IR35 / Ltd company / Employee

[jmy]

Hi

I am investigating ways to resign from my current job PAYE and NI and start my limited company / contractor via an umbrella company. I am concerned I fall within IR35. I have spoken to a umbrella company and they state i wouldnt need to start a limited company I would be self employed with them and paid through loans via a UK based Freelancers Advantage Trust, enabling me to be IR35 compliant and take home significantly more money. Bit concerned about this. Any ideas or thoughts on making sure if I start a limited company I am IR35 compliant ? I understand the benefits of limited v umbrella when outside IR35, help required making sure I would be outside IR35 and how I would ensure i dont get hit with a fine / under payment of PAYE / NIC and advice about being self employed and recieving payments as loans?

[cojak]

If it sounds too good to be true...

help required making sure I would be outside IR35 and how I would ensure i dont get hit with a fine / under payment of PAYE / NIC and advice about being self employed and recieving payments as loans?

You don't ensure - you take the (very large and getting bigger) risk of joining the the scheme and hope that HMRC don't catch you.

HM Revenue & Customs: Tempted by Tax Avoidance?


Also:
http://forums.contractoruk.com/accou...ml#post1852584

And just take a dip into here: HMRC Scheme Enquiries

(I know that the OP is a first time poster but I'm ALWAYS happy to link these kind of questions with these kind of answers... )

[Andy Hallett]

There are a number of threads on this site from contractors going through issues with schemes that offer payments made via loans etc.

93% retention. What could possibly go wrong?

[dmini]

Don't do it!

Read all the chunk here on HMRC Scheme Enquiries and then understand why this is NOT a good route.

If you are worried about IR35, and don't want any risk at all then go with a RESPECTABLE Umbrella - such as ContractorUmbrella. This is what many of us did as we dipped our toes into contracting, seeing whether it was for us.

If you want to go Limited and feel you do not have the experience to check your own contracts, then get someone else to review your contracts (I use Bauer & Cottrell), and check your behaviour is not too similar to employees, and take out insurance, to cover the risk. This is what many of us do here.

That's a basic summary. The normal rule applies - if it looks too good to be true - it probably is.

[jamesbrown]

To paraphrase the earlier posts, don't be silly. Remember that IR35 is applied on a contract-by-contract basis. If you have a contract, get it reviewed. Your basic options are a legitimate, onshore, umbrella company, where most of your income goes through PAYE and the umbrella will deduct employers and employees NI and fees, or a Ltd company, where you manage all this yourself, with the help of an accountant. Schemes are not the way to go. The decision to go umbrella vs. Ltd is largely not not about IR35. You can probably save a small amount working through a Ltd when all your contracts fall inside IR35, and a significant amount when one or more fall outside. But a Ltd and umbrella both confer other advantages and disadvantages. It's more about your confidence/desire to manage a Ltd, with the help of an accountant (you are ultimately responsible though), and whether you plan to contract long-term.

[BlasterBates]

No that won't work, it's not a loan is it, because your understanding is that you don't pay it back. That's exactly how a judge will see it.

The only way you're going to not pay tax would be to pay the loan back, and that's pointless.

The fact that it says it's a loan on piece of paper doesn't mean it's a loan if there is no intention of paying it back.

If that went through everyone would be given loans, and no-one would pay any tax.

[LisaContractorUmbrella]

To the OP - UK income tax starts at 20% on earnings over £9445 per year. Corporation tax is at 20-23%. The upper rate of tax is 40% on earnings over £32,011. Bearing all this in mind, how do you think a company can promise you 93% take home (bearing in mind that their fee will probably be around 5%) and NOT be offering a tax avoidance scheme?

[Kate Cottrell]

Look at this case before you do anything

http://www.employmentappeals.gov.uk/...30fhwwSBSM.doc

Boss Projects LLP - Mr G Bragg - Acumen Legal Services Ltd

This is exactly the situation you describe and exactly the situation they are putting a stop to as announced in the Autumn Statement.

Kate Cottrell

Bauer & Cottrell

[LisaContractorUmbrella]

http://www.employmentappeals.gov.uk/...30fhwwSBSM.doc

Boss Projects LLP - Mr G Bragg - Acumen Legal Services Ltd

This is exactly the situation you describe and exactly the situation they are putting a stop to as announced in the Autumn Statement.

Kate Cottrell

Bauer & Cottrell

And am I right in thinking Kate that now HMRC have defeated the scheme in Court there will be no option, in future, but for other uses to pay their tax up front rather than having the advantage of waiting until an investigation into their particular provider had been concluded?

[Kate Cottrell]

Thank you Lisa. This case is an Employment Appeal Tribunal, which does create case law precedent but it is not an HMRC case.
You are referring to point 1.309 in the Autumn Statement :

•• introduce a new power that requires taxpayers who are using avoidance schemes
that have been defeated through the Courts to pay the tax in dispute with HMRC
upfront. This will provide HMRC will an additional tool to address a legacy stock of an
estimated 65,000 avoidance cases, around 85% of which date back to before 2010. It will
remove the cash advantage of sitting and waiting during an avoidance dispute, and bring in
£700 million over the forecast period
•• consult on the scope for extending this power by widening the criteria for which
taxpayers are required to pay any disputed tax upfront

The Consultation and draft guidance should be published today so we will be able to see the detail of when they propose that the up front payment kicks in. It is not up on HMT's site yet.

Kate Cottrell