Offshore v2: UK Umbrella, Offshore Trust (not EBT) 90% take

[Fittster]

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.

For the traditional IT contractor staying outside IR35 looks more and more difficult with every judgement that comes, unfortunately being inside IR35 makes contracting a fairly pointless activity from a purely financial point of view.

It's difficult to have a optimistic outlook on the UK IT contractor market.

[kryten22uk]

JustinP1 said:

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.

Yes they do. I'm trying not to market peoples products on here, but I have found schemes which have insurance which pays all legal fees and HMRC penalties.

Fittster said:

It's difficult to have a optimistic outlook on the UK IT contractor market.

Why just IT contractors? I'm not IT contractor so I'm fine then.

Edited by kryten22uk on Tuesday 29th January 11:24

[Schnurdle]

Back on topic (Taxdesign / Soletrader4u / Fidei / E-cover Solutions),

I started asking too many questions and they are ignoring my e-mails.

My fiancee was promised a £1000 referral bonus by a Taxdesign representative, but nobody would confirm this.

They claimed to have a Stockport office (fairly local to me), but nobody would confirm if I could show my KYC (Know Your Client) documents there in person or not.

The umbrella, E-cover Solutions Ltd, has insurance certificates claiming a turnover estimate of only £200-250K. Nobody would explain how this could possibly cover more than 2 consultants.

I'm not a DTA expert, but nothing I've read seems to fit the scenario.
Apparently they must not have a Permanent Enterprise (not sure if that's the correct term) in the UK or income would be liable to UK tax.
Also, I thought (perhaps wrongly) that the DTA prevented tax from being paid twice, i.e. Manx tax paid offsets tax to pay in UK. Therefore 0% tax paid = no offset against UK tax (i.e. full liability).

Does anyone know any different?

[thewave]

Schnurdle said:

I'm not a DTA expert, but nothing I've read seems to fit the scenario.
Apparently they must not have a Permanent Enterprise (not sure if that's the correct term) in the UK or income would be liable to UK tax.
Also, I thought (perhaps wrongly) that the DTA prevented tax from being paid twice, i.e. Manx tax paid offsets tax to pay in UK. Therefore 0% tax paid = no offset against UK tax (i.e. full liability).

Does anyone know any different?

I have absolutely NIL knowledge of the DTA agreement with the IOM, but you are correct, that a DTA usually does exactly what is says on the tin, it prevents someone from being taxed twice on the same income. Any tax paid in one country is relievable against that of the other country (providing there is an agreement in place) therefore my first thought (without looking further) is that 0% tax paid in IOM is exactly that, then if you are resident of the UK, all your income will be taxed at UK rates.

However, i've not looked into this, perhaps I should

[thewave]

After a brief search

[i]Under the second amending agreement mentioned in DT9950 any person who can take advantage of the special Isle of Man tax benefits available under

a) the Income Tax (Exempt Companies) Act 1984
or
b) the International Business Act 1994

is not entitled to relief or exemption from United Kingdom tax computed by reference to any income or profits arising on or after 3 January 1995, unless that person is assessed to tax thereon in the Isle of Man at a rate which is not less than the standard rate of Isle of Man tax (currently 20 per cent)[/i]

No benefit, the 20% is only relievable.

However

[i]An individual who is a resident of the Island shall be exempt from United Kingdom tax on profits or remuneration in respect of personal (including professional) services performed within the United Kingdom in any year of assessment if -

(a) he is present within the United Kingdom for a period or periods not exceeding in the aggregate 183 days during that year, and
(b) the services are performed for on or behalf of a person resident in the Island, and
(c) the profits or remuneration are subject to Manx tax.(3) The provisions of this paragraph shall not apply to the profits or remuneration of public entertainers such as stage, motion picture or radio artists, musicians and athletes.[/i]

Key word in that last wording 'and'

In this instance the services are performed for a company, not a person, how that works I don't know. I'll look in Feb when I put aside time for my case reviews (sad huh!) I'll also review all the posts in this thread

ETA: Why dont the italics work?

Edited by thewave on Tuesday 29th January 15:31

[kryten22uk]

thewave said:

I have absolutely NIL knowledge of the DTA agreement with the IOM, but you are correct, that a DTA usually does exactly what is says on the tin, it prevents someone from being taxed twice on the same income. Any tax paid in one country is relievable against that of the other country (providing there is an agreement in place) therefore my first thought (without looking further) is that 0% tax paid in IOM is exactly that, then if you are resident of the UK, all your income will be taxed at UK rates.

