Isle of Man Taxation
The Isle of Man indirect tax system closely follows that of the UK, levying VAT and customs and excise duties at the same rates and on the same goods and services as the UK.
A Customs and Excise Agreement exists between the UK and the Isle of Man creating a common customs and fiscal area. Under the Agreement the Island has access to the European Single Market.
A resident person, whether an individual or company, is liable to income tax on world-wide income. Persons who are not resident are liable only on Manx source income. There are no capital, inheritance or withholding taxes. The top rate of income tax in the Isle of Man is currently 18%. The Island has no international tax treaties other than the one entered into with the UK.
Tax Free Companies
A non-resident person can acquire or establish an Isle of Man company and subject to meeting certain requirements ensure that the company is free from tax in the Isle of Man.
Tax Free Trusts
A non-resident person can also settle funds on an Isle of Man trust, which, as long as no Manx residents can benefit, will not be subject to tax in the Isle of Man.
The Tax Advantage
Unfortunately due to recent HMRC changes we can no longer offer offshore partnerships, however we now offer one of the most cost effective EBT schemes on the market for contractors.
If your current payment scheme is being closed or even if your current provider is in the process of switching to EBT please ask us before signing up, our fees are lower than most!
For further information about contracting with The Tax Advantage and to take advantage of a free consultation please visit The Tax Advantage website.
Contracting Under An Umbrella Company
An Umbrella service or company acts as a in-between for your contracting services. Essentially you enter into a contract with the Umbrella company that makes you a PAYE employee. Your end client or representing agent then also enters into a contract with the Umbrella for your services, they pay the Umbrella Company which then pays you as an employee.
Benefits Of Using An Umbrella Company
For the cautious contractor an Umbrella Company is very easy to use, all tax and NI is deducted before you get paid, you are a PAYE employee. You need do nothing more than send send in timesheets and expense claims and wait to be paid by the Umbrella.
The Downsides Of Using An Umbrella Company
With simplicity comes expense, unfortunately operating under an Umbrella Company is the most expensive way of working in terms of both income Tax and NI.
IR35 - UK Contractors
The IR35 issue has become a big deal for UK based contractors, before deciding to contract you should make yourself aware of the implications IR35 can have on not only your income but also your employment.
What is IR35 and how does it affect UK Contractors?
“IR35” is a piece of tax legislation announced in 1999, which took effect from April 2000. The legislation means that the Revenue office can tax some UK contractors as though they are employees of their clients and not as self employed. Any UK Contractors caught by the IR35 legislation pay significantly more tax reducing their take home pay.
Why did the UK government introduce the IR35 legislation?
HMRC’s intention was to tackle tax and National Insurance (NIC) avoidance schemes through the use of intermediaries, such as Partnerships or Personal Services Companies (PSC).
HMRC’s view was that a large number of IT Consultants, Engineers, non-executive directors and “one man band companies” were often treated as self-employed when in fact they should have been treated as employees of the client. This was based on the terms and conditions that the contractors worked under, essentially your contract with the client dictates whether or no not you fall inside or outside of IR35.
Does the IR35 legislation affect all UK contractors?
Yes, in the sense that all contractors need to consider IR35 and take action to protect themselves from it. As mentioned above having a contract that falls within IR35 can seriously impact on your earnings as a contractor. Being inside or outside IR35 is not a black and white issue.
How can contractors determine if they are inside IR35 and not really self-employed?
The law for tax and social security legislation does not define ‘employment’ and ’self-employment’. Over the years Courts have considered the issue and their guidance on this issue is known as IR35 case law. Most contractor payroll service companies will be able to provide an assessment of your current contract as to whether or not you are inside or outside of the IR35 legislation. Many offshore payroll solutions for contractors provide their own new contracts that if acceptable ensure you fall outside of IR35.
CIS - New Scheme
CIS - New Scheme
The new CIS scheme sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry (hence Construction Industry Scheme).
Under the new scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HM Revenue & Customs. This may require the contractor to make a deduction, which they then pay to us, from that part of the payment that does not represent the cost of materials incurred by the subcontractor.
As of 6 April 2007 a New Construction Industry Scheme started. Its aims are:
1. to reduce the regulatory burden of the Scheme on construction businesses
2. to improve the level of compliance by construction businesses with their tax obligations
3. to help construction businesses to get the employment status of their workers right.
