Dispute With HMRC? Things Should Get Better
If there’s one thing that annoys self employed people and small business owners it’s the feeling that you’re getting nowhere with HMRC. When a dispute arises, unless you’re very lucky, it’s hard to not feel like you’re banging your head against a brick wall and getting nowhere. With any luck changes announced by HMRC recently should make things a little better in the future!
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Employee Benefit Trust. An Alternative That Actually Works!
Thinking Of Using An Employee Benefit Trust? There is a Alternative Payroll Solution Available, Find out More.
The Employee Benefit Trust has been a popular alternative to the Umbrella Company for many years. Hundreds if not thousands of self employed contractors and other high net worth professionals (such as those in the creative arts) have taken advantage of the higher rates of pay that can be achieved via the use of an Employee Benefit Trust payroll solution. Where as a typical Umbrella Company gives a gross to net contract ratio of around 65% many EBT solutions offer a return of up to 85%. The opportunity to keep an extra 20% of YOUR pay has been seen as a massive bonus to high earners.
Employee Benefit Trusts also became popular because of the added security they offered. By using an Employee Benefit Trust and becoming an employee scheme members were granted full statutory employment rights and benefits. The lack of a need to keep complicated expense details also endeared this solution to those who preferred to spend more of their time earning money instead of doing paperwork. This was a massive advantage over those that either used an Umbrella Company or who chose to setup their own Limited Company. At this point you’re probably thinking that an Employee Benefit Trusts sounds too good to be true, how come everybody isn’t using them?
The answer to the second question is simple. In order to gain any advantage from an EBT you really need to be earning above a certain level. Some scheme providers set this level at 40,000 a year, others at 50,000 a year. The too good to be true bit is a little harder to explain. In essence it comes down to risk. Employee Benefit Trusts were so tax efficient because of the nature of the loan payment that was given to the employee (i.e. the contractor). The contractor was paid a basic salary and the rest of the money was “loaned”. Because this was paid as a loan (and not as salary) there was no guarantee that the loan wouldn’t be called in. Of course all providers marketed that this wouldn’t happen and that they had various methods of making sure the loan wouldn’t be asked to be repaid. Fine unless the payroll provider encounters money problems which could result in the loan being sold as an asset. Could you imagine the company that now owns that debt not asking for the money back? As far as the legalities go there has been a split with regard to EBTs. The general consensus appears to be that those that are based onshore whilst those offshore were effective.
So even with all the advantages that an Employee Benefit Trust offers their popularity has declined massively.For many contractors the risks associated with an EBT are seen to out way the advanatges. A scenario that has not been helped by several scheme providers being investigated by HMRC. The question is what alternatives are there? The governments stance on contractors seems to go against encouraging innovation and excellence within business. How can you expect people to take the risks associated with working for yourself if the bottom line is no better than being employed to do the same job(minus paid holidays, pension)? It’s all too easy for Civil Servants in comfy 35 hours a week, 30 days a year holiday, final salary pensioned posts to interfere in areas of business where they have no understanding. It is every contractors duty to be paid in a compliant tax efficient manner and Employee Benefit Trusts have played there part in this process.
Unsure about using an Employee Benefit Trust, find out more about a more robust solution.
Montpelier Raid Ruled Against
When Montpelier Tax Consultants on the Isle of Man were raided as part of a HMRC investigation it sent shockwaves around the offshore scene. How could an offshore company be (in effect) raided by HMRC? As it turns out they couldn’t!
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Contractors Tax Gets Simpler – EBTs Ruled Out
Many contractors tax solutions that people have relied on for years are now in the view of many not effective, or in other words, in the view of people we’ve spoken to the following written ministerial statement renders EBTs no longer effective for contractor payroll:-
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Montpelier Tax Consultants Raided
Montpelier Tax Consultants, the Isle of Man based tax consultancy embroiled in the recent BN66 court case has been raided by police officers on the Isle of Man at the request of HMRC (See the full report here). It’s not clear if the raid has anythying to do with the above mentioned case although the figures involved would seem to suggest that it may relate to some other scheme being run by the company?
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Is Tax Avoidance The New Tax Evasion?
If you believed some of the rhetoric coming out of the UK lately you’d probably think that tax evasion and tax avoidance are the same thing? Of course they’re not. One is legal and the other illegal for a start, quite a big difference I’d say.
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BN66 Contractor Loses Court Case
A UK contractor who took advantage of a payroll scheme offered by Montpelier in the Isle of Man has lost his court case in which he was trying to have the retrospective element of BN66 classed as unlawful. The argument that this type of retrospective action was against human rights fell on deaf ears.
Robert Huitson an IT contractor had been using the scheme offered by Montpelier for several years but received a tax bill after HMRC changed legislation in 2008. The landmark case was the very first time that a judge had backed the retrospective element of BN66 and has left a great many contractors disappointed, many now face large retrospective tax bills. It’s almost certain that there will be more challenges to BN66 and the UK governments ability to penalise people under new tax legislation retrospectively. It should be noted the fuss and objection that was made by members of parliament when it was announced that expenses rules would be applied retrospectively. It appears as though independent high earners are not afforded the luxury of simply refusing like MPs. The scheme provider in this instance, Montpelier, have vowed to appeal the decision – although it will certainly be some time before this case will be heard by a higher level.
