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?
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.
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
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.
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.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.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.
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
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
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?
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.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 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.
Webber3 said:
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%.
This sounds slightly different to the setup which I'm looking at. The ones I am considering are not tax avoidance schemes, and the setup is such that it cant work with an LTD; you'd have to be employed by them.I'm steering towards Sanzar at moment. I figure that I'll just calculate the difference between the 85% return offered and the equivalent amount assuming PAYE status, then put this every month into my mortgage. If all goes t!ts up and HMRC want it all back, then so be it, I can just take out the mortgage again. I'll still be better off than when I was permie, as my gross earnings is still so much higher.
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