CIS New Scheme Commencement Date
The commencement date for the new Construction Industry Scheme was 6 April 2007. The deduction rates for the new scheme are 20% for subcontractors registered with HMRC for payment under deduction and 30% for those not registered.
Contract Length Does Not Imply You’re Inside IR35
It seems that the length of your contract does no longer imply whether or not you fall inside or outside of the IR35 legislation.
Not an Employee
In a recent judgement released by the Court of Appeal, is has been decided that the agency worker (James) was not an employee of the end client (Greenwich Council).
This case involved a Ms Merana James, who claimed unfair dismissal because her agency sent another temp worker to Greenwich Council when she took time off from the work.
Upon her return after a month’s absence Ms James found another temporary worker supplied by her agency carrying out the role. It was then that she claimed that she had worked for 3 years with the client and that she was an “implied employee” and entitled to the entitlements of a permanent worker.
Your Employment Status Doesn’t Change Because Of A Length of Time
The courts found that the length of time she had worked for the client had not provided her with employment status, she was not deemed an employee of the client. They stated the governing contract she had was a temporary agency workers agreement with the agency which had not been supplanted with an implied contract of employment between her and the end client.
Many UK contractors and their clients fear that after a year or more work for a single client an employment relationship can automatically exist between the two and IR35 becomes applicable. This does not appear to be the case.
Benefits Of Being A Locum
The Benefits Of Being A Locum In The UK
As a medical professional setting yourself up self employed as a locum has many benefits:-
Locum work is well paid and can be a great way of topping up your salary.
It is a great way of experiencing different places of work.
Can be used to check out an area to see if it is suitable for a permanent position.
The temporary nature of locum works tends to mean that the work is less stressful than that of a full time employee.
You have greater flexibility and freedom when it comes to how you want to work.
In order to find work as a Locum in the UK there are a great many locum agencies that will assign you contracts, alternatively you may choose to circulate your CV and do the hard work yourself. The major downside of being a locum through an agency is that it does remove some of the flexibility.
Benefits Of IT Contracting
Benefits IT Contracting In The UK
Just the number of IT professionals that choose to contract rather than work as employees in the UK tells you something, it tells you that being a UK IT Contractor has many benefits over the traditional role of employee for a company!
Greater Pay
In the IT sector in particular the pay differences between contracted work and salaried work can be enormous, the average being two to three times the hourly rate of non contractors.
Greater Choice
Being a contractor allows you to decide on the type of tasks you wish to undertake, if you don’t like what a contract involves then you don’t take that contract. As an IT employee it is not unusual for you to end up also being the person who fixes the chairs, repairs the photocopier and many other “technology” related tasks. Contracting allows IT professionals to choose the work they want to do and be more valued in the process.
Better Knowledge
In the ever changing world of information technology it is essential for the modern professional to be able to learn new skills. In a traditional role within a company many IT staff are stuck doing the same job(s) for years on end and never need or want to learn. Contracting requires that you can offer the skills that are most in demand, this benefits your clients and ensures that most contractors are much more flexible with their knowledge than other IT professionals.
Greater Flexibility
As a self employed UK IT Contractor paid holidays are out but on the other hand by working for yourself you have much greater flexibility when it comes to taking time off. For contractors with family commitments the ability to earn large amounts of money in short spaces of time means that the flexibility is there to enjoy more family time. For many others it is not unusual to work 6 months on and 6 months off. You always have the flexibility to not accept a contract if you’re not actively looking for work.
Employee Benefit Trusts
With an EBT Scheme you are the employee of an offshore company and will pay normal UK P.A.Y.E. on your income from the company. The salary offered will usually be much less (hence less Tax and NI) than the amount the offshore company receives from the invoices for your services whilst contracting. In being the employee of the offshore company you are eligible to participate in the Employee Benefit Trust which makes payments to company employees, this is quite legitimate and is seen as a way of rewarding key staff. EBT payments are based on the profit the company has generated from employing you - effectively this is the difference between the amount invoiced for your services whilst contracting and the cost of employing you (your basic salary). For legal reasons to remain free from taxation these payments from the Employee Benefit Trust cannot be guaranteed. This is where the risk with EBT schemes is.
The EBT route has been in use for many years during which there have been several changes in legislation attempting to block this option but many of the offshore companies that offer an Employee Benefit Trust scheme have modified their procedures to remain within the law. It is still essential to review the legal opinion of any company offering an EBT pay scheme for contractors.