With this ruling it is now more important than ever to make sure that your payroll provider is acting in your best interests. For our recommended payroll solution please follow the link. This solution doesn’t rely on a double taxation agreement so BN66 has no impact.
Would You Consider Moving Offshore?
The UK Governments recent announcement of a top rate of tax of 50% for anybody earning over £150,000 a year is sure to cause strong feelings amongst the contractor community. Could a move that the bureaucrats see as raising tax revenue actually result in a reduction as a steady flow of high earners and their associated businesses are moved out of the UK?
The offshore islands that surround the UK have long looked to attract these sort of high earners and this could be the push that many need. Where is the incentive of working when half your money is taken at source? Top amongst the offshores targeting these individuals is the Isle of Man. Having a top rate of tax of only 18% may well be incentive enough for many entrepreneurs/contractors/business owners to consider the Isle of Man an attractive proposition. But when you also take into account a tax cap that limits an individual from paying more than £100,000 in personal income tax it suddenly becomes very attractive to the very rich. Besides the financial reasons the offshores offer much to the UK resident looking for an escape from Gordon Browns hatred of private business. Not least being a level of safety and quality of life that far surpasses anywhere in the mainland UK.
Whilst it’s still early days yet there are already some very big names in UK business contemplating the move, would you consider following?
“ONE of Britain’s best known entrepreneurs is reportedly considering relocating to the Isle of Man.
Peter Hargreaves is one of the UK’s super rich residents who has been angered by Alistair Darling’s decision to impose a 50 per cent rate of income tax on annual earnings of £150,000-plus.
He is the co-founder of Hargreaves Lansdown, the financial advisor, and could lead an exodus of high earners out of the UK.
Hargreaves, whose net worth is estimated at £230million, says he’s looking at the Isle of Man as a potential new home. It’s estimated that 350,000 high earners are affected by the tax.
The Isle of Man has been actively encouraging the immigration of high net worth individuals for some time.
There is a tax cap on total income tax payable per person of £100,000 or £200,000 for a married couple, alongside a drive to provide the sophisticated facilities entrepreneurs expect.”
UK Contractors Want The Conservatives To Win?
Over recent years it appears as though Labour has “had it in” for the UK contracting market. Because of this we thought to run a poll to see just what the feeling was amongst UK contractors. The poll ran for the last 18 months and simply asked “As A UK Contractor Who Would You Like To Win The Next General Election?” Just how one sided the result was shocked us a little, we expected the Conservatives to come out on top but not quite as stringly as we saw.
First of all we should make it clear that this is not a very high trafic website, it is however very well targeted to the contractor market. Over the period of the poll a total of 17 contractors voiced their opinions. Of those seventeen, thirteen of them expressed a preference for the Conservatives to be in power after the next election. Three people would prefer Labour to stay in power and 1 person voted other (the 3rd option was for the Liberal Democrats but not a single person voted for them). I know we are not talking about huge figures but from that and conversations I’ve had I’d say it was indicitive of the feeling amongst the contractor community at the moment.
The big question is will UK contractors get their wish and will the Conservatives win the next General Election?
Not All Offshore Payment Schemes Are Legitimate
Forty five Swedish dentists could be about to find themselves in some serious hot water from their local tax authorities. It is alleged that between them they have dodged more than 8 million pounds worth of tax by funnelling the money through the Isle of Man. The Swedish Tax Agency and the National Economic Crimes Bureau are currently investigating what is suspected to be a 113 million kronor tax bill dodge.
The dentists avoided tax by placing the funds in the Isle of Man via Belgium and the Netherlands. A Stockholm subsidiary of a Dutch based company set up a scheme for the dentists to facilitate this. Investigators have confirmed that the scheme worked by the dentists paying themselves a small wage while the rest of their salary was deposited into life assurance policies held in the Isle of Man. If they are found guilty the dentsists will not only have to pay back the taxes due but could also face hefty fines and even possible jail time.
This case helps to highlight that not all payment schemes are legitimate. As an individual it is vital that you get confirmation of a POSITIVE legal opinion from your payroll provider for any schemes that they may run. It is this positive legal opinion that will form form the basis of any defence should any wrong doing be suspected from the relevant tax authorities. In a funny sort of way it also helps the image of the under pressure Island at the heart of this. By being open to information sharing (and not acting as a tax haven) the fraud associated with the life policies in the Isle of Man was easily discovered and traced back to the true beneficiaries.
Retain 84% Or Better Of Your Contract Value
Starting a new contract and looking for a new payroll provider? There is a solution available that has been in operation and in full compliance for 15 years, allows you to retain a minimum of 84% of your contract value and has many more benefits!
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