Retrospective taxation campaign
Discussion
The right tax to pay is what they would have paid if they were working under a UK registered umbrella (or their own ltd company).
Most IT contractors that I have worked with are not self employed, they work on long term contracts and dont work for several companies (as say a builder/solicitor would). They just use the self employed status to avoid paying PAYE rates of tax.. About 10% are genuine IT consultants who work for several companies. Just because you change jobs every 6-12 months does not make you self employed.
So the end game is that not only will the contractors lose the expected savings, they will also loose the money paid to the IOM company (and I assume that may well include the tax paid in the IOM unless they can claim that back). The IOM companies should be funding any court action in the UK if they feel they have a case. Likely to happen ? Unlikely.
As for the HMRC being a lovely fluffy warm organisation. Well dream on. If it meant that every IT contractor was bankrupted they wouldn't bat an eyelid. I cant see many MP's having much sympathy for the alleged victims either.
Most IT contractors that I have worked with are not self employed, they work on long term contracts and dont work for several companies (as say a builder/solicitor would). They just use the self employed status to avoid paying PAYE rates of tax.. About 10% are genuine IT consultants who work for several companies. Just because you change jobs every 6-12 months does not make you self employed.
So the end game is that not only will the contractors lose the expected savings, they will also loose the money paid to the IOM company (and I assume that may well include the tax paid in the IOM unless they can claim that back). The IOM companies should be funding any court action in the UK if they feel they have a case. Likely to happen ? Unlikely.
As for the HMRC being a lovely fluffy warm organisation. Well dream on. If it meant that every IT contractor was bankrupted they wouldn't bat an eyelid. I cant see many MP's having much sympathy for the alleged victims either.
sugerbear said:
The right tax to pay is what they would have paid if they were working under a UK registered umbrella (or their own ltd company).
Most IT contractors that I have worked with are not self employed, they work on long term contracts and dont work for several companies (as say a builder/solicitor would). They just use the self employed status to avoid paying PAYE rates of tax.. About 10% are genuine IT consultants who work for several companies. Just because you change jobs every 6-12 months does not make you self employed.
I've sort of lost your point. Are you saying that the 'right amount' of tax is what you would pay as a brolly employee, as a director of a Ltd Co, or as a PAYE employee? As they are all quite different and they can't all be 'right'.Most IT contractors that I have worked with are not self employed, they work on long term contracts and dont work for several companies (as say a builder/solicitor would). They just use the self employed status to avoid paying PAYE rates of tax.. About 10% are genuine IT consultants who work for several companies. Just because you change jobs every 6-12 months does not make you self employed.
sugerbear said:
So the end game is that not only will the contractors lose the expected savings, they will also loose the money paid to the IOM company (and I assume that may well include the tax paid in the IOM unless they can claim that back). The IOM companies should be funding any court action in the UK if they feel they have a case. Likely to happen ? Unlikely.
To date, all court action has indeed been funded by the scheme provider, who has also committed to take this to Europe. You perhaps don't seem to understand quite what a big deal this is; retrospective action on this scale is, quite simply, unprecedented and it really isn't just a case of a few nasty tax-dodgers getting their comeuppance.sugerbear said:
As for the HMRC being a lovely fluffy warm organisation. Well dream on. If it meant that every IT contractor was bankrupted they wouldn't bat an eyelid. I cant see many MP's having much sympathy for the alleged victims either.
I don't quite recall ever suggesting that HMRC are either lovely or fluffy (I have many other words for them, individually and organisationally, but they wouldn't make it past the filter) and quite agree that they couldn't give two hoots for my personal situation. You would however be surprised at the support we are getting from MPs who, as a rule, are very surprised that this has been allowed to happen. Of course that doesn't translate into a change of policy and I'm under no illusions of how likely that is.my point being that if the HMRC can prove that contractors have evaded tax (rather than avoiding it) then they can apply for the retrospective amounts to be paid. That is how the system works.
Your position is that you have avoided it because presumably the revenue didn't explicitly tell you it was evasion.
If you avoided tax then it is indeed unfair. BUT it feels to me that the sole reason for you using an IOM company to invoice was to evade paying UK company/personal tax. The IOM didn't provide anything to you other than to pay you and invoice your company. You were lord and master of your own destiny, you had no interaction with any other members of the company. If the company in the IOM was a genuine IT consultancy I would expect them to be touting you around and getting you to work with others from the same company to work at specific locations. I assume (given what I was told about how these companies operate) that never happened. Lots of other points like the non-repayable loans to avoid even more tax sound more like tax evasion.
fwiw, I am not jealous, I had the opportunity of contracting before IR35 came about and I am glad I didn't. In the short term I didn't earn as much but I had a longer and much more varied career and more secure employment without the pain of finding finding new contracts and the all the rest that goes with it. Even in the mid 90's the writing was on the wall for IT contractors avoiding tax through limited companies.
