Issues with 'Tax Efficient' PAYE Umbrellas Issues with 'Tax Efficient' PAYE Umbrellas - Page 5
Page 5 of 6 FirstFirst ... 3456 LastLast
Posts 41 to 50 of 51
  1. #41

    Nervous Newbie


    Join Date
    Oct 2020
    Posts
    3

    Default

    Hello Cojak, Eek,

    Thanks a lot for your reply, I understand it must be between boring and frustrating to keep receiving this sort of enquiries.
    I am working with a standard umbrella and I am not going to change unless I will not have some assurance from experienced people here, accountants and other...
    Definitely not naive, maybe a bit greedy!! Mostly curious!!

    Your posts, recommendations and advise could be the Chapter 1 of the Contractor's Bible and there will be probably hundreds of people you saved, cheers to that!
    What I am thinking is that this growth shares are real, legal and largely used, why this could not be used here?
    Are this growth schemes manged properly when they are handed by this umbrellas?

    This is not about loans, 100 pages contract, rough "Bonus" or fantasy names on what in fact remains a taxable salary.
    This guy here is talking about go myself to knock at HMRC with an end of the year self assessment to declare the redemption of this shares.
    They are advising about the monthly fee to allocate each month for the end of the year self assessment which they say I could do myself, with my accountant or use their service.
    They are talking about shares certificates; the umbrella this broker is suggesting is registered and in business since years.
    The only thing is a poor website and the fact they are suggesting to use an escrow account to keep the money saved monthly to have it ready for the self assessment.
    Even thought an escrow account it is managed by a third party and they can't dispose of anything there without my approval I could possibly refuse that.

    I have to understand where is the issue because it just sound right and juicy!! (this is now more greedy than curious... I'll give you that, but not naive)
    Shares are a fact in economy, so, is there a setup that could work for us?
    If not this is the ultimate evil in the "Tax Efficient Umbrella" and Chapter 1 needs to be updated!

    Right now I am thinking I should give it a go for a couple of months just before the end of the tax year and check everything with HMRC...

    Have you really ever heard about anything like this?

  2. #42

    bored now

    eek's Avatar
    Join Date
    Jun 2010
    Location
    😂
    Posts
    26,487

    Default

    Let's start from my previous point:

    i) Hmrc believes that money received as income should have tax paid as income

    ii) The "shares" you are buying should be bought after that tax had been paid not before.

    Point 2 is the bit where I suspect the scheme falls apart.

    Equally I suspect HMRC could use a different approach were point 2 to fail (but it won't) and argue that capital gains tax is only due on long term investments and investment within a year should be treated as income (this is true already if you day trade and could easily be argued over this type of scheme).

    Oh and just because an umbrella has been around for years doesn't mean anything - there is no explicit need for an umbrella to be compliant (provided someone convinces the agency they are OK) and I'm aware of compliant umbrellas who aren't as compliant as they pretend to be.
    Last edited by eek; 23rd October 2020 at 06:50. Reason: Added a second approach HMRC would use.
    merely at clientco for the entertainment

  3. #43

    Fingers like lightning


    Join Date
    Jan 2015
    Posts
    602

    Default

    Quote Originally Posted by MarcoM View Post
    What I am thinking is that this growth shares are real, legal and largely used, why this could not be used here?
    Are this growth schemes manged properly when they are handed by this umbrellas?
    Let's assume that your growth shares are real shares (e.g. there really is a company, it really has shares with these characteristic, it really has issued them and you really have acquired them). Out of interest, you may not be able to prove any of that. Have a search for tax cases where the word "sham" is used. And don't forget that "sham" has a technical meaning.

    So, when viewed realistically, is it intended that the price that you will sell them for a genuine attempt to value the shares. If it is not, well it's just taxed like normal pay. So you've read that bit a bit quick, go back and read this bit again. If the company which your shares are in goes up in value hugely, will you get a massive amount? If it doesn't increase too much, will you get much less? Or is the plan that you get is just equal to the amount that you have earned but have not yet been paid? If so, it's just a bonus.

    Is the money that you "earned" just paid to the company that you have shares in or someone linked to that. If so, you might well be taxed under the redirection of earnings principle when the money is paid to someone else.

    There is then a continuuum of tax avoidance schemes. If yours is at the dodgier end of the scale (how will you know but the Bluecrest case shows what one adviser thought was a scale) then GAAR and its 60% penalties may be relevant. Have a look at some of the GAAR advisory panel decisions for some example.

    None of the above are issues for real share plans.

    Then you get to the more detailed tax issues that are relevant to real share plans.

    1. Section 62: you will pay tax on the value of the shares when you get them (less what you pay). So what are these shares worth? There is no listed price so it is a bit of a guess. With real share plans there is normally a huge amount of uncertainty as to what the value of the shares will be as it depends on how the underlying business performs, what the markets are doing, etc. So someone will do a valuation and will come up with a number that takes account lots of uncertainties over the period before they can get liquidity (e.g. three to five years depending on when the company can get itself sold of listed, etc). Let's call that £5,000. The employee will pay that amount or pay tax on that. How do you know what yours are worth?

