And it appears this is what the more reputable, compliant, UK based umbrella companies have to compete against! I would be very interested to hear from the “top dog” at HMRC to see what they really have to say about it!
Offshore Umbrella Companies appear to be on the rise. One of the top dogs at HMRC recently said that many offshore schemes were completely legal. Top people in the Conservative Party have been using these schemes for a long, long time. Indeed David Cameron’s inheritance came to a great extent from the money his father Ian made from setting up offshore schemes for himself and for others.
Now, contractors and freelancers are doing the same and setting up offshore umbrella companies. Of course the Government don’t like it but if they changed the rules it would affect many of their own supporters and donors. They liked it best when it was only the ‘good old boys’ that were able to take advantage of it.
Contractors and freelancers can now get 85% or more of their money returned to them through using offshore umbrella companies. It is very difficult for the Conservatives to change the rules so that contractors and multi-national companies are hit and Tory party donors and members aren’t hit. They don’t want to share this goldmine but they don’t want to lose it either.
Contractors and freelancers are bombarded by promoters who make claims that they can help individuals take home as much as 80% to 90% of their income. Sounds too good to be true, that’s because it is. So why is this considered to be tax avoidance? These promoters use schemes to reduce the amount of tax you pay on your income by making payments which purport to be ‘loans’ from a trust or a company.
Read more here.
We recently gave advice to a UK Agency engaging a non UK worker to work in the UK through their own non UK Limited Company. Our advice had been that PAYE and NI need to be deducted on the basis that the OEI (Offshore) applied, but they received contradictory advice from their trade association. They sought clarification from HMRC who confirmed that we had been correct.
Question to HMRC.
“Dear Sirs In connection with the recently introduced intermediaries legislation and reporting, please can you guide us as to reporting requirements IF we contracted with a EU contractor who has his / her own Ltd Liability Company (PSC) in the EU country of residence but was placed for a short period (say 3 months) to a UK client and performed the duties on site, likewise if they performed duties remotely. What category would this be or should the contractors company be subjected to UK income tax / NI Thanks in advance”
Dear Sir, The contractor and their employer should apply to his/ her own Social Security scheme for a form A1 to exempt them from UK National Insurance and to continue to pay social security in their home scheme. They should present a copy of this form to any agency/ intermediary such as your business between the overseas employer and the client – or a NIC liability arises for that agency. Any agency/ intermediary such as your business between the overseas employer and the client must operate PAYE tax here in the UK and withhold tax from the worker in the UK.
I recommend: https://www.gov.uk/new-employee-coming-to-work-from-abroad The requirement is for the UK intermediary to put the person on the UK RTI scheme and deduct tax – not for an intermediary reporting information return. I trust this helps HMRC Personal Tax Product & Process (Employment Status Policy) Room 1E/10 100 Parliament Street London SW1 2BQ Conclusion If you are paying workers to work in the United Kingdom through a business based outside the United Kingdom then you must account for Income Tax through the UK PAYE system.
The agency must also account to the UK Tax Authorities (HMRC) for Employers and Employees National Insurance, unless an A1 certificate is held by the agency issued by the competent authority in the home country in which the worker is habitually resident. Unfortunately, ignorance is no defence and as the legislation was enacted on 6 April 2014 then we are already over twelve months in to the new regime.
Article provided by Paul Hughes from iPaye Ltd.
HMRC have today released guidance on Tax on Contractor Loans, the HMRC webpage covers information for contractors on settlement opportunities, how to take this up, find out what you owe and how to pay. Settlement Opportunities: A contractor loan scheme is a tax avoidance arrangement where non-UK employers have paid you untaxed income or given you a loan instead of part of your salary. If you’ve taken part in a contractor loan scheme you may still have to pay Income Tax on the loan. You can use the contractor loans settlement opportunity to bring your tax affairs up to date on the best possible terms.
This opportunity is for the tax years up to 5 April 2011 and is now open until 30 June 2015. For more information, please visit https://www.gov.uk/government/publications/tax-on-contractor-loans/tax-on-contractor-loans
HMRC have today released guidance on Tax on Contractor Loans, the HMRC webpage covers information for contractors on settlement opportunities, how to take this up, find out what you owe and how to pay.
A contractor loan scheme is a tax avoidance arrangement where non-UK employers have paid you untaxed income or given you a loan instead of part of your salary. If you’ve taken part in a contractor loan scheme you may still have to pay Income Tax on the loan.
You can use the contractor loans settlement opportunity to bring your tax affairs up to date on the best possible terms. This opportunity is for the tax years up to 5 April 2011 and is now open until 30 June 2015.
For more information, please visit https://www.gov.uk/government/publications/tax-on-contractor-loans/tax-on-contractor-loans
£16m black hole as payroll parasite David Allen calls in the liquidators.
A massive payroll firm that The Mirror exposed for its rampant tax dodging has gone bust owing £18million.
