Tax avoiders to be deliberately bankrupted.....?..
Discussion
BBC Radio 4’s Moneybox has recently run a couple of interesting segments on contractors caught up in the loan charge issue
https://www.bbc.co.uk/programmes/m0002rn7
https://www.bbc.co.uk/programmes/m0002ycr
Based on the government’s position in the second of these programmes, it sounds like some people are pretty much stuffed, as the “retrospective tax” argument was rejected
To declare an interest, I briefly participated in an EBT scheme as an exec of a medium sized company, which we got nervous about and shut down within 3 months. That meant paying back 4 or 5 K in income tax. I hate to think where I’d stand if we had left it running for 10 years
https://www.bbc.co.uk/programmes/m0002rn7
https://www.bbc.co.uk/programmes/m0002ycr
Based on the government’s position in the second of these programmes, it sounds like some people are pretty much stuffed, as the “retrospective tax” argument was rejected
To declare an interest, I briefly participated in an EBT scheme as an exec of a medium sized company, which we got nervous about and shut down within 3 months. That meant paying back 4 or 5 K in income tax. I hate to think where I’d stand if we had left it running for 10 years
mikef said:
BBC Radio 4’s Moneybox has recently run a couple of interesting segments on contractors caught up in the loan charge issue
https://www.bbc.co.uk/programmes/m0002rn7
https://www.bbc.co.uk/programmes/m0002ycr
Based on the government’s position in the second of these programmes, it sounds like some people are pretty much stuffed, as the “retrospective tax” argument was rejected
To declare an interest, I briefly participated in an EBT scheme as an exec of a medium sized company, which we got nervous about and shut down within 3 months. That meant paying back 4 or 5 K in income tax. I hate to think where I’d stand if we had left it running for 10 years
Clearly anyone thinking oh a scheme where I can essentially keep 100% of my gross salary and not pay tax isn’t right and they knew it. https://www.bbc.co.uk/programmes/m0002rn7
https://www.bbc.co.uk/programmes/m0002ycr
Based on the government’s position in the second of these programmes, it sounds like some people are pretty much stuffed, as the “retrospective tax” argument was rejected
To declare an interest, I briefly participated in an EBT scheme as an exec of a medium sized company, which we got nervous about and shut down within 3 months. That meant paying back 4 or 5 K in income tax. I hate to think where I’d stand if we had left it running for 10 years
Tough titty sadly for those who joined
Welshbeef said:
Clearly anyone thinking oh a scheme where I can essentially keep 100% of my gross salary and not pay tax isn’t right and they knew it.
I understand it was more like 15% into the pocket of dodgy promoters and introducers, 85% into living the high life and zero into funding public servicesThe irony is that using legitimate routes like limited company, pensions, etc would probably have ended up in tax deductions of around twice what was paid to the wide boys and now that legitimate tax minimisation is no longer available
TTmonkey said:
The settlement plans are for those settling their tax liability by repaying the tax owed. They are not for the loan charge itself.
Let’s say you have been contracting for twenty years and have avoided tax to the tune of £300,000. The HMRC can levy a loan charge against this amount for the new tax year, which you have to pay. That payment is due in full in a few months time. You technically still have the loan this time next year, so could face a new loan charge.... potentially every year.
Or you could settle the outstanding tax owed with the HMRC. They will want a significant up front payment plus monthly, probably over 60 months. Plus intrest.
Contractor I heard of owing 120k has to pay £40k upfront then monthly of around £2500 to settle. Those figures are pretty punitive.
It’s going to be pretty hard for some people that were earning big bucks in 2004-2012 as a high paid contractor as they probably didn’t save that money, and their income has probably dried up since then as the markets have changed.
Guy I sat next to doing the same job as me was coining £8000 spending money a month, whereas I as paye was getting £2500. He was living a great life, flying off to watch Liverpool play every week, Home, and away, and in Europe. He isn’t going to be able to settle his outstanding tax bill any time soon.
Could the poor little poppet maybe get a tax deduction on the cost of a violin quartet to play sad music whilst he tells his story to anyone who'll listen in an attempt to persuade them not to burst out laughing?Let’s say you have been contracting for twenty years and have avoided tax to the tune of £300,000. The HMRC can levy a loan charge against this amount for the new tax year, which you have to pay. That payment is due in full in a few months time. You technically still have the loan this time next year, so could face a new loan charge.... potentially every year.
Or you could settle the outstanding tax owed with the HMRC. They will want a significant up front payment plus monthly, probably over 60 months. Plus intrest.
