70th Birthday loan Umbrellas? Please Advise?

[JennyMartins]

I'm thinking of changing my umbrella company, I've had initial conversations with a couple of companies and have come across some offers that sound to good to be true......

One of the companies even claiming I keep 90% of my rate. When delving a little deeper I discovered there is a loophole where the company gets paid directly by your employer, they then pay you minimum wage and make up the rest with a tax free loan. Its called a 70th Birthday loan, all seems very confusing and a bit risky.....can anyone shed any light on this for me please? Thanks

[cojak]

Well if they sound too good to be true, you won't find us telling you to go for it.

Because you know what they say...

[cojak]

Oh yes, and it IS confusing and risky - deliberately so!

Search for EBT's and see what comes up.

And here's a starter for 10... http://forums.contractoruk.com/accou...er-trusts.html

[cojak]

Actually, there's been a good few newbies asking these kind of questions.

If anyone knowledgeable can create a succinct post briefly explaining what these 'loan' arrangements are, how they are sold, what they DON'T tell punters and the problems that occur when HMRC comes knocking for their pound of flesh, I'll make it a sticky.

[BrilloPad]

Actually, there's been a good few newbies asking these kind of questions.

If anyone knowledgeable can create a succinct post briefly explaining what these 'loan' arrangements are, how they are sold, what they DON'T tell punters and the problems that occur when HMRC comes knocking for their pound of flesh, I'll make it a sticky.

Interesting assignment. When I get a chance I will have a go!

I feel sure the phrase redding will feature and any new newbies thinking about loan scheme should search for that phrase until a master thread is created.

[LisaContractorUmbrella]

No expert Cojak as most scheme providers are not very forthcoming with details but these are the basics:

Loan scheme companies work by paying you a small salary and loan you the balance of income, less their fees which are typically high and calculated as a percentage of your earnings.

The problem is that as soon as the loan is written off it becomes taxable in full. If the loan is not written off, then you obviously still owe the money to the scheme provider – this money can be called in at any time and at any point in the future.

A number of contractors signed up to this type of scheme in good faith after promises that, when they left the loan would be written off. The problem is, now these people are receiving letters from the scheme provider reclaiming the debt.

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.

Most loan scheme providers will state that they have 'QC opinion', this is not the same as a guarantee that the scheme users will not be subject to additional tax in the future and it is also no guarantee that legislation will not be imposed to stop the particular avoidance vehicle you are using and then apply tax collection and penalties retrospectively.

HMR&C are well known for targeting tax avoidance schemes which they consider to be a sham so it is wise to think about whether or not the service you are being offered accurately reflects reality - if not then you should be prepared for attention from HMR&C in the future.

[cojak]

No expert Cojak as most scheme providers are not very forthcoming with details but these are the basics:

Loan scheme companies work by paying you a small salary and loan you the balance of income, less their fees which are typically high and calculated as a percentage of your earnings.

The problem is that as soon as the loan is written off it becomes taxable in full. If the loan is not written off, then you obviously still owe the money to the scheme provider – this money can be called in at any time and at any point in the future.

A number of contractors signed up to this type of scheme in good faith after promises that, when they left the loan would be written off. The problem is, now these people are receiving letters from the scheme provider reclaiming the debt.

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.

Most loan scheme providers will state that they have 'QC opinion', this is not the same as a guarantee that the scheme users will not be subject to additional tax in the future and it is also no guarantee that legislation will not be imposed to stop the particular avoidance vehicle you are using and then apply tax collection and penalties retrospectively.

HMR&C are well known for targeting tax avoidance schemes which they consider to be a sham so it is wise to think about whether or not the service you are being offered accurately reflects reality - if not then you should be prepared for attention from HMR&C in the future.

Copy this onto a new thread Lisa and I'll make it a sticky. And I'm sure that Brillo will add to it as well when he gets a moment.

Maybe with a title of Loans and EBT's - what they don't tell you (or something...)

[LisaContractorUmbrella]

Copy this onto a new thread Lisa and I'll make it a sticky. And I'm sure that Brillo will add to it as well when he gets a moment.

Maybe with a title of Loans and EBT's - what they don't tell you (or something...)

No sooner said than done

[JennyMartins]

Thanks guys really informative, I'll take a look at the Loans from EBTs and other Trusts thread today.