Among the victims of the collapse of Legitas Group could be the low-paid agency workers it claimed to help. We’ve also found a £16million black hole in the accounts of a sister firm, Work Legal E, which was blamed on ”embezzlement” by two shadow directors. These two companies, which were run by struck-off solicitor David Allen, operated a controversial tax avoidance scheme which HM Revenue & Customs has called unlawful.
Read the original article at: http://blogs.mirror.co.uk/investigations/2013/05/16m-black-hole-as-payroll-para.html
HMRC issue details of deliberate tax defaulters at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/402448/150202_deliberate_defaulters.pdf
One strategy adopted by non-compliant providers is the use of a “front” company based in the UK. Offshore (typically Isle of Man) based providers have been known to set up a company in the UK with no obvious connection to the parent company, which operates as an invoicing vehicle channeling payments offshore.
This deceives recruitment agencies who only want to work with compliant UK companies such as those who are members of AUCAE. The way this works in practice is simple: The contractor is attracted to the offshore vehicle by the high relation rates advertised and decides to use their services. The agency who places the worker sensibly will not allow the worker to invoice via an offshore intermediary so the offshore provider notionally enrols the worker with their UK based “umbrella” company.
This company provides the agency with a certificate of incorporation and VAT certificate which even when due diligence is applied does not reveal the link to the offshore provider. Behind the scenes, the contractor joins the offshore provider’s scheme however invoices for work are sent to the agency by the UK company and payment of these invoices is then passed to the offshore provider. The agency is completely in the dark and feel that they are doing the right thing by working with what they believe is a normal UK umbrella.
All Umbrella Companies Are Equal will not allow providers who operate this kind of arrangement to become members and carry out their own background checks on providers to ensure that they are exposed. This approach provides peace of mind to agencies who use the AUCAE Straight Talking scheme to make their PSL selections.
Mike Keeling, One Click Umbrella and AUCAE Member.
If you’re researching the market for a suitable umbrella company, you’re likely to come across a wide variety of schemes, some of which claim to offer unusually generous rates of take home pay.
Some of the most frequently-used claims include:
“90%+ take home pay”
“100% HMRC compliant”
“QC approved scheme”
PAYE vs. tax avoidance schemes Legitimate PAYE umbrella schemes can only ever provide clients with the same amount of take home pay – subject to standard deductions for income tax and National Insurance Contributions. The only difference contractor clients should notice between providers is in the weekly or monthly processing fee they charge. Read the full article at http://www.itcontracting.com/truth-take-home-pay-claims/
A recent survey by industry body All Umbrella Companies Are Equal has revealed that HMRC are just not reaching their target audience. Is it that tax is just too taxing or are heads being buried in the sand?
The Offshore and Onshore Intermediaries Legislation had massive implications for the contracting world but over 70% of people who responded to the survey had never heard of them. The Onshore Intermediaries Legislation meant that 1000’s of workers who, for years, had been in the CIS scheme were, all of a sudden, liable for PAYE taxes which, if their contract rate was not increased, reduced their take home pay significantly. Although there were many articles published by umbrella companies, industry bodies and recruitment agency representatives the message just didn’t get across which resulted in strikes and protests by the affected workers when the changes came into force.
Maybe it’s that information that comes from HMRC is just not as targeted as it should be or maybe it’s that people just don’t want to hear it? Alternatively it could be that there is too much ‘misinformation’ for the message to be clear. Tax avoidance is extremely high profile at the moment and HMRC’s clampdown has been well publicised, yet 67% of people responding to the AUCAE survey said that they had been approached by tax avoidance promoters ,calling themselves umbrella companies, offering ‘high reward, low risk’ schemes.
These scheme operators can appear very credible and with 87% of those surveyed not knowing the penalties for tax avoidance the ‘high reward’ must be very tempting. Yet contractor forums are full of tales of suffering from those who have used such schemes and been caught out by HMRC! Lucy Smith of AUCAE said “industry bodies, umbrella companies and recruitment agencies are all useful resources for contractors to keep up to date with changes in legislation but HMRC must do more”. She suggested that a section of HMRC’s website be dedicated to those issues which affect temporary workers.
If the survey results are indicative of public awareness then surely this suggestion would benefit not only the contractor industry but also HMRC in their pursuit of tax collection.
HMRC guidance is issued on secondary contributor: special rules: the agency worker: on or after 6 April 2014. Paragraphs 2 & 9 of Schedule 3 Regulation 5 to the Social Security (Categorisation of Earners) 1978 (As amended by The Social Security (Categorisation of Earners) (Amendment) Regulations 2014 / Statutory Instruments 2014 No. XXXX)
Where a person is supplied by a foreign employer, or by or through an agency, there are special rules that determine who is the secondary contributor. The regulations treat someone in the United Kingdom (UK) as the secondary contributor. Find out more at http://www.hmrc.gov.uk/manuals/nimmanual/NIM33750.htm