Contractor I heard of owing 120k has to pay £40k upfront then monthly of around £2500 to settle. Those figures are pretty punitive.
It’s going to be pretty hard for some people that were earning big bucks in 2004-2012 as a high paid contractor as they probably didn’t save that money, and their income has probably dried up since then as the markets have changed.
Guy I sat next to doing the same job as me was coining £8000 spending money a month, whereas I as paye was getting £2500. He was living a great life, flying off to watch Liverpool play every week, Home, and away, and in Europe. He isn’t going to be able to settle his outstanding tax bill any time soon.
WhiskyDisco said:
I find myself dead against the tax dodging "loan from IoM" mob but also, at the other end of the spectrum think that IR35 regulations are unfair to jobbing contractors like myself. We should be free to operate a small firm as we choose, living frugally and building reserves for quiet patches.
I’ll stick my neck out and say I don’t think IR35 is unfair - whenever we have done the checks it always shows who is a genuine Consultant/Contractor and who is basically an Agency member of staff.TTmonkey said:
Many of the schemes haven’t been defeated. The tax law was changed to tax the loans themselves, rather than declare them as fraudulent.
Morally they are simply wrong.
I think the HRMC have been quite clever here for a change. As I said earlier these schemes have been in place for a looonngg time and were always an obvious avoidance , if not evasion. They could have changed the law to outlaw these types of loans but then everyone that had acted prior to the law change would have been acting within the law as it was at the time and therefore clear.Morally they are simply wrong.
What HMRC has done with this law change is introduce a new tax on outstanding loans so that anyone with a loan is due to pay tax if the loan is not repaid, effectively ensuring that those with old loans prior to the change couldn't play the 'but it was within the rules at the time' card.
^ all this probably wrong or grossly simplified, but they appear to have been smart about it , for a change!
I think people have had 3 years to either repay the loan or pay the tax, so it shouldn't have come as a surprise to most. Mind you I don't suppose the offshore providers were hurrying to advise their clients of the impacts of the new rules 3 years ago.
I know there is an example above of one IT contractor spending every penny of his increased income as quick as he could earn it, but I also know a lot of guys that were ploughing their money into BTL and other property deal or investments. So i don't have much sympathy if they now have to cash in one of their BTLs to pay off a decent tax bill now it's caught up with them. They'll not be starving.
Piersman2 said:
I think the HRMC have been quite clever here for a change. As I said earlier these schemes have been in place for a looonngg time and were always an obvious avoidance , if not evasion. They could have changed the law to outlaw these types of loans but then everyone that had acted prior to the law change would have been acting within the law as it was at the time and therefore clear.
What HMRC has done with this law change is introduce a new tax on outstanding loans so that anyone with a loan is due to pay tax if the loan is not repaid, effectively ensuring that those with old loans prior to the change couldn't play the 'but it was within the rules at the time' card.
^ all this probably wrong or grossly simplified, but they appear to have been smart about it , for a change!
I think people have had 3 years to either repay the loan or pay the tax, so it shouldn't have come as a surprise to most. Mind you I don't suppose the offshore providers were hurrying to advise their clients of the impacts of the new rules 3 years ago.
I know there is an example above of one IT contractor spending every penny of his increased income as quick as he could earn it, but I also know a lot of guys that were ploughing their money into BTL and other property deal or investments. So i don't have much sympathy if they now have to cash in one of their BTLs to pay off a decent tax bill now it's caught up with them. They'll not be starving.
You have it pretty much correct.What HMRC has done with this law change is introduce a new tax on outstanding loans so that anyone with a loan is due to pay tax if the loan is not repaid, effectively ensuring that those with old loans prior to the change couldn't play the 'but it was within the rules at the time' card.
^ all this probably wrong or grossly simplified, but they appear to have been smart about it , for a change!
I think people have had 3 years to either repay the loan or pay the tax, so it shouldn't have come as a surprise to most. Mind you I don't suppose the offshore providers were hurrying to advise their clients of the impacts of the new rules 3 years ago.
I know there is an example above of one IT contractor spending every penny of his increased income as quick as he could earn it, but I also know a lot of guys that were ploughing their money into BTL and other property deal or investments. So i don't have much sympathy if they now have to cash in one of their BTLs to pay off a decent tax bill now it's caught up with them. They'll not be starving.
The going back 20 years is pretty shocking though. There are people that had loans in the late 1990s that are retired now,, I think they should have limited it a bit.
There are some people that have been unfairly affected by this, not IT contractors, but low paid health workers etc, people that were effectivly forced into schemes,
George Smiley said:
is this necessarily true?
Could it be the complex laws is precisely why companies such as Amazon post no profit in the UK despite sales?
