Reply to: IR35 / Ltd company / Employee

[LisaContractorUmbrella]

That addresses the individual, but does nothing happen to the scam organisers, apart from unhappy people moaning about how they have been abandoned?

Well, the HMRC would apply penalties for failure to operate PAYE and would also expect payment for the underpaid income tax and NIC's - problem is that these companies regularly phoenix leaving HMRC with nothing and the contractor coughing up. As I understand it HMRC do have the power to go after individual directors if their company goes down the tubes owing HMRC but they would then presumably be limited to the director's assets.

[Clare@InTouch]

There's an article here in regard to professional negligence claims against promoters, but I presume that's the best anyone could hope to go for without an extension of the transfer of debt regulations.

HMRC takes on tax scheme promoters | AccountingWEB

I would imagine a lot of the final people in the chain are also based offshore.

[DirtyDog]

Here you go HM Revenue & Customs: Penalties to tackle offshore tax evasion

That addresses the individual, but does nothing happen to the scam organisers, apart from unhappy people moaning about how they have been abandoned?

[LisaContractorUmbrella]

I haven't been following these schemes so apologies if this is a stupid question but is there a penalty on the scheme providers as well as the customers getting hit for tax. I can't fathom why companies are still pushing this model when there is a very high risk it will fail in court. Do they get away fairly easily so worth wringing every penny out of it until HMRC shut them down or what? Surely it is negligent to continue to push a scheme that is likely to fail?

Here you go HM Revenue & Customs: Penalties to tackle offshore tax evasion

[cojak]

I haven't been following these schemes so apologies if this is a stupid question but is there a penalty on the scheme providers as well as the customers getting hit for tax. I can't fathom why companies are still pushing this model when there is a very high risk it will fail in court. Do they get away fairly easily so worth wringing every penny out of it until HMRC shut them down or what? Surely it is negligent to continue to push a scheme that is likely to fail?

There appears to be nothing wrong with these schemes themselves, only the validity of those 'employees' using the scheme.

So non-UK employees could use the scheme I guess.

But you're right, there should be a penalty for schemes with invalid users in them.

[northernladuk]

I haven't been following these schemes so apologies if this is a stupid question but is there a penalty on the scheme providers as well as the customers getting hit for tax. I can't fathom why companies are still pushing this model when there is a very high risk it will fail in court. Do they get away fairly easily so worth wringing every penny out of it until HMRC shut them down or what? Surely it is negligent to continue to push a scheme that is likely to fail?

[DirtyDog]

To get 93% returns, I'd guess that the scheme runs something similar to the Boyle case which HMRC have just won - take a loan in a foreign currency at unrealistic exchange rates in something which rapidly devalues like the Uzbekistani Som.

Linky

[LisaContractorUmbrella]

Thank you Lisa. This case is an Employment Appeal Tribunal, which does create case law precedent but it is not an HMRC case.
You are referring to point 1.309 in the Autumn Statement :

•• introduce a new power that requires taxpayers who are using avoidance schemes
that have been defeated through the Courts to pay the tax in dispute with HMRC
upfront. This will provide HMRC will an additional tool to address a legacy stock of an
estimated 65,000 avoidance cases, around 85% of which date back to before 2010. It will
remove the cash advantage of sitting and waiting during an avoidance dispute, and bring in
£700 million over the forecast period
•• consult on the scope for extending this power by widening the criteria for which
taxpayers are required to pay any disputed tax upfront

The Consultation and draft guidance should be published today so we will be able to see the detail of when they propose that the up front payment kicks in. It is not up on HMT's site yet.

Kate Cottrell

Thanks for the explanation - glad I am not the only one waiting for the draft guidance with bated breath

[Kate Cottrell]

Thank you Lisa. This case is an Employment Appeal Tribunal, which does create case law precedent but it is not an HMRC case.
You are referring to point 1.309 in the Autumn Statement :

•• introduce a new power that requires taxpayers who are using avoidance schemes
that have been defeated through the Courts to pay the tax in dispute with HMRC
upfront. This will provide HMRC will an additional tool to address a legacy stock of an
estimated 65,000 avoidance cases, around 85% of which date back to before 2010. It will
remove the cash advantage of sitting and waiting during an avoidance dispute, and bring in
£700 million over the forecast period
•• consult on the scope for extending this power by widening the criteria for which
taxpayers are required to pay any disputed tax upfront

The Consultation and draft guidance should be published today so we will be able to see the detail of when they propose that the up front payment kicks in. It is not up on HMT's site yet.

Kate Cottrell

[LisaContractorUmbrella]

http://www.employmentappeals.gov.uk/...30fhwwSBSM.doc

Boss Projects LLP - Mr G Bragg - Acumen Legal Services Ltd

This is exactly the situation you describe and exactly the situation they are putting a stop to as announced in the Autumn Statement.

Kate Cottrell

Bauer & Cottrell

And am I right in thinking Kate that now HMRC have defeated the scheme in Court there will be no option, in future, but for other uses to pay their tax up front rather than having the advantage of waiting until an investigation into their particular provider had been concluded?

[Kate Cottrell]

Look at this case before you do anything

http://www.employmentappeals.gov.uk/...30fhwwSBSM.doc

Boss Projects LLP - Mr G Bragg - Acumen Legal Services Ltd

This is exactly the situation you describe and exactly the situation they are putting a stop to as announced in the Autumn Statement.

Kate Cottrell

Bauer & Cottrell

[LisaContractorUmbrella]

To the OP - UK income tax starts at 20% on earnings over £9445 per year. Corporation tax is at 20-23%. The upper rate of tax is 40% on earnings over £32,011. Bearing all this in mind, how do you think a company can promise you 93% take home (bearing in mind that their fee will probably be around 5%) and NOT be offering a tax avoidance scheme?

[BlasterBates]

No that won't work, it's not a loan is it, because your understanding is that you don't pay it back. That's exactly how a judge will see it.

The only way you're going to not pay tax would be to pay the loan back, and that's pointless.

The fact that it says it's a loan on piece of paper doesn't mean it's a loan if there is no intention of paying it back.

If that went through everyone would be given loans, and no-one would pay any tax.

[jamesbrown]

To paraphrase the earlier posts, don't be silly. Remember that IR35 is applied on a contract-by-contract basis. If you have a contract, get it reviewed. Your basic options are a legitimate, onshore, umbrella company, where most of your income goes through PAYE and the umbrella will deduct employers and employees NI and fees, or a Ltd company, where you manage all this yourself, with the help of an accountant. Schemes are not the way to go. The decision to go umbrella vs. Ltd is largely not not about IR35. You can probably save a small amount working through a Ltd when all your contracts fall inside IR35, and a significant amount when one or more fall outside. But a Ltd and umbrella both confer other advantages and disadvantages. It's more about your confidence/desire to manage a Ltd, with the help of an accountant (you are ultimately responsible though), and whether you plan to contract long-term.

[dmini]

Don't do it!

Read all the chunk here on HMRC Scheme Enquiries and then understand why this is NOT a good route.

If you are worried about IR35, and don't want any risk at all then go with a RESPECTABLE Umbrella - such as ContractorUmbrella. This is what many of us did as we dipped our toes into contracting, seeing whether it was for us.

If you want to go Limited and feel you do not have the experience to check your own contracts, then get someone else to review your contracts (I use Bauer & Cottrell), and check your behaviour is not too similar to employees, and take out insurance, to cover the risk. This is what many of us do here.

That's a basic summary. The normal rule applies - if it looks too good to be true - it probably is.