However, i've not looked into this, perhaps I should

Thats quite a comical post. You start off by saying you have zero DTA knowledge, then you proceed to explain what it is; ending in an incorrect definition.

I think the key here is the type of "income". It is "profit share" and hence the tax paid in IoM isnt an offset for UK tax, its INSTEAD of UK tax. Hence you pay no further tax on your profit share.

You think they're going to spend tens of thousands of pounds on barrister fees, and then get the first hurdle such as correct treatment of DTA wrong?

[kryten22uk]

Schnurdle said:

The umbrella, E-cover Solutions Ltd, has insurance certificates claiming a turnover estimate of only £200-250K. Nobody would explain how this could possibly cover more than 2 consultants.

The UK umbrella is a separate legal entity from the IoM trust to which you are contracted. The UK umbrella, has a contract with the IoM trust itself. It seems purely to exist as a go-between which breaks the link between the contractors agencies and the IoM trust (some agencies baulk at idea of dealing with offshore co's). Hence any insurance for E-cover wont be relevant to the consultants. That is my understanding. A similar setup Sanzar Partnership dont have this UK onshore umbrella. I dont think it effect on the validity of the setup.

[Eric Mc]

I have refrained from posting (much) on this thread as it is obvious that this is a very convoluted and specialist scheme.

If it works, fine.

However, I don't fully understand how they really operate (not being an expert on international tax or law) and will certainly not recommend them to my clients.

Obviously, kryten has looked into all apsects of these schemes and is happy to use them.

I still find it difficult to get my head around the fact that the Revenue are somehow prepared to tolerate individuals who are living and working full time in the UK and are UK tax resident but at the same time these individuals not being liable to UK tax on their personal income.

[thewave]

kryten22uk said:

thewave said:

I have absolutely NIL knowledge of the DTA agreement with the IOM, but you are correct, that a DTA usually does exactly what is says on the tin, it prevents someone from being taxed twice on the same income. Any tax paid in one country is relievable against that of the other country (providing there is an agreement in place) therefore my first thought (without looking further) is that 0% tax paid in IOM is exactly that, then if you are resident of the UK, all your income will be taxed at UK rates.

However, i've not looked into this, perhaps I should

Thats quite a comical post. You start off by saying you have zero DTA knowledge, then you proceed to explain what it is; ending in an incorrect definition.

I think the key here is the type of "income". It is "profit share" and hence the tax paid in IoM isnt an offset for UK tax, its INSTEAD of UK tax. Hence you pay no further tax on your profit share.

You think they're going to spend tens of thousands of pounds on barrister fees, and then get the first hurdle such as correct treatment of DTA wrong?

Sorry I hadn't read the whole thread, just caught the DTA section, of which I stated "I have absolutely NIL knowledge of the DTA agreement with the IOM" which is correct, i've never looked into the precise mechanics of the DTA between the UK and IOM, hence I stated I should look into it. I've now scanned the whole thread.

Also my definition of a DTA is correct. A DTA by it's very nature is intended to stop an individual or company remitting tax on income twice.

As an individual, you are taxable on your worldwide income. As you are (I assume) UK resident, you will be liable to UK tax rates. However I note you said IOM trust which is taxed in the IOM at 0%. I 'think' remittance on a trust is only taxable in one country, which if this was the IOM, it would as you correctly state be at 0% (although in some circumstances it can be 20%, but this is on lower amounts, again - I think)

Still seems risky, and usually, if it looks too good to be true, it probably is, I assume such a scheme would be registered with HMRC but would expect the 'loophole' to be closed as soon as there are enough peope doing it.

At the moment i'd expect this scheme to have very few operators, thus is being put at the bottom of the pile for the HMRC boys and girls to sort out (They have enough on their hands with IR35/MSC/PSC)

I would want guarantees, but make the most of it whilst it's there. I will request our firm looks into it.

Regards

[thewave]

Eric Mc said:

I still find it difficult to get my head around the fact that the Revenue are somehow prepared to tolerate individuals who are living and working full time in the UK and are UK tax resident but at the same time these individuals not being liable to UK tax on their personal income.

Agreed, but the legislation is so complex there's virtually no way to understand the nature of the system without spending a considerable amount of time researching AND getting written confirmation from HMRC that treatment undertaken is considered to be correct.