Surely a simple law that states - If you are a reatailer selling goods in the UK, you pay tax on the value of the goods sold. If the transaction is completed in the UK and the goods shipped in the UK you pay tax. It the transaction is completed in the UK and the goods supplied from outside the UK, you pay tax on the value of the sale plus import tax on the goods.
Another law could be - you cannot offset the loss of your operation outside of the UK to your business inside the UK to offset your tax liability or we will demand tax based on the value of your overall global profit based on a proportion of the global sales based on the number originating within the UK
That's a simple rule that with a bit of tweaking could work.
In China there is quite a simple approach ... the tax authorities will deem that your business should earn at least X % profit depending on sector .... any fiddling on transfer pricing won’t reduce your minimum tax bill Could it be the complex laws is precisely why companies such as Amazon post no profit in the UK despite sales?
Surely a simple law that states - If you are a reatailer selling goods in the UK, you pay tax on the value of the goods sold. If the transaction is completed in the UK and the goods shipped in the UK you pay tax. It the transaction is completed in the UK and the goods supplied from outside the UK, you pay tax on the value of the sale plus import tax on the goods.
Another law could be - you cannot offset the loss of your operation outside of the UK to your business inside the UK to offset your tax liability or we will demand tax based on the value of your overall global profit based on a proportion of the global sales based on the number originating within the UK
That's a simple rule that with a bit of tweaking could work.
I used to work for a large coffee shop retailer in the UK (not Starbucks )... and used to run all the investment appraisal work on store expansion.
To hit an economic return on investment .... store margins would typically need to be 20%+ (approx) ... how Starbucks claimed they made close to zero profit in the UK is mystifying
...(Similar principles apply for Amazon)
if their retail business in the UK was genuinely zero margin they would not be expanding it (unlikely) ... or alternatively they don’t know how to run financial models (also very unlikely )...
Countdown said:
WhiskyDisco said:
I find myself dead against the tax dodging "loan from IoM" mob but also, at the other end of the spectrum think that IR35 regulations are unfair to jobbing contractors like myself. We should be free to operate a small firm as we choose, living frugally and building reserves for quiet patches.
I’ll stick my neck out and say I don’t think IR35 is unfair - whenever we have done the checks it always shows who is a genuine Consultant/Contractor and who is basically an Agency member of staff.alfaman said:
In China there is quite a simple approach ... the tax authorities will deem that your business should earn at least X % profit depending on sector .... any fiddling on transfer pricing won’t reduce your minimum tax bill
I used to work for a large coffee shop retailer in the UK (not Starbucks )... and used to run all the investment appraisal work on store expansion.
To hit an economic return on investment .... store margins would typically need to be 20%+ (approx) ... how Starbucks claimed they made close to zero profit in the UK is mystifying ...
(Similar principles apply for Amazon)
if their retail business in the UK was genuinely zero margin they would not be expanding it (unlikely) ... or alternatively they don’t know how to run financial models (also very unlikely )...
You are talking about Gross Profits rather than Net Profits. Tax is calculated on the Net Profit. Amazon, Starbucks etc have always generated good Gross Profits on their UK activities. The trick they perform is that they ensure there is little or no Net Profit by using an offshore subsidiary to charge the UK company Management Fees or other manufactured charges. This effectively transfers the UK Net Profit to an overseas entity. The overseas entity will, of course, be based in a low tax regime country or state.I used to work for a large coffee shop retailer in the UK (not Starbucks )... and used to run all the investment appraisal work on store expansion.
To hit an economic return on investment .... store margins would typically need to be 20%+ (approx) ... how Starbucks claimed they made close to zero profit in the UK is mystifying
...(Similar principles apply for Amazon)
if their retail business in the UK was genuinely zero margin they would not be expanding it (unlikely) ... or alternatively they don’t know how to run financial models (also very unlikely )...
HMRC has been fully aware of this type of activity but has struggled to find a legal way to block it.
HMRC don't want to stop contracting they just want more cash from it. My experience tells me they want a fair share, not all of it or even the same as PAYE employee just a share.
The issue I have found very recently is perm staffs resentment of contractors based on pay differences. Firms I have worked for recently have been more transparent about that and it does breed conflict.
Still life goes on, I will still contract, still pay the tax I am legally required too and enjoy freedoms of being self employed etc (project management here not a BAU role)
The issue I have found very recently is perm staffs resentment of contractors based on pay differences. Firms I have worked for recently have been more transparent about that and it does breed conflict.
