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.
You can email a member of our team at info@contractorumbrella or alternatively call us on 01206 713 680.