[kryten22uk]

thewave said:

As an individual, you are taxable on your worldwide income. As you are (I assume) UK resident, you will be liable to UK tax rates. However I note you said IOM trust which is taxed in the IOM at 0%. I 'think' remittance on a trust is only taxable in one country, which if this was the IOM, it would as you correctly state be at 0% (although in some circumstances it can be 20%, but this is on lower amounts, again - I think)

I think this is key. On SOME earnings, its only taxable once and hence these are the types that are being targetted currently by the specialist tax planners.

thewave said:

Still seems risky, and usually, if it looks too good to be true, it probably is, I assume such a scheme would be registered with HMRC but would expect the 'loophole' to be closed as soon as there are enough peope doing it.

Yes its risky, but then so is being Ltd and paying only divs. At least its a clear win or lose, the same for everyone, not like Ltd where two seemingly identical contracts can be sent either way in an IR35 review; you never know if your own case would win. It isnt however a full on "loophole", and hence isnt registered as a tax avoidance scheme with HMRC. It uses solid international tax law to a very specific and accurate advantage. I havent yet gone this route, but I'm slowly steering towards it, the more info I glean. I like the emergence of some firms offering insurance, against losses; it shows confidence it the current system.

thewave said:

I will request our firm looks into it.

Cool, I'm keen to hear as many professional opinions as possible. Preferably some objective non risk-averse ones too. What "firm" is it you work in?

Edited by kryten22uk on Tuesday 29th January 17:33

[JustinP1]

Kryten, what in your situation makes being paid dividends so risky?

I have paid myself just over the tax allowance and NI threshold and the rest in dividends since I started. As far as I am aware, as long as the dividend payments are lawful, that is from company profits, with agreement of all directors, and a record kept of the dividend agreement then this is perfectly fine with the HMRC, and this must be how hundred of thousands or more directors of small Ltd companies get renumerated.

After all, as the director gets paid last and may not have a fixed wage each month anyway unless there was profit to do so, why choose to do this through PAYE and pay NI on it when what it really is is a dividend anyway?

Further to your previous post, I am surprised you can get insurance coverage. The only issue may be is that lets say you can save 20k a year for 5 years and *then* the HMRC decide the system is wrong. Although the insurance might pay for the legal costs and fines, I am guessing you would still have to pay back the £100,000 plus about £20k interest!

I dont know about you, but I dont keep that kind of cash around, and even not in liquid assets.

I suppose the way to find out definitively would be to write to the HMRC, explain your work and the system and get them to confirm in writing that they are OK with it. That should then cover you.

The other issue I thought of would be the issue of overheads/expenses. If you are working on individual contracts I suppose you can just add costs to that contract directly to the price. For me though, I would have a lot more other expenses which would currently reduce my company profits and tax bill which I don't think could be engineered into the same system.

In a nutshell, if you are a sole trader, or you can re-arrange your business method to do it, then it does look interesting. The advice I took at the time, even from the companies that run the schemes was that 'moving' or re-inventing a UK Ltd with staff just isnt realistically feasible at least for a small business anyway.

[UpTheIron]

kryten22uk said:

A similar setup Sanzar Partnership dont have this UK onshore umbrella. I dont think it effect on the validity of the setup.

A number of UK agencies will not deal with Sanzar, and for these, they go via a UK umbrella company.

[kryten22uk]

JustinP1 said:

Kryten, what in your situation makes being paid dividends so risky?

They're risky in mine (and the large majority of contractors) situations because of IR35. You may think that you have a "bomb proof" contract, but theres no reason why HMRC will see it that way.

The recent thread on the IR35 wins for HMRC show this risk. Even the PCG reckoned that the guy was outside IR35, but he still lost, and now owes £99k.

[edb49]

Eric Mc said:

I have refrained from posting (much) on this thread as it is obvious that this is a very convoluted and specialist scheme.

If it works, fine.

However, I don't fully understand how they really operate (not being an expert on international tax or law) and will certainly not recommend them to my clients.

Obviously, kryten has looked into all apsects of these schemes and is happy to use them.

I still find it difficult to get my head around the fact that the Revenue are somehow prepared to tolerate individuals who are living and working full time in the UK and are UK tax resident but at the same time these individuals not being liable to UK tax on their personal income.

Eric, what is your opinion on the very wealthy and their tax? I assume you'll have a few HNWIs on your books, and you'll know they pay less than 40%!

[Eric Mc]

I don't have clients I would consider to be "super rich".

I do what I can for them without being too adventurous.

[Webber3]

JustinP1 said:

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.

