IR35 and tax avoidance schemes

[DonkeyRhubarb]

Out of curiosity, would people who are currently using a scheme still carry on doing so if IR35 was abolished.

[centurian]

A tad pedandic, but you might want to clarify what you mean by IR35 abolition. Something that was brewing up around budget time was that IR35 would indeed be suspended/abolished - but business taxation would be reviewed such that there was far less benefit in paying dividends. In the end, neither happened.

"IR35 abolition" doesn't automatically equate to "paying less in tax"

The chances of IR35 being abolished without anything else in it's place is close to absolute zero.

[DonkeyRhubarb]

A tad pedandic, but you might want to clarify what you mean by IR35 abolition. Something that was brewing up around budget time was that IR35 would indeed be suspended/abolished - but business taxation would be reviewed such that there was far less benefit in paying dividends. In the end, neither happened.

"IR35 abolition" doesn't automatically equate to "paying less in tax"

The chances of IR35 being abolished without anything else in it's place is close to absolute zero.

I realise, as you say, there is zero chance of abolition but what I meant (purely hypothetically) was if things went back to the way they were in 1999.

I'm trying to find out if IR35 is the motivator for using schemes or if people are just looking for the absolute maximum retention.

[Scrag Meister]

I suppose that would depend on what IR35 was replaced with, because there WILL be something.

If the reward from the risk outways the peace of mind from being legal then you will still find some folks heading down the "scheme" route.

[DonkeyRhubarb]

I suppose that would depend on what IR35 was replaced with, because there WILL be something.

If the reward from the risk outways the peace of mind from being legal then you will still find some folks heading down the "scheme" route.

There are high fixed overheads in operating these schemes - legal fees, accounting, admin etc. Unless there was sufficient take up they simply wouldn't be viable, which I would contend is why they weren't seen before IR35 came along.

I agree it would depend on what replaced IR35 but my question was more hypothetical. If we went back to the situation as it was pre-IR35, would people still carry on using them?

[Vallah]

What's that third option?!

[pastalista]

There are high fixed overheads in operating these schemes - legal fees, accounting, admin etc. Unless there was sufficient take up they simply wouldn't be viable, which I would contend is why they weren't seen before IR35 came along.

I agree it would depend on what replaced IR35 but my question was more hypothetical. If we went back to the situation as it was pre-IR35, would people still carry on using them?

I suspect they wouldn't carry on using them, although I can't provide evidence to this effect. I think if somebody produced a definitive guide (as a snapshot in time, given the rate of change of legislation) to maximum retention from a limited company, and if that retention was >75% then most people wouldn't use schemes anyway.

A lot of people seem to state that they get between 75 and 82% retention from their limited company and if this were relatively straightforward to achieve, then I think many people would go limited and avoid the risks.

Finally, I think that many people think that their risk of being caught is small, on the basis that there are many thousands of contractors using many different schemes. This is of course mistaken as it is only a matter of time. If the guide showed that it was straightforward to retain a number within 10 - 15% of what most of the schemes offer then most rational people would go down that road.

Pastalista

[cojak]

What's that third option?!

That is good CUK tradition.

Bravo that DR!

[DonkeyRhubarb]

Finally, I think that many people think that their risk of being caught is small, on the basis that there are many thousands of contractors using many different schemes. This is of course mistaken as it is only a matter of time.

It is indeed mistaken on 2 counts.

1) Although there are many promoters, the underlying scheme structures (dta, ebt, loan, foreign currency) are often the same. In reality, at any given time, there aren't many different schemes.

2) They are a very attractive target for HMRC - defeat the structure and you immediately catch several thousand people. This is far more cost effective than pursuing individual contractors using Ltd companies.

The idea that there is somehow safety in numbers is a bit of an illusion.

[Alan Jones]

It is indeed mistaken on 2 counts.

1) Although there are many promoters, the underlying scheme structures (dta, ebt, loan, foreign currency) are often the same. In reality, at any given time, there aren't many different schemes.

2) They are a very attractive target for HMRC - defeat the structure and you immediately catch several thousand people. This is far more cost effective than pursuing individual contractors using Ltd companies.

The idea that there is somehow safety in numbers is a bit of an illusion.

DR, 100% Agree. I think safety in numbers is what causes HMRC to attack.

EBT's are the classic. Because Disg Rem Tax has been introduced everyone thinks that EBT loans are now safe from attack. NOT so. If I were HMRC i would pick off the schemes with the highest take-up. More revenue for same effort.