Still life goes on, I will still contract, still pay the tax I am legally required too and enjoy freedoms of being self employed etc (project management here not a BAU role)
98elise said:
Countdown said:
WhiskyDisco said:
I find myself dead against the tax dodging "loan from IoM" mob but also, at the other end of the spectrum think that IR35 regulations are unfair to jobbing contractors like myself. We should be free to operate a small firm as we choose, living frugally and building reserves for quiet patches.
I’ll stick my neck out and say I don’t think IR35 is unfair - whenever we have done the checks it always shows who is a genuine Consultant/Contractor and who is basically an Agency member of staff.ETA - The contractor will be paying 14% extra NI only if he treats his income in exactly the same way as somebody on PAYE. That means not taking the income via dividends, for example. It also doesn't take into account the various expenses that self-employed people claim which aren't available to Employees.
There are pro's and cons to being either PAYE or Self employed but that's a different topic to IR35. The latter is about pretending to be SE primarily for tax avoidance purposes.
Edited by Countdown on Monday 4th March 09:16
Eric Mc said:
alfaman said:
In China there is quite a simple approach ... the tax authorities will deem that your business should earn at least X % profit depending on sector .... any fiddling on transfer pricing won’t reduce your minimum tax bill
I used to work for a large coffee shop retailer in the UK (not Starbucks )... and used to run all the investment appraisal work on store expansion.
To hit an economic return on investment .... store margins would typically need to be 20%+ (approx) ... how Starbucks claimed they made close to zero profit in the UK is mystifying ...
(Similar principles apply for Amazon)
if their retail business in the UK was genuinely zero margin they would not be expanding it (unlikely) ... or alternatively they don’t know how to run financial models (also very unlikely )...
You are talking about Gross Profits rather than Net Profits. Tax is calculated on the Net Profit. Amazon, Starbucks etc have always generated good Gross Profits on their UK activities. The trick they perform is that they ensure there is little or no Net Profit by using an offshore subsidiary to charge the UK company Management Fees or other manufactured charges. This effectively transfers the UK Net Profit to an overseas entity. The overseas entity will, of course, be based in a low tax regime country or state.I used to work for a large coffee shop retailer in the UK (not Starbucks )... and used to run all the investment appraisal work on store expansion.
To hit an economic return on investment .... store margins would typically need to be 20%+ (approx) ... how Starbucks claimed they made close to zero profit in the UK is mystifying
...(Similar principles apply for Amazon)
if their retail business in the UK was genuinely zero margin they would not be expanding it (unlikely) ... or alternatively they don’t know how to run financial models (also very unlikely )...
HMRC has been fully aware of this type of activity but has struggled to find a legal way to block it.
basically fictitious / overstated ‘mngt fees’ ... can HMRC show only purpose of overseas entity is to shift taxable earnings away from UK? ... and would that count as some form of evasion .... from a practical economic perspective .. it’s the UK biz which drives an economic return to the Group.
... not sure how that works from a tax law angle ... PRC seem to find a way round it
( I imagine the prospect of some time in a PRC jail helps get the tax filed and collected
)HMRC has struggled to stop these "charges" being levied by the overseas wings of these companies. HMRC can, and do, claim that they are purely there for tax reasons. The companies argue that they are of a genuine commercial nature and therefore bona fide. So far, the companies have been more persuasive in most cases.
Countdown said:
There are pro's and cons to being either PAYE or Self employed but that's a different topic to IR35. The latter is about pretending to be SE primarily for tax avoidance purposes.
No. IR35 is about being a PAYE employee of your own LTD company because the client doesn't want to either put you on the payroll or contract with you as self employed.Gecko1978 said:
HMRC don't want to stop contracting they just want more cash from it. My experience tells me they want a fair share, not all of it or even the same as PAYE employee just a share.
What's the definition of 'fair share'? If it exists is it HMRC's definition? Yours? Mine? The person or company paying the tax?turbobloke said:
Gecko1978 said:
HMRC don't want to stop contracting they just want more cash from it. My experience tells me they want a fair share, not all of it or even the same as PAYE employee just a share.
What's the definition of 'fair share'? If it exists is it HMRC's definition? Yours? Mine? The person or company paying the tax?The big loss to HMRC is the employers NI which is a saving to the employing company.
98elise said:
turbobloke said:
Gecko1978 said:
HMRC don't want to stop contracting they just want more cash from it. My experience tells me they want a fair share, not all of it or even the same as PAYE employee just a share.
What's the definition of 'fair share'? If it exists is it HMRC's definition? Yours? Mine? The person or company paying the tax?The big loss to HMRC is the employers NI which is a saving to the employing company.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff