Joining An Offshore Scheme? Questions you should ask before signing up!

Victim of BN66: Contractor Offshore Scheme

The following 5 questions have been provide by a victim of BN66: Contractor Offshore Scheme, so take note. These are written from experience and every contractor should think carefully about asking them before joining a scheme which offers around 85% take home pay.

1) Is the offshore scheme 100% guaranteed risk-free?

The answer should be NO. No matter what any QC opinion says, there can be no absolute assurance. HMRC may defeat the scheme in court. The Government might introduce retrospective legislation, as they have done in several recent instances. And shortly there will be the GAAR (general anti-avoidance rule) to contend with.

And shortly there will be the GAAR (general anti-avoidance rule) to contend with.

2) If 85% is the best case scenario, what would it be if the scheme fails?

An honest answer would be around 40% (a loss of 60% of your earnings). You may be told that the worst case scenario is no worse than you would have been inside IR35 (55%). However, this doesn’t take into account the fact that you would be liable for several years accrued interest on the unpaid tax/nic. In the ultimate nightmare scenario, you may also incur penalties as well as interest.

3) Do I have to declare the scheme on my self-assessment return?

The answer should be YES. If not then this should ring alarm bells because it could be construed as evasion. All tax avoidance schemes are supposed to be registered under DOTAS and users are required by law to enter the SRN (scheme reference number) on their SAR.

4) Are HMRC likely to challenge my SAR?

The answer should be YES. These days, as a matter of course, HMRC automatically open enquiries where SARs contain an SRN.

5) How long could I be under investigation?

The answer should be to expect an investigation to last several years. There is no statutory time limit for HMRC to conclude enquiries and they often go at a snail’s pace. They don’t care how long you are left in a state of uncertainty over your tax position.