Offshore v2: UK Umbrella, Offshore Trust (not EBT) 90% take
Discussion
So, we discussed the EBT-style schemes and decided they're comprehensively considered bad news. So what about the following instead which I have seen on offer:
The idea is that you are self-employed with a contract for services with a UK Umbrella firm. They pay you say £10k pa, and hence you have self-assessment tax+NI of about £1300pa. You're contact income however is passed to an IoM trust, of whom you are a beneficiary. The trust profits are then taxed at the IoM rates (0%) prior to distribution to beneficiary. Due to the DTA between UK and IoM you are not liable for any further tax or NI on these profits. The scheme gives you an overall 90% of the gross value of your contract (after allowing for the £10k they've already paid via the Umbrella). Hence they're taking a 10% cut for their fees etc.
They say they're not and EBT, (ie no loans) but it seems quite similar. Was the only thing bad about EBTs, the loan structure? If loans were so bad, why did EBT's use them instead of just paying profits like the above?
The firm offering it is www.taxdesign.co.uk, anyone considered it, or indeed using it? Any comments?
The idea is that you are self-employed with a contract for services with a UK Umbrella firm. They pay you say £10k pa, and hence you have self-assessment tax+NI of about £1300pa. You're contact income however is passed to an IoM trust, of whom you are a beneficiary. The trust profits are then taxed at the IoM rates (0%) prior to distribution to beneficiary. Due to the DTA between UK and IoM you are not liable for any further tax or NI on these profits. The scheme gives you an overall 90% of the gross value of your contract (after allowing for the £10k they've already paid via the Umbrella). Hence they're taking a 10% cut for their fees etc.
They say they're not and EBT, (ie no loans) but it seems quite similar. Was the only thing bad about EBTs, the loan structure? If loans were so bad, why did EBT's use them instead of just paying profits like the above?
The firm offering it is www.taxdesign.co.uk, anyone considered it, or indeed using it? Any comments?
Thats pretty much exactly the scenario i put in the other thread of systems which I know go on already for consultants and the like.
The limitation of course is that you need to be an employee of their company 'technically' so this limits how much you can act like and indeed be a 'business' so it would only suit contractors rather than a business as such.
One thing I have always wondered about these schemes is why they pay £10k through PAYE and NI and not just over the tax threshold. Thats chucking a grand away before you have started.
Unless, it is no make you less of a target to the revenue, but to be frank if you have a UK address and an IOM employer anyway I think they know the score!
The limitation of course is that you need to be an employee of their company 'technically' so this limits how much you can act like and indeed be a 'business' so it would only suit contractors rather than a business as such.
One thing I have always wondered about these schemes is why they pay £10k through PAYE and NI and not just over the tax threshold. Thats chucking a grand away before you have started.
Unless, it is no make you less of a target to the revenue, but to be frank if you have a UK address and an IOM employer anyway I think they know the score!
Eric Mc said:
These schemes just seem so naieve I am amazed that anyone can honestly believe they will really work.
I'm interested in where you think the shortfalls lie. I'm not an accountant, I just see these routes that accountants offer and have to try and judge if it will work for me (at least for a period). People always seem to think that running the Ltd route is best (and I do currently run that route), but in my view by choosing Ltd and maximising dividends, the risks are really quite high, and probably just as high as some of these other aggressive tax planning schemes. The recent IR35 loss (the one that PCG reckoned the contractor SHOULDNT have lost) just confirms that Ltd route of NI avoidance is heavily flawed, no matter how good you think your contract writer is.So, considering alternatives seems to be a valid idea, but sifting them out is difficult.
Eric Mc said:
These schemes just seem so naieve I am amazed that anyone can honestly believe they will really work.
The one that I have heard of working is a contractors scheme. The guy was an IT consultant on about £100k per year. I did think he paid for the rate of tax at the IOM rate as per the reciprocal agreement though. I think he ended up paying 20% or a bit more in total off the top of my head.A pal of mine just received his annual "we are investigating your income from 200x/200x tax year". He now has one for every year he has used an IoM Trust and if HMRC choose to act and find him liable for unpaid tax, then he'll be bankrupted.
With the money you suggested you were earning on a previous thread, why not just buy/rent a flat in IoM, move there and genuinely manage and control your business from the IoM?
With the money you suggested you were earning on a previous thread, why not just buy/rent a flat in IoM, move there and genuinely manage and control your business from the IoM?
UpTheIron said:
A pal of mine just received his annual "we are investigating your income from 200x/200x tax year". He now has one for every year he has used an IoM Trust and if HMRC choose to act and find him liable for unpaid tax, then he'll be bankrupted.
He obviously doesnt seem to think he'll lose an investigation then, if he's been investigated every year and he's still doing it. That comment almost adds comfort to me, in that the HMRC investigate but do nothing. 
UpTheIron said:
With the money you suggested you were earning on a previous thread, why not just buy/rent a flat in IoM, move there and genuinely manage and control your business from the IoM?
Ha ha, yes, my wife and sprogs would love that!Edited by kryten22uk on Monday 28th January 12:08
I would love to see you make this or another system work, but I can see some pitfalls.
If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
JustinP1 said:
I would love to see you make this or another system work, but I can see some pitfalls.
If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
With regards to working for one company, when I contract I usually have a different place of work every day, but recently agreed to take on a contract for 5mths provisionally, with the possibility for much longer. Is there a specific maximum length of time that you can be contracted by a single company?If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
Eric Mc said:
These schemes just seem so naieve I am amazed that anyone can honestly believe they will really work.