Your position is that you have avoided it because presumably the revenue didn't explicitly tell you it was evasion.
If you avoided tax then it is indeed unfair. BUT it feels to me that the sole reason for you using an IOM company to invoice was to evade paying UK company/personal tax. The IOM didn't provide anything to you other than to pay you and invoice your company. You were lord and master of your own destiny, you had no interaction with any other members of the company. If the company in the IOM was a genuine IT consultancy I would expect them to be touting you around and getting you to work with others from the same company to work at specific locations. I assume (given what I was told about how these companies operate) that never happened. Lots of other points like the non-repayable loans to avoid even more tax sound more like tax evasion.
fwiw, I am not jealous, I had the opportunity of contracting before IR35 came about and I am glad I didn't. In the short term I didn't earn as much but I had a longer and much more varied career and more secure employment without the pain of finding finding new contracts and the all the rest that goes with it. Even in the mid 90's the writing was on the wall for IT contractors avoiding tax through limited companies.
http://news.bbc.co.uk/1/hi/business/8484955.stm
and this
http://news.bbc.co.uk/1/hi/business/8496921.stm
someone ends up paying an effective tax rate of just 3.5%. Greedy f.....er
In the above case I hope he loses his home, his wife leaves him and he is made bankrupt. Another good for nothing leech who will be happy to live in a country and use its services but contribute as little as possible (and then moan that some bloke down the road hasn't done a days work in his life and claims loads of "benefits").
and this
http://news.bbc.co.uk/1/hi/business/8496921.stm
someone ends up paying an effective tax rate of just 3.5%. Greedy f.....er
In the above case I hope he loses his home, his wife leaves him and he is made bankrupt. Another good for nothing leech who will be happy to live in a country and use its services but contribute as little as possible (and then moan that some bloke down the road hasn't done a days work in his life and claims loads of "benefits").
I did not initially realise that these schemes were required to be specifically identified by the avoiders and their advisers, under UK law, to the IR at the earliest opportunity.
This being the case, all of the avoiders must have been very aware that the Revenue might well take a negative view of such complex devices. In the event the Revenue did, as is their wont.
There can therefore really be no question that this does not come as a surprise to the avoiders, who were already on notice that there was this possible complication by virtue of the significant disclosure requirements.
As others have said it seems naive, at best, to believe that the rate of tax payable by the avoider could ever be 3%. In any reasonable assessment of what might be a fair taxation level 3% is just too low.
In all conscience therefore, these schemes seem to me to be too cut to the bone to ever have had any real hope of being met with approval from the IR in general use. Frankly given the reality of the circumstances I cannot see these ever stood a real chance of approval.
The complexities with regard to the complaints of hardship and financial difficulty,caused by the IR approach are also fundamentally misconceived IMO. The complexities of the reparations result from the complexities of the schemes. Ever the way.
This being the case, all of the avoiders must have been very aware that the Revenue might well take a negative view of such complex devices. In the event the Revenue did, as is their wont.
There can therefore really be no question that this does not come as a surprise to the avoiders, who were already on notice that there was this possible complication by virtue of the significant disclosure requirements.
As others have said it seems naive, at best, to believe that the rate of tax payable by the avoider could ever be 3%. In any reasonable assessment of what might be a fair taxation level 3% is just too low.
In all conscience therefore, these schemes seem to me to be too cut to the bone to ever have had any real hope of being met with approval from the IR in general use. Frankly given the reality of the circumstances I cannot see these ever stood a real chance of approval.
The complexities with regard to the complaints of hardship and financial difficulty,caused by the IR approach are also fundamentally misconceived IMO. The complexities of the reparations result from the complexities of the schemes. Ever the way.
not260 said:
I don't understand why this is classed as avoidance and not evasion.
Presumably because it was legal. If it wasn't illegal then there would have been no need to legislate, would there? 
Retrospective law changes are bad, I cannot see how anyone can remotely think this is a good principle.
singlecoil said:
roachcoach said:
Presumably because it was legal.
The impression that I am getting is that whether it was legal or not was very much a point of view thing, and that HMRC didn't think it was legal.roachcoach said:
singlecoil said:
roachcoach said:
Presumably because it was legal.
