Employee Benefit Trust. Retain More Of Your Contract?
Thinking Of Using An Employee Benefit Trust? There is a Better 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.
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.
When Is An Offshore Tax Haven Not A Tax Haven?
There is nothing that gets the heckles up of the average working class labour supporter more than the mention of tax havens! You know about tax havens right, those places where rich people stash all their money so they don’t have to pay tax? These dodgy little offshore places run like the wild west without any form of law or order, surely that’s right isn’t it?
Well no actually it’s not. In fact it’s not even close to the truth. Being an offshore finance centre in no way implies that a country is a tax haven. The truth is that all countries compete with each other to attract businesses. Businesses bring employment, tax revenue and huge amounts of other benefits. It is business that drives the economy and the more successful businesses your country can attract the better your economy will be. Now one of the best ways of attracting these businesses is to be competitive with your tax regime. ALL countries do this. The UK has much lower taxes in certain areas compared to the rest of Europe. Certain states in the US have much lower taxes compared to other states. It’s all about attracting business and low tax is a 100% legitimate way of attracting business.
So what about tax havens? What makes a finance centre/country bad is when they aren’t willing to share the information they hold with other countries/states. Tax havens are havens because they protect peoples details, locked away without a key. You’ll probably find that the majority of the “offshore finance centres” around the UK are actually very open with their information sharing. The Isle of Man for example meets all international requirements in this regard. By the definition of Tax Havens it is no more of a Tax Haven than the UK itself!
So why does all this matter to contractors? Well for a start the current Labour government has started to panic. Now that the muppets in charge have screwed up their own economy they are looking for scape-goats to screw up as well. An easy target in this regard is Jersey, Guernsey and the Isle of Man. There are many legitimate tax savings available to certain groups of contractors by being paid from offshore but if the current UK government gets its wish there will be nothing left of these finance centres. In reality these offshore centres have done nothing wrong or different than the UK itself. In fact without them literally 1000′s of expat British workers would not have access to suitable banking facilities as they are not allowed to bank in the UK without a UK address. Offshore finance centres do play an important role in the global economy and not all are “Tax Havens”. Some are just legitimate countries trying to attract business the same way as other countries do. The only difference being that when another country steals half a billion pounds of their depositors money they don’t have the resources to take it back!
Isle of Man Retains Its AAA Credit Rating
INDEPENDENT credit rating agency Standard and Poor’s has renewed the Isle of Man Government’s AAA rating – the highest rating that it awards.
The ratings provide an independent benchmark for investors.
The review of the finances of the Isle of Man Government to issue a sovereign credit rating is carried out on an annual basis.
Carl Hawker, of the Treasury, said: ‘We see this renewal of AAA status as an external validation of the financial position of the government and of the status of the wider Isle of Man economy.
‘The rating provides an impartial external opinion for those looking to invest in or relocate to the Isle of Man, which can be a useful marketing tool in a competitive global environment.’
Achieving the AAA means that government-issued debt will pay interest at a very low rate. Banks will consider the rating in pricing debt deals.
The same applies to borrowing in the name of the government, such as the MEA.
A reduction in status from AAA to AA typically results in an increase in the interest rate on a loan of 0.25 per cent.
The retention of the highest status also means the Isle of Man can be marketed as a financially secure environment.
Credible, external validation attracts investors. Meanwhile, the rating promotes a positive national identity and reputation for the Island, and strengthens the relationship with the UK.
The announcement has been welcomed by Treasury Minister Allan Bell, who said: ‘Despite the current volatility in world markets, the Isle of Man continues to demonstrate that it is a world class jurisdiction in which to do business.’
Some offshore rivals, including the Channel Islands, chose not to be rated.
What’s Happening To The Offshore Payroll Providers?
Rumours are starting to circulate about possibly more redundancies in the offshore payroll provider sector, is this perhaps the end of UK contractors being able to use offshore structures to mitigate their responsibilities? Ever since the chancellor announced the 2008 budget there seems to have been steady downsizing in what only a few years ago was a boom sector.
Is this down to smaller profit margins on the structures that they can offer or perhaps that the structures themselves are under such attack that many companies do not want the risk of running them, who knows? Either way the next 12 months will surely prove to be challenging for both those offshore offering payroll services to UK contractors and those UK contractors who rely on them.
Contracting, Who Would You Like To Win The Next General Election?
The results in the recent local elections won’t come as much as a surprise to most people. Labour seem determined to self destruct, punishing the poor and those who take the risk of running a small business in equal measure with economic policy that does little to inspire confidence in the bunch of morons currently running the country. Only those who are truly arrogant and blinkered could be surprised by what happened. They appear to have lost touch with such a great percentage of the population, reinforced by Gordon Brown’s appearance on the BBC on Sunday to let us all know that it is us who have the problem by not “understanding” what a great financial genius he is. Yes Gordon, of course you are right and everybody else is wrong. You’ve spent money based on a falsely inflated property market and low interest rates that have allowed huge amounts of people to borrow way more than they could afford. You encouraged this, now things have turned, the cycle is rotating. Instead of dragging more money from the private sector to fund ridiculous public sector spending what would really help us all out at the moment would be a reduction in the duty on fuel. This would lower the cost of living straight away across the board. The trouble is that without that revenue those that are elected wouldn’t be able to give themselves such big pay rises so for now they’ll keep with the “doing it for the planet” bandwagon.
So the question is what’s the alternative? In my own opinion Labour seems dead set against contractors and the contracting industry as a whole. On the other hand I think it’s a fair bet to say that the Lib Dems may be even worse on those that work hard to earn hard. The Conservatives seem notable by their silence. So as a contractor who would you like to see win the next General Election in the UK?
Loading ...No More Offshore Partnerships, It’s Now EBT All The Way
Unsure About EBT Schemes? There is a Much Better Payroll Solution Available!
Starting from today thousands of contractors currently paid through offshore partnership schemes will now need to find another solution. HMRC have specifically targeted the reciprocal tax agreements that allowed many of these schemes to work leaving contractors looking for another solution. Whilst the common misconception is that only handfuls of contractors are paid this way in reality many thousands have taken advantage of the various double taxation agreements offered by the UK Government in recent years. HMRC in removing that option are going to affect the earning potential of thousands of high net worth individuals.
UK Contractors looking to make the most from their contract should now maybe be looking towards EBT (Employee Benefit Trusts) as a viable option. An EBT is a legitimate way of rewarding high worth key members of staff. Several offshore companies are offering EBT schemes to
In the past the EBT route has offered less of a return than an offshore partnership but with the options now being limited more and more contractors will be seeing EBT as a viable payment solution.
