Category: Tax Avoidance Schemes

Disguised remuneration: tax avoidance using capital advances, joint and mutual share ownership agreements

HMRC have published Spotlight 53; ‘Disguised remuneration: tax avoidance using capital advances, joint and mutual share ownership agreements’.

The aim: to ward off individuals participating in schemes that avoid Income Tax and NIC this time via capital advances and complex offshore joint (or mutual) share ownership arrangements as disguised remuneration.

The contractor becomes an employee of an “umbrella company” or a connected entity, such as an offshore company and signs a Loan or capital advance agreement. Alongside this they also sign a Joint/mutual share ownership agreement.

Any monies received by the contractor are made as two separate payments, with a nominal salary with little or no tax and NIC’s paid. The second payment is a weekly or monthly loans detailed as a ‘capital advance’.

The employer company then undertakes various share transactions involving an offshore joint/mutual share ownership trust. These happen to not provide any financial gain to the employee, but the shares may provide a dividend for the employee.

In Spotlight 53, HMRC says that this is an attempt to ‘dress up’ employment income to purposely avoid PAYE, Income Tax and NIC.

Involvement in one of these types of scheme means the contractor will be liable for taxes and NIC’s on the value of the loans received, interest and penalties. For transactions post 14th September 2016, a General Anti-Abuse Rule (GAAR) penalty of 60% but only where if GAAR applies.

HMRC’s advice to those people is to settle now to avoid a future investigation and increased liabilities.

Spotting these tax avoidance schemes…

Some contractor loan schemes involve giving you some or all of your payment in the form of a loan that you’re not expected to pay back. It’s diverted through a chain of companies, trusts or partnerships and you’ll be told this is to save you tax. The scheme promoter claims there’s very little risk to your investment.

What if HMRC has given it a Scheme Reference Number?

This is where HMRC has identified the arrangement as a potential tax avoidance and are investigating it. Any contractor working via one of these schemes will be been given a Scheme Reference Number (SRN) by the promoter and it must be included it on your tax return. Having an SRN does not mean that HMRC has ‘approved’ the scheme.

MPs and taxpayers on retrospective loan charge payments

Anger is growing among taxpayers facing large demands from HMRC over their loan charge repayments. Following up on a previous Politics Live report into the campaign, reporter John Owen looks at how some people are coping, or not, with paying back the money they are now said to owe.

UK viewers can watch the full programme here for 30 days from transmission.

Excerpt from https://www.bbc.co.uk/news/av/uk-politics-49032605/mps-and-taxpayers-on-retrospective-loan-charge-payments

Recent article published promoting offshore Umbrella Companies.

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.

10 things you should know about Contractor Loan Scheme’s straight from the horses mouth…

HMRC Guidance
Published 5 February 2016
Contents

The loans are taxable
HMRC never approves schemes
HMRC challenges undisclosed tax schemes too
Our success rate in litigation means that you should get out of avoidance
You may receive an accelerated payment notice (APN)
You might have to pay Inheritance Tax too
You may end up damaging your working relationships
We may need to contact your mortgage provider and other creditors
The risk is all your own
Don’t be tempted by any new types of schemes

Please click here to find out more.

Government issue guidance for contractors on loan schemes that seem ‘to good to be true’

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.

HMRC release guidance on 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. 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 release guidance on 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.

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

Accelerated Payment Notices: Warning Letters Being Sent Out

Accelerated Payment Notices are likely to be with us soon for DOTAS registered schemes which are being targeted by the new law introduced in July 2014. Warning letters are already being sent out to those participants that used Contractor Pay Schemes. The demand you will be receiving requires payment of the tax in dispute within 90 days of being issued.

It is very possible that the decision in Philip Boyle v HMRC will be used to issue a Follower Notice for cases that have not been registered under DOTAS and this will tell you to commence ‘corrective action’ to resolve your ‘dispute’ with HMRC. There is no right of appeal but representations can be made in certain circumstances. There are new tax geared penalties for non-compliance. These are some of the measures you should be taking already:

Reviewing your finances with a view to negotiating a time to pay arrangement
Preparing a schedule of monthly incomings and outgoings
Preparing a list of assets at current market value and your liabilities
Preparing a list of your dependents and any other relevant information such as contingent liabilities
Consider raising a lump sum for a payment on account
Progress any loan applications for funds
Consider the realisation of assets and availability of savings
Consider HMRC Certificates of Tax Deposit to reduce accruing interest

http://www.hmrc.gov.uk/payinghmrc/cert-tax-deposit.htm
Article written by Michael J Perry FCA, Castleham Taxation Services Limited.

The truth behind wild “umbrella” net take home pay claims.

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/

More Information Please Mr Taxman

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.