Letter from HMRC regarding possible involvement in Tax avoidance Letter from HMRC regarding possible involvement in Tax avoidance - Page 4
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  1. #31

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    Quote Originally Posted by Albert49 View Post
    Ignoring NI, and agency fees
    assuming Min wage =£10 per hour
    Contract rate £40 per hour (£30 per hour undeclared)
    40 hour week
    25 weeks (Apr 20 to SEP 20) with current umbrella
    25 weeks with legit umbrella (Oct 20 to Mar 21)

    Declared income at end of mar 21= £10 * 40 hours * 25 weeks
    + £40 * 40 hours * 25 weeks = £50k

    Undeclared income = £30 * 40 hours * 25 weeks= £30k.


    HMRC will say £30k is taxable at 40% = £12k tax

    Alternative contribute £30k gross into pension (£24k net pension company add £6k tax relief) , £12k tax bill is reduced to £6k by £30k extension of 20% tax band due to pension contribution.
    Result £30k in pension, which includes the £12k tax that was due.
    So you're discussing 2020/21 tax year - your original post suggested that you were paying a pension in 2020/21 and expecting it to reduce the 2019/20 tax bill - hence my confusion.

    In net cash terms then the comparison is:

    Do nothing except pay the tax on the disguised remuneration. Gross income = £80,000. Tax paid at source £7,500. Tax due on DR = £12,000. Net is £80,000 less £19,500 = £60,500.

    Pay a pension of a net £24,000. gross income £80,000. Tax paid at source £7,500. Tax due on DR £6,000. Cash to pension company £24,000. Net is £80,000 less £37,500 = £42,500. (Increase in pension fund £30,000)

    If you have the resources, why not?
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

  2. #32

    Still gathering requirements...


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    Quote Originally Posted by webberg View Post
    So you're discussing 2020/21 tax year - your original post suggested that you were paying a pension in 2020/21 and expecting it to reduce the 2019/20 tax bill - hence my confusion.

    In net cash terms then the comparison is:

    Do nothing except pay the tax on the disguised remuneration. Gross income = £80,000. Tax paid at source £7,500. Tax due on DR = £12,000. Net is £80,000 less £19,500 = £60,500.

    Pay a pension of a net £24,000. gross income £80,000. Tax paid at source £7,500. Tax due on DR £6,000. Cash to pension company £24,000. Net is £80,000 less £37,500 = £42,500. (Increase in pension fund £30,000)

    If you have the resources, why not?
    Webberg, thanks for the view of a tax professional (is that good enough Eek ? )

    I will point out however that I did not suggest a pension contribution this year would effect last year's tax, in fact my original post said:

    "As others have said move asap to a reputable umbrella, you can't do much about last year's tax, but if you have the funds you might want to consider making a pension contribution equal to the loan amount received this year, or at least the amount of your total income this year (including the loans) over 50k . If you can manage the first any tax payable on the loan will go into your pension, if the 2nd then any 40% rate tax will go into your pension."

    This year being 2020/21, last year being 2019/20

  3. #33

    Contractor Among Contractors

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    And, actually, this raises another point.

    If you want to pay as little tax as possible...

    Use approved reliefs (like pensions) instead of dodgy schemes.
    Scoots still says that Apr 2020 didn't mark the start of a new stock bull market.

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