The impression that I am getting is that whether it was legal or not was very much a point of view thing, and that HMRC didn't think it was legal.I’ll offer a car based analogy.
Let say that cars that put out over 10mg carbon are charged £50 a day to drive into the city, but cars under 10mg are charged £20.
A driver has a 60mg car, but buys a device that claims to reduce that by 20mg.
He fits it to his car and instead of paying the automated £50 per day he self assess and pays just £20 a day..
Eventually the City lawmakers investigate this device and find it doesn’t work.
They then demand that the driver pays all the extra money.
The city never approved the device in the first place – but they have approved other devices.
The driver made his own judgement call (perhaps on bad advice) about how much he would pay.
There is no change to the law. It’s just clarification of the law.
The charges are backdated to the point where the driver decided to start using this device.
I think it’s fine that people manage their tax efficiently.
I find it amusing when I hear people who are on the dole complaining that some rich banker avoided paying tax. Sure, the banker managed to pay only 30% instead of 50% - but he still paid £800k in tax – which is 800k more than the dole chap.
I think it’s quite hard for those who pay basic rate tax to understand what it’s like to be charged 50% tax, or have ones tax free allowance removed.
I think if everyone paid the same basic percentage of tax on their income then it would be fine. But so long as there’s a sliding scale then people will try to avoid it.
But, there is a point where it becomes blatantly illegal – and that’s what this IOM scheme is.
Let say that cars that put out over 10mg carbon are charged £50 a day to drive into the city, but cars under 10mg are charged £20.
A driver has a 60mg car, but buys a device that claims to reduce that by 20mg.
He fits it to his car and instead of paying the automated £50 per day he self assess and pays just £20 a day..
Eventually the City lawmakers investigate this device and find it doesn’t work.
They then demand that the driver pays all the extra money.
The city never approved the device in the first place – but they have approved other devices.
The driver made his own judgement call (perhaps on bad advice) about how much he would pay.
There is no change to the law. It’s just clarification of the law.
The charges are backdated to the point where the driver decided to start using this device.
I think it’s fine that people manage their tax efficiently.
I find it amusing when I hear people who are on the dole complaining that some rich banker avoided paying tax. Sure, the banker managed to pay only 30% instead of 50% - but he still paid £800k in tax – which is 800k more than the dole chap.
I think it’s quite hard for those who pay basic rate tax to understand what it’s like to be charged 50% tax, or have ones tax free allowance removed.
I think if everyone paid the same basic percentage of tax on their income then it would be fine. But so long as there’s a sliding scale then people will try to avoid it.
But, there is a point where it becomes blatantly illegal – and that’s what this IOM scheme is.
singlecoil said:
roachcoach said:
Presumably because it was legal.
The impression that I am getting is that whether it was legal or not was very much a point of view thing, and that HMRC didn't think it was legal.1) Evasion and Avoidance are very different things. Evasion involves hiding or misrepresenting income, and is rightly illegal, carrying penalties and a jail term. Avoidance is legally minimizing your responsibilities, within the law. Because our tax codes are so complex, it is often not entirely clear what the law says, and of course HMRC will always come down on the side of 'you owe us this tax'. It is then up to the claimant to prove that they don't, in fact, owe the tax that HMRC claims they do. HMRC are very far from infallible on this front so it is entirely false to claim that, because HMRC didn't agree with us, the tax somehow is automatically due. Don't forget, HMRC merely collect tax, they don't make or interpret tax law.
2) At no point has HMRC or anybody else suggested that anyone has evaded tax. Aggressively avoided, certainly - but there has been no deception or attempt to conceal income.
3) We have a process for 'points of view' about whether things are legal or not. They're called tax tribunals and courts of law. In this case, HMRC chose not to use this process and instead legislated with retrospective effect. Some might say that this is tantamount to admission that what we were doing was, in fact, entirely legal.
4) The moral argument is one that I will not be drawn into. Suffice to say that I am, by a large margin, a net contributor to our society.
http://www.contractorcalculator.co.uk/contractors_...
It is well described here. Fundamentally it was set up to avoid people being over taxed not pay 3.5% tax.
People have had at least 4 years to start planning towards this event but chose to do nothing.
It is well described here. Fundamentally it was set up to avoid people being over taxed not pay 3.5% tax.
People have had at least 4 years to start planning towards this event but chose to do nothing.
From what I've read HMRC was asked repeatedly to take this to court, a test case to clarify the matter, but because the law quite clearly allowed the scheme to proceed and they knew they would lose, they refused.
The scheme was legal and was avoidance, all avoidance is legal, 'aggressive avoidance' is a term reserved for the worm-tongued amongst us and damns them as such. It is your right to avoid paying tax, it is not your right to evade tax.
