only if you actually give them a proper HEALTH WARNING.

How many contractors have been told that if there working arrangement would be regarded as a "deemed employee" then they may face a large tax/NI bill (because the offshore promoter is not liable).

[Donnie Darko]

Can I ask what your interest in all this is Alan? Is it genuine concern for contractors, or do you have an axe to grind for some reason?

Some reckon he's working for HMRC and it wouldn't surprise me because he was thick as thieves with them at the Huitson JR.

[Vallah]

You don't actually answer the questions.

Can I ask what your interest in all this is Alan? Is it genuine concern for contractors, or do you have an axe to grind for some reason?

[Alan Jones]

I can't speak for other providers only our scheme
a) no
b) yes

You don't actually answer the questions.

[geoff from contracta IOM]

That seems reasonable BUT what about the vehicle that was employing the contractors re the EBT scheme. Did it
(a) terminate all the employment contracts on xx date and then re-instate them on Sole Trader supply contracts the following day; OR
(b) Did a new company/vehicle enter into the Sole Trader contracts. AND

Did Counsel opine on the conversion process and potential implications re the fact that there has in fact been a contractual break in /transfer of an existing contract with the end client i.e. if you take the supply chain from end client to the new Sole trader contract there has been an "effective" transfer of contract (without knowledge of end client). This concerns me.

PLUS - do the Agencies know that the contractors are now Sole Traders / Self Employed . I had a phone call only this week about an Agency cancelling all its contracts with a promoter/one of its vehicles because the Agency found out the contractor was a Sole Trader/self employed and this Agency said it would not touch Sole Traders (anywhere in the supply chain) with a "barge pole".

I can't speak for other providers only our scheme

a) no
b) yes

[Alan Jones]

Given the nature of the trusts used for these schemes a new trust must be established not the trust for the EBT schemes recycled. The original trusts would have been established to Benefit Employees of a particular company this would no longer be the case were the critera to change

That seems reasonable BUT what about the vehicle that was employing the contractors re the EBT scheme. Did it
(a) terminate all the employment contracts on xx date and then re-instate them on Sole Trader supply contracts the following day; OR
(b) Did a new company/vehicle enter into the Sole Trader contracts. AND

Did Counsel opine on the conversion process and potential implications re the fact that there has in fact been a contractual break in /transfer of an existing contract with the end client i.e. if you take the supply chain from end client to the new Sole trader contract there has been an "effective" transfer of contract (without knowledge of end client). This concerns me.

PLUS - do the Agencies know that the contractors are now Sole Traders / Self Employed . I had a phone call only this week about an Agency cancelling all its contracts with a promoter/one of its vehicles because the Agency found out the contractor was a Sole Trader/self employed and this Agency said it would not touch Sole Traders (anywhere in the supply chain) with a "barge pole".

[geoff from contracta IOM]

Check to see if your promoter took Tax Counsel/Barrister advice on the Conversion process.
It appears that the Tax advice received assumes a new scheme from "scratch" not on an existing EBT scheme being converted a new "no-longer-an-employee" scheme.

The actual conversion may actually allow HMRC to challenge the new scheme and it could result in a catch 22 situation that the old EBT scheme was in fact a "disguised remuneration" scheme that can be attacked without the assistance of the new rules that came into force on 9 December 2010.

Given the nature of the trusts used for these schemes a new trust must be established not the trust for the EBT schemes recycled. The original trusts would have been established to Benefit Employees of a particular company this would no longer be the case were the critera to change

[Alan Jones]

Check to see if your promoter took Tax Counsel/Barrister advice on the Conversion process.
It appears that the Tax advice received assumes a new scheme from "scratch" not on an existing EBT scheme being converted a new "no-longer-an-employee" scheme.

The actual conversion may actually allow HMRC to challenge the new scheme and it could result in a catch 22 situation that the old EBT scheme was in fact a "disguised remuneration" scheme that can be attacked without the assistance of the new rules that came into force on 9 December 2010.