I have a friend that's been using an IOM offshore arrangement for some time now. He's an IT contractor working in the city with his own Ltd company and the way he described it was pretty much as you've described above. The scheme is run by two separate companies and they handle the setting up of the trust and everything else, they also declare the avoidance scheme to the revenue. They pay him 86% of anything that goes through the trust. This money goes into his personal account, tax paid (at 0% in the IOM of course). His wife is a contractor too, so income shifting was not an option for him and he'd previously been paying personal tax at 40%.

I thought it sounded VERY risky, but this company has assured him that, in the event of an investigation, they would spare no expense in defending both themselves and their clients. Their whole business depends on this double taxation arrangement, so it does sound plausible. I contacted them myself, but they couldn't help me as I'm no longer an IT contractor. They’ve referred me to one of their Manx contacts that might be able to help, just waiting to hear back. PM me if you want the company names.

[JustinP1]

Webber3 said:

JustinP1 said:

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.

I have a friend that's been using an IOM offshore arrangement for some time now. He's an IT contractor working in the city with his own Ltd company and the way he described it was pretty much as you've described above. The scheme is run by two separate companies and they handle the setting up of the trust and everything else, they also declare the avoidance scheme to the revenue. They pay him 86% of anything that goes through the trust. This money goes into his personal account, tax paid (at 0% in the IOM of course). His wife is a contractor too, so income shifting was not an option for him and he'd previously been paying personal tax at 40%.

I thought it sounded VERY risky, but this company has assured him that, in the event of an investigation, they would spare no expense in defending both themselves and their clients. Their whole business depends on this double taxation arrangement, so it does sound plausible. I contacted them myself, but they couldn't help me as I'm no longer an IT contractor. They’ve referred me to one of their Manx contacts that might be able to help, just waiting to hear back. PM me if you want the company names.

Thats interesting, although I dont know how he could keep his own Ltd co as well as the offshore 'system'. Although these guys can give every assurance that they will fight claims, this of course is only as good as the 'assurance'. I am quite sure they would defend their system, as their business depends upon it, however that is no guarantee they would win - and I am sure in that situation they are not going to be writing out cheques for 1000, 2000 or however many clients they have for separate legal challenges.

The 'worst case' scenario here is so dire my personal 'risk analysis' has moved me away. That is that maybe 5 years of tax are backdated. So not only would I have paid 14% for nothing, I would still owe 40% tax, plus interest. Further to that, to go the offshore route I would potentially be missing out on a lot of legitimate opportunities to write costs off against tax.

If we take the hypothetical scenario of 100k per year, I would be potentially losing 14k fees, 30k tax, 5k lost opportunities. Thats 50k. Plus the revenue would want interest on the tax portion. over 5 years this would be a total cost to me of maybe £300,000 should thing go 't*ts-up' and the revenue decide to aggressively chase these.

That said, if they already have an avoidance scheme in place with the revenue, and they are happy with it, then I am all ears!

[Deva Link]

JustinP1 said:

I would potentially be missing out on a lot of legitimate opportunities to write costs off against tax.

Sorry if I'm missing something, but you're not really "missing" out - you wouldn't be paying the tax in the first place.

JustinP1 said:

That said, if they already have an avoidance scheme in place with the revenue, and they are happy with it, then I am all ears!

It seems the scheme is notified to the Revenue, but I feel that "in place" might be overstating the position. They're simply aware of schemes that are notified to them (and are no doubt studying them hard!).

[JustinP1]

Deva Link said:

JustinP1 said:

I would potentially be missing out on a lot of legitimate opportunities to write costs off against tax.

Sorry if I'm missing something, but you're not really "missing" out - you wouldn't be paying the tax in the first place.

JustinP1 said:

That said, if they already have an avoidance scheme in place with the revenue, and they are happy with it, then I am all ears!

It seems the scheme is notified to the Revenue, but I feel that "in place" might be overstating the position. They're simply aware of schemes that are notified to them (and are no doubt studying them hard!).

What I mean is I currently run my business in a tax efficient way. The reason I do this is that it saves me money in running it in the way I do now. That maybe halves or at least takes a quarter off my potential overall tax liabilities just by knowing the rules and making my business decisions around them.

With the knowledge I would not have to worry about this I would not need to plan in such a way and spend more of my time running my business. This is of course a benefit until halfway through a tax year, or at the end of one the scheme gets pulled - which is the scenario I am referring to there.

I completely agree that if the scheme was never pulled there would be nothing to lose out on though!