Going off topic slightly; lots of people on these forums and I have a great deal of respect for your tax knowledge Eric. In my heart of hearts, I know that the 0.01% top earners in the UK don't pay 40% tax on their earnings. So the question becomes, at what point do people start paying less tax? It is naieve to think that at some point, the more you earn then the less tax you pay?JustinP1 said:
I would love to see you make this or another system work, but I can see some pitfalls.
If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
It doesnt make any different in terms of the £10k pa whether I am an employee or a sole-trader, as I'd pay the same NI+Tax, hence it doesnt matter if the Umbrella gets investigated on that front. However, if there is some link between not being an employee and the beneficiary payments validity, then you've got a point. However, I think that ther reason they want me to not be an official employee is so that they dont have to give me employment rights. And hence in that respect its purely in their interest to ensure it works. I may ask them this question to be sure.If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
Seany88 said:
JustinP1 said:
I would love to see you make this or another system work, but I can see some pitfalls.
If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
With regards to working for one company, when I contract I usually have a different place of work every day, but recently agreed to take on a contract for 5mths provisionally, with the possibility for much longer. Is there a specific maximum length of time that you can be contracted by a single company?If you think you are self employed, but you only work for one company, then the revenue will actually think (and tell you) you are an employee. IR35 I think they call it, however I am not an expert as I have always been a director anyway.
If for example, the Umbrella company were to be investigated, and you deemed to be an employee, would this shaft the IoM trust system legally?
If it does, then you stand to lose a hell of a lot. The UK umbrella would be liquidated under the 'employees' asking for their fees back - and you would still have to pay the tax as a normal employee. So in effect that may be a hell of a lot worse off than a reasonably lean UK Ltd tax system.
edb49 said:
Eric Mc said:
These schemes just seem so naieve I am amazed that anyone can honestly believe they will really work.
Going off topic slightly; lots of people on these forums and I have a great deal of respect for your tax knowledge Eric. In my heart of hearts, I know that the 0.01% top earners in the UK don't pay 40% tax on their earnings. So the question becomes, at what point do people start paying less tax? It is naieve to think that at some point, the more you earn then the less tax you pay?I think he was on £1000 per hour or thereabouts. For that he was at the top of his game and actually knew a lot more than the revenue so he could keep his clients schemes up to date and ahead of the game. each client had their own schemes tailored to them.
Now, if these guys are earning £5,000,000 plus and thus would expect an income tax bill in the millions, this would give them a lot of 'margin' to play with to pay this guy the big bucks, and maybe £10k, £20k or however much to set up new trusts or other schemes each year.
To a certain extent the revenue cant chase these guys, although they try they are always a step behind. Think of Nick Freeman fighting a speeding case against the local CPS brief. Different league.
More widespread schemes are set up by less well informed tax solicitors and because they are not bespoke and they have many more people on them it is easier to notice them to hunt the schemes down and change the rules to close them down.
kryten22uk said:
UpTheIron said:
A pal of mine just received his annual "we are investigating your income from 200x/200x tax year". He now has one for every year he has used an IoM Trust and if HMRC choose to act and find him liable for unpaid tax, then he'll be bankrupted.
He obviously doesnt seem to think he'll lose an investigation then, if he's been investigated every year and he's still doing it. That comment almost adds comfort to me, in that the HMRC investigate but do nothing. UpTheIron said:
With the money you suggested you were earning on a previous thread, why not just buy/rent a flat in IoM, move there and genuinely manage and control your business from the IoM?
Ha ha, yes, my wife and sprogs would love that!Edited by kryten22uk on Monday 28th January 12:08
I know it sucks that the IR can seem to bend you over and screw as much cash out of you as possible but that is pretty much the reality of it. I've never used any of the schemes just simple LTD and even I even they have been looked into. Just remeber we got to pay for all these gold plated public sector pensions for MPs etc somehow
Edited by BumFLuff on Monday 28th January 18:17
BumFLuff said:
I've never used any of the schemes just simple LTD
My point is that a "simple LTD" is equally risky, if not more, than some of these other schemes. HMRC are quite hot at taking people to court over IR35 issues, and they're getting more experienced at it each time. At least with other schemes they dont have much practice. I feel more worried about being LTD these days, as paying dividends to escape PAYE+NI seems to be a ticket to misery.kryten22uk said:
BumFLuff said:
I've never used any of the schemes just simple LTD
My point is that a "simple LTD" is equally risky, if not more, than some of these other schemes. HMRC are quite hot at taking people to court over IR35 issues, and they're getting more experienced at it each time. At least with other schemes they dont have much practice. I feel more worried about being LTD these days, as paying dividends to escape PAYE+NI seems to be a ticket to misery.The rules and regs are reasonably well known and unless you are trying something funny I dont see the issue.
That is a walk in the park compared to the risk and admin of an offshore trust!
To be honest for me to risk an offshore trust, someone would have to set it up on a plate for me fee free. Further to that I would need their guarantee, and that underwritten that if the scheme was found to be suspect that my fees would be returned and they would pay any fines and interest accrued on penalties.
Now *that* would be a hell of a selling point, but no-one seems to offer this. I think there is a reason why IMHO.
Gassing Station | Business | Top of Page | What's New | My Stuff