Reply to: Principal Contractors / tax-efficiency / Isle of Man / Trustees

[ASB]

They are based in IOM so this will apply https://www.gov.uk/government/upload...rmediaries.pdf

They appear to be using some sort of loan scheme so this will probably apply http://www.hmrc.gov.uk/budget-update...x/tiin2675.pdf

If it's a recognised tax avoidance scheme then this will probably apply before long https://www.gov.uk/government/news/t...x-owed-upfront

Using this sort of scheme will therefore be pretty much equivalent to painting a large bullseye on your back, handing HMRC a rocket launcher and then begging them to give you a 3 second head start.

Don't sit on the fence. Tell us what you really think.

[DirtyDog]

I've told you this before and will say it again. Unless they are a brand new forumite, encourage them and because they deserve everything they get.

Simple answer, do you understand how the scheme works. Do you receive the money immediately as income or is it a loan, grant, trust payment..... If you don't understand how it works or its any of those things run....

Since the OP is / was an agent, I can understand why we're not encouraging them to go for it anyway...

[DonkeyRhubarb]

Using this sort of scheme will therefore be pretty much equivalent to painting a large bullseye on your back, handing HMRC a rocket launcher and then begging them to give you a 3 second head start.

Anyone thinking of using a scheme in the current climate needs to seek professional help.

And I mean a psychiatrist, not an accountant.

[LisaContractorUmbrella]

Genuinely not trolling.
I thought it could open up a conversation about "outlier" accounts set-ups.

Since I have returned to being mostly a contractor, I am getting targeted emails as I now am subscribed to contractor-specific environments.

Apologies if the thread has come across as troll-like.

They are based in IOM so this will apply https://www.gov.uk/government/upload...rmediaries.pdf

They appear to be using some sort of loan scheme so this will probably apply http://www.hmrc.gov.uk/budget-update...x/tiin2675.pdf

If it's a recognised tax avoidance scheme then this will probably apply before long https://www.gov.uk/government/news/t...x-owed-upfront

Using this sort of scheme will therefore be pretty much equivalent to painting a large bullseye on your back, handing HMRC a rocket launcher and then begging them to give you a 3 second head start.

[BlasterBates]

I think some of them did work under their rules at the time. But given the announcement back in 08, and subsequently gaar it seems unlikely that anything going forward will be sucessful.

Ultimately it doesnt really matter how esoteric transactions may be. You can see what is as the results of the fruits of ones labour. And it will be caught accordingly.

The judge in the BN66 case said it if it were to be tested in court it would be a difficult one decide on, which is why I think with the right arguments it is winnable from the HMRC side, and if you look at the judges argument on a recent case they didn't use any new legislation to rule against it, i.e. the principle of the income being the contractor's before it ended up in the scheme, and it being the contractor's decision to have the money channeled into the scheme. That seems to me to be a catch all. Unless the original client/agency were to testify it was their decision I wouldn't see much hope of winning that argument.

Agreed though that nothing is certain, but I think persistence by HMRC can see most of these schemes go down in flames.

[ASB]

I would say no scheme works in the end. These schemes are all based on the income simply being renamed as something else, such as "a loan", artificial arrangements where income contractually doesn't belong to you, but basically you have control of the money and who gets it. HMRC just need to argue their case well. There was a recent case, and the key argument of the judge was that regardless of what happened after the money went overseas that income effectively belonged to the contractor before it ended up in the trust or whatever it was. That's pretty much a catch all for all schemes.

I think some of them did work under their rules at the time. But given the announcement back in 08, and subsequently gaar it seems unlikely that anything going forward will be sucessful.

Ultimately it doesnt really matter how esoteric transactions may be. You can see what is as the results of the fruits of ones labour. And it will be caught accordingly.

[BlasterBates]

I would say no scheme works in the end. These schemes are all based on the income simply being renamed as something else, such as "a loan", artificial arrangements where income contractually doesn't belong to you, but basically you have control of the money and who gets it. HMRC just need to argue their case well. There was a recent case, and the key argument of the judge was that regardless of what happened after the money went overseas that income effectively belonged to the contractor before it ended up in the trust or whatever it was. That's pretty much a catch all for all schemes.

[ASB]

Arguably we are all under taxed. But only in pedantic terms of the fact that we spend more.

our spend per head is around 11k. With a working population of 38m and an actual population of 63m and an average salary of 27k it is quite clear that personal taxes are going to be fairly high.

Obviously personal taxes are only part of the story. Ultimately though everybody in work needs to produce about 18k in taxes, somewhere along the way.

Of course cutting spending might help. 11k per head does sound like a lot.

Personally I would like to see a flat allowance of 15k. Flat tax of 15% and no ni. Simple to administer. Of course this would reduce the take and we would now have to support all those redundant civil servants.

The balance could be shifted back into the corporate arena.

Ultimately it makes no difference though. The tax, be it corporate or personal, is still produced by the labours of the working population.

My drugs though are 100k. It doesnt take too many expensive cases like me to skew the spending. Then there are all the pensioners. Need to look after them. Unless a cull is planned. Then there are all the kids. Need some sort ofan education.

Maybe the 11k isnt so much after all. Though im sure we could do it considerably better and cheaper.

