Offshore Option

[Munchers]

I work as a contractor through a limited company based in the UK. I was recently discussing options to reduce tax liability with a similar contractor who has a strange set up. He is 'registered' with a company based in mainland Europe (not sure where) who invoice for the work he does (he works in the UK). They then retain 20% from each invoice and then 'loan' him the 80% by paying that into his UK bank account. Therefore he has no UK tax liability whether Corporation Tax or Income Tax.

This seems a great deal as the liability is fixed at the retained charge of 20% and the loan is terminated at the end of each year. He has worked like this for 3/4 years with no problems but I cannot understand how this can be legal. Obviously this appears risky but as I know he has done this over a period I am beginning to think this may be an option for me! The only difference between the two of us is that he is Australian (been in UK for 6/7 years) and I am British.

What I'd like to know if possible:

a) Is this legal?
b) Would you recommend this approach?

Thanks for any comments.

[stek]

Get ready to be flamed because you've not searched or read the stickies.

Have you searched and read the stickies?

[TykeMerc]

a) Income wearing a pair of big nose glasses and jimmy wig disguise (i.e. Loans) are the target of a new bit of legislation and HMRC advice that they will be deemed as taxable income from Dec 2010
b) Not unless you relish tax investigations, aggravation and possibly large tax and interest bills, my personal opinion is I wouldn't touch these schemes with a 60 foot bargepole

Oh and there are plenty of threads re loan schemes and their issues in this section.

[Munchers]

Apologies - reading threads and learning at a slow rate.

Just wanted to hear "wouldn't touch these schemes with a 60 foot bargepole"

Feel better already!

[Support Monkey]

get signed up straight away tonight before everyone else wants a peice of the action its sound like you could be on to a winner, I cannot understand why we are all not on one of these schemes. i don't see why people worry about handing over their cash to some foreign chaps to administer, i myself currently send all my cash to a nigerian prince who is fleeing the country with his millions he promised there is no catch and its all above board

[BlasterBates]

So you go for an 80% take home with a significant risk of handing over most of that to HMRC if it all goes wrong or 65-70% through your Ltd with virtually no risk apart from the usual IR35. You need to ask yourself is it worth risking losing everything in 5 years time for 10%?

My understanding of a loan is, that you pay it back, a loan that gets "terminated" after a year, isn't really a loan is it. If I were an HMRC official that is how I would see it.

[Wanderer]

Just wanted to hear "wouldn't touch these schemes with a 60 foot bargepole"

You'll hear that loud and clear here!

Just ask yourself,:

Where does the 20% go? To the scheme provider!
How much does the tax man get? None!
How much will an offshore scheme provider's "guarantee" that the scheme is tax compliant be worth when they shut up shop and do a runner? Nothing!

Oh, and the UK and Australia have a reciprocal tax agreement so they can pursue people in either country...

[Waldorf]

I never fail to be amazed at the number of people using or thinking of using these schemes, having said that the scheme providers know that there will always be some people who do not do the research, with all the information that is now available, anyone still using these schemes deserves what is coming to them.

[SueEllen]

Oh, and the UK and Australia have a reciprocal tax agreement so they can pursue people in either country...

Apparently the Australian side is more organised.

[jmo21]

I never fail to be amazed at the number of people using or thinking of using these schemes, having said that the scheme providers know that there will always be some people who do not do the research, with all the information that is now available, anyone still using these schemes deserves what is coming to them.

Actually, I'm not.

Too many people in every walk of life bite at any kind of "get something free or cheap" scam.