Had this scheme been evasion at that time then the participants would have been slapped down within a year and this mess not created.
Retrospective taxation through redefinition of activity or a bare-faced retrospective act is the thin end of the wedge, it is and can only be, a bad thing.
The scheme was legal and was avoidance, all avoidance is legal, 'aggressive avoidance' is a term reserved for the worm-tongued amongst us and damns them as such. It is your right to avoid paying tax, it is not your right to evade tax.
Had this scheme been evasion at that time then the participants would have been slapped down within a year and this mess not created.
Retrospective taxation through redefinition of activity or a bare-faced retrospective act is the thin end of the wedge, it is and can only be, a bad thing.
singlecoil said:
roachcoach said:
singlecoil said:
roachcoach said:
Presumably because it was legal.
The impression that I am getting is that whether it was legal or not was very much a point of view thing, and that HMRC didn't think it was legal.I only really know enough about tax to know the whole thing is a massively overcomplicated quagmire and have long since given up attempting to understand the machinations of HMRC.
I would say they've appeared to have been uncharacteristically slack in chasing this down, however. But again, their actions are usually a bloody mystery to me anyway.
From reading that linked article and a few others;
I ‘think’ that what happened is that the tax laws were written many years back.
Then new laws about double taxation were implemented which offered semantic loopholes between the two laws.
HMRC just need to clarify the original law in context of the new law.
Everyone using the IAM scheme was warned this was going to happen many years ago.
I ‘think’ that what happened is that the tax laws were written many years back.
Then new laws about double taxation were implemented which offered semantic loopholes between the two laws.
HMRC just need to clarify the original law in context of the new law.
Everyone using the IAM scheme was warned this was going to happen many years ago.
Snowboy said:
From reading that linked article and a few others;
I ‘think’ that what happened is that the tax laws were written many years back.
Then new laws about double taxation were implemented which offered semantic loopholes between the two laws.
HMRC just need to clarify the original law in context of the new law.
Everyone using the IAM scheme was warned this was going to happen many years ago.
No, the DT law was a treaty from 1955. it was replaced by the 2009 treaty. Treaties can never be retrospective.I ‘think’ that what happened is that the tax laws were written many years back.
Then new laws about double taxation were implemented which offered semantic loopholes between the two laws.
HMRC just need to clarify the original law in context of the new law.
Everyone using the IAM scheme was warned this was going to happen many years ago.
The scheme was legal under the 1955 treaty and operated for countless people including MPs and members of the HoL.
It was a 'toffs' loophole. So long as the 'proles' didn't know about it or realise then HMRC turned a blind eye to it.
There was no clarification, it is a matter of public record that clarification was sought repeatedly and none was forthcoming. There was, however, a redefinition... a retrospective redefinition.
The warning was the loophole was going to be addressed following the revision of the IoM treaty. No treaty, due to the very nature of being a treaty, can be retrospective.
I’d suggest that this is a situation where the spirit of the law and the letter of the law may be interpreted differently.
As I understand it, in US courts they have generally sided with the letter of the law, but the UK has traditionally chosen to interpret the spirit of the law.
I would have sympathy to those people who have been caught out except for two things.
1,
The main thing is that several years ago the HMRC warned them that this might happen. If people chose to ignore that warning then that’s their problem.
The sensible thing would have been to jump ship, or perhaps put the money saved into a decent investment so it could be repaid if necessary yet still make a profit.
To ignore a warning from the HMRC is to invite trouble.
2.
The second point is that it’s clearly a loophole, a trick, a con.
The people who did this were clearly not employees of an IOM company in any traditional sense of the word. They were just funnelling their money through an offshore company to avoid tax.
Combined with the first point above it was obvious to most people that it was going to get closed down.
As I understand it, in US courts they have generally sided with the letter of the law, but the UK has traditionally chosen to interpret the spirit of the law.
I would have sympathy to those people who have been caught out except for two things.
1,
The main thing is that several years ago the HMRC warned them that this might happen. If people chose to ignore that warning then that’s their problem.
The sensible thing would have been to jump ship, or perhaps put the money saved into a decent investment so it could be repaid if necessary yet still make a profit.
To ignore a warning from the HMRC is to invite trouble.
2.
The second point is that it’s clearly a loophole, a trick, a con.
The people who did this were clearly not employees of an IOM company in any traditional sense of the word. They were just funnelling their money through an offshore company to avoid tax.
Combined with the first point above it was obvious to most people that it was going to get closed down.
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