Tag Archive | "Offshore EBTs"

HMRC could be targeting Sanzar EBT operations


Watch out, contractors: if you used a Sanzar Solutions employee benefit trust administrated in the Isle of Man, Her Majesty’s Revenue & Customs may want you.

For what it’s worth, it’s never a good sign when the taxman wants to talk to you, as it usually ends up you coming out with more than a little less cash in your pocket. Well, HMRC has some quite pointed questions for any freelance worker that worked through Sanzar Solutions between the years of 2008 and 2011, particularly because some bad apples have purportedly using the EBT system to sidestep quite a bit of tax responsibility, particularly by receiving the majority of their pay in a loan that goes on to never be repaid or even written off.

What this did is lower a contractor’s tax liability by several orders of magnitude – a classic tax avoidance scheme – especially since the cash gets funneled through a foreign country. There are many places overseas known for such notorious behaviour – the Cayman Islands or, if you prefer your tax avoidance closer to home, places like the island of Jersey, and there’s certainly an international furore over this activity, though it certainly does seem a bit suspicious that no one seemed to care all that much prior to the Government falling on its face in an attempt to provide funding for all its discrete parts.

Well if all else fails, milk the taxpayer, right? Is it any wonder that HMRC has been encouraged by the Government to go after every man and woman in creation that might have engaged in tax avoidance sometime between now and the credit crunch back in 2008? Why aren’t Government officials going after the millions and billions of pounds lost to multinational tax avoidance, though – wouldn’t that be much more cost-effective than this ridiculous death-of-a-thousand-paper-cuts that the taxman’s pulling?

No, instead let’s go after the little guy, the self-employed contractor that can’t afford to employ an entire accountancy department to have them at their beck and call. That sounds like a brilliant bloody idea, doesn’t it? Amazon makes money hand over fist but let’s leave off the idea of going after them. Blimey if I don’t understand the mind of a Government minister; I suppose that’s a good thing when you get right down to it though, isn’t it? I don’t want to trade in my moral authority for a few extra quid by breaking the backs of small business owners.

 

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Agency Workers Directive – what ever happened to “simplification”?


The final form of the guidance for the upcoming Agency Workers Directive has been published. This has not been the subject of any great debate so far, but it does have the capacity to really shake up some corners of the contractor market. And it appears to contain a sting in the tail.

The AWD has a noble aim; it intends to ensure that agency workers – which it defines as those providing temporary services to clients via an agency – are not disadvantaged in terms of the protections and rights enjoyed by full time employees. However, being an EU-derived concept, our beloved Civil Service has failed to recognise the very different nature of the “agency” model in the UK compared to the rest of Europe. While protecting the rights of the lower paid employee of the agencies supplying temporary staff to a whole raft of industries from farming to pharmaceuticals, it also wraps up the traditional freelance contractor in its scope. And that’s not a good thing.

In the earlier consultations, the PCG picked up on the potential for this scope mismatch and were assured that Limited Company contractors would be out of its scope. The early proposed form of the Directive did in fact specifically exclude those working through their own Limited Companies. That was not considered to be much of a problem, naturally enough.

Now, however, that phrase has been watered down. It contains a further qualification, “those operating as genuine businesses”. So here we go again, we are once more being presented with the finely crafted clarity of the mud-encrusted IR35 legislation.

You may recall that Osborne kept IR35 on the statute books at the last election as a deterrent to people who may incorporate to avoid the taxes they can no longer save by using offshore EBTs. My suspicion is that they have the same qualification about “genuine business” in the AWD for exactly the same reason. This is fine as long as there is a clear definition of a “genuine business”. Which there isn’t.

One of PCG’s objectives with the HMRC’s IR35 Forum (when it gets of the ground) will be to try and define how you recognise a genuine business. Simple enough if you’re Tesco or the corner shop, rather more tricky if you are a one or two man company selling your skills and knowledge to the highest bidder. The level of debate that has been engendered within PCG about how to make that definition has to be seen to be believed, so I have no expectation we will see a quick answer. .And until we do, we remain exposed to HMRC’s biased concepts. But hey, we’re getting used to that.

The other victims are the umbrella companies who will have to keep their “clients” – who are de facto employees of the umbrella – fed and watered while they are out of contract. Wonder if anyone has told those clients who will be paying for it…?

And finally, of course, those hugely risk averse recruitment agencies will see the AWD as yet another set of hurdles to overcome to prevent any possibility of their being made responsible for the contractors who they sell to the end clients as their own staff. Expect a whole new layer of miasma to creep into the contractor-agency contracts to ensure the contractor is obeying the demands of a law that doesn’t actually apply to them at all.

Plus ca change, plus ca meme chose. What ever happened to “simplification”?

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited<

Image: morning face by silas216

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IR35 – a slap in the face? Well, no, not really


My blog for June last year was commenting on the first budget of the new Coalition government. It got a cautious welcome from me – which they no doubt appreciated greatly – and while the overall news wasn’t that wonderful, it at least looked like things were heading in the right direction.

I also mentioned an entry in the Red Book that “was a clear commitment to look hard at IR35. This was backed up by an interview in the Telegraph, where Mark Prisk emphasised the intention to lose IR35 altogether“. On that score for this budget, I have to say close, but no banana.

The Office of Tax Simplification made three suggestions for Mr Osborne; merge PAYE and NICs, either suspend IR35 or greatly improve how it is administered and maybe look at some tests to define who is employed and who is a freelance. Those of us in the “IR35 is the spawn of the devil” camp clearly hoped that suspension would be the result. Sadly, however, it was not to be; IR35 remains in place.

So a bit of a disaster then? Well, no, not really.

Firstly I’m inclined to believe Osborne and Gauke when they say that they could not afford to turn off IR35. Elsewhere in the Budget they confirmed the December 9th announcement regarding the closure of offshore EBTs that are being used to step around paying any taxes at all by many high earners. Without IR35, these guys would simply incorporate and go back to the same old job as a pretend freelance: the classic Friday-to-Monday soft shoe shuffle. With IR35 still there, they can still incorporate if they really want to, but the tax advantage would simply not be worthwhile. Which makes a degree of sense as far as I’m concerned.

Secondly, administration of IR35 is to be improved (I was going to say “greatly improved”, but it could hardly get any worse!). In other words, stop spending tens of thousands on five-year cases that invariably lose and focus instead on the ones where there may be a genuine case to answer – which, on current numbers, is about 3% of them. HMRC aren’t doing this by themselves, they will be talking to the experts on contracting who will be very clear that the net will be focused and not widened. HMG have invited PCG to be a key player in this, and for one I’m reasonably certain PCG won’t let anything through HMRC’s clutches that makes things worse for the genuine freelance.

Finally Osborne is now looking to merge PAYE and NICs. As I said last week this is a very difficult thing to achieve, but at least we have a chancellor willing to take it on. That means that if this can be made to happen, IR35 ceases to have any purpose anyway

The rest of the budget was, I thought, probably about as good as it could be given the starting position. OK, so Osborne has done a smoke and mirrors job by changing how inflation is measured and people who understand the Oil and Gas industry far better than I do are seriously dischuffed about the raid on their profits to fund the fuel equaliser, but the intent is sound.

So not the result we hoped for, nor even the result we would have quite liked, but at least we are still in there and having a direct say on how we are to be taxed. This is, despite the cries of outrage from the hard of thinking, no small achievement. PCG and Chairman Chris Bryce have done a seriously significant piece of work via the OTS and should be praised for it.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited<

Image: The Small Hand that Kills (41th/52) by skippyjon

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