[Zero Liability]

I don't think that is a fair comparison. Surely the argument would be the permie as the stake in the ground and it would be how under taxed LTD contractors are.. which HMRC obviously agree with. Remember, permies use the rules, we use a loophole which HMRC are actively (and badly) trying to close.

I don't disagree (except for the loophole description), given the current institutional setup and rules, their only goal is to maximise tax intake, so from HMRC's perspective a contractor isn't paying the amount of tax they'd like to see. They probably still don't think you pay enough tax as an employee, even.

My point was more in the direction of what people would consider a reasonable amount of tax to pay for what they receive. In the end, the only reason HMRC is so fixated on establishing employment even where there isn't any is because of historical precedents (it is mostly a relic by economic controls imposed during the two great wars and after), income is taxed in most of the West, and taxed on a progressively increasing scale, and usually accompanies 'social security' taxes. Employment does come with certain rights and expectations attached to it but the market is evolving and requires greater flexibility, and the lines are blurring between traditional employment and freelancing. Meanwhile, HMRC is still stuck to some outmoded view of what employment is, and expects everyone to behave that way.

Of course their sole purpose is to maximise their collection of revenue, which even that they arguably do badly, luckily for us. But it is politicians and legislators who ultimately decide tax policy, and whether it is 'fair' or economically desirable from the govt's POV. A process usually hijacked by special interests. IMO, if they're taking more than they need to finance the few necessary functions of the govt, including a basic safety net, they're over-taxing. You can argue that entrepreneurial risk taking etc. should be rewarded, but it already is - by profits. Thus why I say permies are over-taxed. I also concur with ASB's and Malvolio's points.

[ASB]

I think it is a quirk rather than a loophole. When I started in the early 80s it made stuff all difference. There was a 15% surcharge on dividends. Employers ni was capped on the first x of salary. There was little point in accumulating profits. They were taxed as though they had been distributed anyway.

At the time there were reckoned to be no more than 8000. So as the regime improved under thatcher it wasnt an issue.

Personally I believe the way most contractors operate is more akin to slf employment. I would have been happy to be treated as such. Well I would have moaned a bit because the bills went up but ultimately I would concede it as reasonable.

Several other eu countries have artisan type structures which enable people to benefit from selling their own labours and gain some advantage from it over conventional employment. Perhaps if we started to move in this direction it would have been bettef than ir35 etc and would provided rather more clarity.

I have never thought it right that I was able to structure my affairs to such fiscal advantage. It was probably close to 7 figures over that time. I never felt any guilt either. They weren't my rules, simply those of politicians and their servants who are incapable of thinking anything through.

[malvolio]

Contractors using a Ltd company are exploiting a loophole to underpay (avoid) tax?

Not many would publicly acknowledge that.

It's not a loophole. There are sound commercial reasons why I use a ltd Company, only one of which is that it is the most efficient way of operating when my principal route to work will not accept a Self Employed worker. I also source my own work, carry all the commercial risk that entails and fund a range of services that an employee would expect their employer to provide. I also generate a lot of tax income - around £40k a year all told on average - through CT, VAT and personal taxation, equivalent to an employee on a salary somewhat north of £100k.

Clearly, if I'm avoiding paying taxes, I'm not very good at it.

This classic urban myth that we are avoiding taxes is complete and utter bollocks. Using a Ltd Company is perfectly valid and reasonable, and they have a tax structure aligned to their commercial reality. No freelance contractor is avoiding anything (EBT users, Radio 1 DJs and used car traders excepted). And consider this; there are plenty of people in well paid,salaried jobs, who filter their peripheral income though a limited company; income which only derives from their main job (would you pay to hear Gordon Brown make a speech? Thought not...). They are the tax avoiders, not us, and really should be HMRC's main target.

[eek]

Contractors using a Ltd company are exploiting a loophole to underpay (avoid) tax?

Not many would publicly acknowledge that.

Yep its one hell of an advantage. But I just thank the Callaghan Government for it....

[DonkeyRhubarb]

I don't think that is a fair comparison. Surely the argument would be the permie as the stake in the ground and it would be how under taxed LTD contractors are.. which HMRC obviously agree with. Remember, permies use the rules, we use a loophole which HMRC are actively (and badly) trying to close.

Contractors using a Ltd company are exploiting a loophole to underpay (avoid) tax?

Not many would publicly acknowledge that.

[northernladuk]

As an aside, that does illustrate the gain by being a contractor outside IR35, but it also goes to show how over-taxed you are as a permie. I doubt most people would see an issue with retaining 80 - 83% of their income. But you're not likely to ever come near to that as a permie unless you're earning very little.

I don't think that is a fair comparison. Surely the argument would be the permie as the stake in the ground and it would be how under taxed LTD contractors are.. which HMRC obviously agree with. Remember, permies use the rules, we use a loophole which HMRC are actively (and badly) trying to close.

[Zero Liability]

As an aside, that does illustrate the gain by being a contractor outside IR35, but it also goes to show how over-taxed you are as a permie. I doubt most people would see an issue with retaining 80 - 83% of their income. But you're not likely to ever come near to that as a permie unless you're earning very little.