The regulations were introduced to give low-skilled agency workers protection from being exploited by work seeker companies (employment agencies). Contractors were however also being included within this legislation, although an option to ‘opt-out’ of the legislation was agreed, which caused confusion within the industry and amongst individuals so the government proposed to update and further clarify the regulations.

A consultation period was set-up so that anyone affected could, if they wished, submit their comments and these would be taken into consideration before making any changes.

One of the issues to be discussed was whether or not workers employed through umbrella companies were at risk from exploitation. The BIS has now published their response document following the end of the 3 month consultation period and the analysis of the comments of almost 350 respondents. The opinion formed after this extensive research is that, for the time-being, the regulations will remain as they are and the opt-out in place. The reason given is that the consultation has not provided convincing evidence of vulnerable workers suffering detriment whilst working through an umbrella company. However, this particular issue is not necessarily laid to rest as the BERR are continuing to ‘gather evidence’.

For more details visit http://www.berr.gov.uk/consultations/page50428.html.

It is human nature that people will look for ways to save money and advertisements promising 85% or even 90% take home pay from your earnings will always be tempting. So, is it possible? Yes, definitely. Is it risk free? Definitely not? In fact, you can quite safely say that the risks attached to ‘tax saving’ schemes are astronomically high.

ContractorUK, the country’s biggest contractor forum has had threads running, for over a year, about offshore schemes and the legislation surrounding them. The posts have had over 400,000 views. Why? Because over 2000 contractors who have used these schemes are now subject to tax investigation by HMR&C and their average tax bill is reported to be  £140,000. The contractors involved have banded together and are fighting their case but the legal process will take months, if not years, and in the mean time they are left with umimaginable stress and worry. The bills that they have received are far higher than their original tax savings because HMR&C have applied legislation retrospectively (for more info see http://www.contractorumbrella.com/bn66.html) and also applied interest and penalties.

The particular piece of legislation that is affecting these contractors dealt specifically with tax avoidance through use of double taxation agreements so perhaps there is less risk attached to offshore loan schemes? No, not really. The problem is that the tax rules of other countries have absolutely no relevence for you unless you are tax resident there. If you live in the UK and earn money in the UK that income is subject to UK tax; there are no ways around that premis that will not attract very negative attention from HMR&C.

You also need to consider the mechanism behind loan schemes. Basically, the loan company will deduct their fee (usually extremely high) then pay you a small salary; the rest of your income will be paid in the form of a loan. The problem with this is that when the loan is written off  it becomes taxable in full and, if it is not written off, the full balance is payable to the loan company and can be recalled at any time. There is also the risk of being hit twice for the debt. The ‘loan’ is a benefit in kind (BIK) and if it’s not declared on your tax return as income, you also potentially face a huge tax bill and fine, on top of repaying back the original loan.

There are new tax avoidance schemes coming to the market every day and they will all try to convince you that you will be safe from investigation. Quotes such as ‘HMR&C compliant’ and ‘approved by leading council’ are common but do they mean that HMR&C approve of the scheme and will not be coming after you for large sums of money sometime in the future? No. This Government is clamping down, extremely heavily, on anything which encourages people to avoid paying their ‘fair share’ of tax. The UK Treasury Minister Stephen Timms has stated:

“…there are a minority who continue to seek ways to avoid paying their share [of tax]. This is unacceptable. It is unfair on the majority of taxpayers, undermines fiscal sustainability, and reduces funding for public services. This government will not tolerate tax avoidance or tax evasion in any form, and will act promptly to tackle both of these”

So, if you are considering a ‘tax saving’ scheme my advice would be to ask yourself if you are the sort of person who would view a game of Russian Roulette as a bit of a laugh. If you are – go ahead and good luck; if you’re not then I would think again.

Anyone who has seen the film Minority Report will understand the concept of punishment for a crime before it has happened based on the visions of the thought police. A thought provoking fantasy, one would think, without any basis in reality…….until now.

It is common knowledge that HMR&C are currently exploring the many uses for retrospective tax legislation; a number of MPs have loudly damned the practise following large tax bills received as a result of the expenses scandal.

Hundreds of UK contractors have also been on the receiving end of restrospectively applied tax demands as a result of BN66, legislation introduced to prevent tax avoidance through the use of offshore trust schemes. According to the biggest UK contractor forum many are facing bankruptcy, the loss of their homes and the breakdown of their family life as HMR&C pursue them for tax liabilities calculated for up to seven years before introduction of BN66.

One would think that things could not get any worse but a report in the Telegraph on 19th October proved that BN66 is just the tip of the restrospective iceberg. New guidance given by HMR&C to tax inspectors seeks to give a clearer definition of tax avoidance. The result is an exponential increase in power for the Revenue accompanied by a new threat to those tax payers not in possesion of a crystal ball. The key passage states:

“One definition (of avoidance) is ‘a situation where less tax is paid than Parliament intended, or more tax would have been paid, if Parliament turned its mind to the specific issue in question”

So not only does the UK tax payer have to consider current legislation it also has to consider restrospective legislation – it appears in the future we could also have to face tax penalities as a result of legislation that doesn’t actually exist. A scary thought!