Contract working & employee benefit trusts

[funkyelise]

Hi All,

I'm after some guidance on the legality (primarily from a tax prespective) of getting paid for contract work through companies which use employee benefit trusts as a way of reducing tax bills & maximising the return from contract rates.
I work in engineering and was being paid through an umbrella company with the benefits of IR35. The contract has now run past 2 years however which makes this solution not possible now. So I either set up my own limited company or go through one of the alternative companies offering excellent returns on hourly rates through the use of employee benefit trusts. In summary, although they pay some of my wage in the normal way (effectively the minium wage) inc tax & NI, the remainder is paid through an EBT which you could argue is tax avoidance? The companies in question maintain it is legal and tax compliant, but I'd really appreciate any guidance from anyone here who may have experience of this sort of payment solution or knows the tax laws better than me!

Thanks for reading - any help would be much appreciated.

[spikeyhead]

If you have a search back through here, there's a bloke about to lose his house to the taxman after relying on this to evade tax.

Either you're an employee and pay PAYE or you're running a business and should do so properly.

[deckster]

I'm sure that Eric will be along in a minunte but until then - with respect, you sound a little confused. If you are working through a brolly then you are almost certainly classed as an employee, and therefore paying full income tax & NI, and IR35 doesn't come into the picture. I also like the idea of you getting the 'benefits' of IR35, as I'm sure that the entire freelancing community would love to hear what they are!

I'd recommend you take a look at one of the many contracting websites out there - contractoruk.com is the one I use most and read up on employment status, umbrella companies and IR35. Note that the new govt has pledged to reform IR35, which in general means that all the advice out there at the moment has a strictly limited shelf life. Also it's exceedingly likely that this 'reform' will tighten up the existing law so that all contract workers will be what is now termed IR35-caught, and there will be little or no advantage in running a Ltd company from then on (my opinion only...)

Re: the original question - run away, very far away, unless you have big balls and a very understanding family. I suspect that the 'bloke about to lose his house' that spikeyhead refers to is me, and whilst the arrangement that I used for 6 years wasn't based on EBTs, you can rest assured that they are very much in HMRCs sights and will be challenged very shortly. After you've read up on IR35, read up on 'BN66' and see what HMRC can and will do to close down this kind of tax avoidance scheme. Despite what any of the scheme promoters may tell you, HMRC do not 'approve' or vet these schemes for compliance and there is exactly zero guarantee that you won't be pursued to the ends of the earth for back taxes if HMRC choose to do so.

And just a minor nudge at spikeyhead...please don't confuse tax evasion and tax avoidance. They are very different things