    Your scheme seems to have no uncertainty though. If the redemption is in the same tax year (i.e. very soon) and your pretty certain about what you are going to get then why are they not worth a lot of money on Day 1? So, if you are going to get £10,000 in 12 months and you are quite certain of that, why are they not worth £9,900 or something when you get them?

    2. Chapter 3B: If the value of the shares gets fiddled with then you pay tax on the increase in value caused by that fiddling with (calculated each 5 April or when you sell your shares). Fiddled here means a thing done other than for genuine commercial purposes. That's not an issue for most real share plans as the company deals with third-party customers. If there is a link with another company in the group then this is something that is carefully dealt with to make sure that there is no issue.

    3. Chapter 3D: If you sell your shares for more than they are worth then employment income tax is due on the extra bit. So if the shares have some value (e.g. £1) but you get your £10,000 then the rest is taxed as employment income. For most real share plans, the shares are sold to a third-party as part of a real disposal so this is not an issue. Where there is an internal market, a huge amount of time and effort will be taken making sure that this is dealt with properly and then calculating the tax due.

    4. As you described it, your employer has to operate PAYE / NIC on each of these tax charges.

    5. Section 222: Assuming you don't reimburse the employer by early July each year then the PAYE you didn't reimbursed gets taxed (and NIC-ed) again. That's quite penal and applies even if the employer doesn't actually pay the PAYE to HMRC. This is something that people take a lot of care of in real share plans. But you can see by all the court cases on it that show that people get it wrong.

    6. APN: This sounds notifiable under DOTAS. So you'd have to say that on your tax return. This is something that most real share plans don't have to worrry about. But where they do contain unusual features, a great deal of care is taken to make sure that everyone is comfortable with that they don't fall within, for example, the financial products hallmark. Some promoters say that their scheme doesn't have to be notified. But cases like Hyrax and Opus Bestpay suggest that that is wrong and so they actually become notifiable.

    7. Buy-back of shares: If your company is UK resident then the amount you get above the initial subscription price is a taxed as a dividend (so 38.1%) not CGT. Non-UK tax resident company? Sounds dodgy and I wouldn't particularly want to rely on Rae v Lazard here - read the case to see what they say about tax avoidance - as it makes it look much dodgier and so you get back to the avoidance scheme risk.

    It's a non-tax point but don't forget warranties and indemnities. What ones are you going to sign up to? What if there is big PAYE liability when HMRC or other creditors come running? If you don't know what these are, well some googling will help. But basically, they may mean that you have to pay the proceeds you received back. Sounds a bit like a loan. But its not. And there are a lot less legal protections with these.

    I've spent time including key words that you can google. If you do, great. If you are too lazy fine. Either way this is a dodgy scheme and, if people who took part in other dodgy schemes are anything to go by, you will have a nightmare for the next ten to 15 years and end up paying the tax (plus interest) knowing that you have the satisfaction of paying a juicy fee to the promoter who you now hate.

  4. #44

    bored now

    eek's Avatar
    Join Date
    Jun 2010
    Location
    😂
    Posts
    26,487

    Default

    Quote Originally Posted by Iliketax View Post

    I've spent time including key words that you can google. If you do, great. If you are too lazy fine. Either way this is a dodgy scheme and, if people who took part in other dodgy schemes are anything to go by, you will have a nightmare for the next ten to 15 years and end up paying the tax (plus interest) knowing that you have the satisfaction of paying a juicy fee to the promoter who you now hate.
    There is however one very tiny upside to this sort of scheme. While you will have paid the promoter a juicy fee (and probably more to argue your case with HMRC) at least it isn't a loan scheme and the promoter (or liquidator) won't be asking for the whole loan to be repaid.

    Mind you it wouldn't surprise me if the growth shares were anything but growth and the company behind the shares closed down before you "sold" the shares.
    merely at clientco for the entertainment

  5. #45

    bored now

    eek's Avatar
    Join Date
    Jun 2010
    Location
    😂
    Posts
    26,487

    Default

    Quote Originally Posted by Iliketax View Post
    6. APN: This sounds notifiable under DOTAS. So you'd have to say that on your tax return.
    Separately (and I'm sorry about this but it's worth saying) DOTAS does not mean (as I've seen and heard companies claim) that a DOTAS number shows HMRC approve of the scheme.

    Sadly it's not that. HMRC thought by creating DOTAS numbers it would scare people from joining the scheme - they didn't comprehend that the schemes would put a marketing spin on something that was bad and make it sound good.
    merely at clientco for the entertainment

  6. #46

    Some things in Moderation

    cojak's Avatar
    Join Date
    Jul 2005
    Location
    Look to your right...
    Posts
    20,803

    Default

    Quote Originally Posted by Iliketax View Post
    <Very detailed explanation of why this is a very bad idea.>

    I've spent time including key words that you can google. If you do, great. If you are too lazy fine. Either way this is a dodgy scheme and, if people who took part in other dodgy schemes are anything to go by, you will have a nightmare for the next ten to 15 years and end up paying the tax (plus interest) knowing that you have the satisfaction of paying a juicy fee to the promoter who you now hate.
    And there we have folks.

    Nothing more to say about this scheme really.
    "I can put any old tat in my sig, put quotes around it and attribute to someone of whom I've heard, to make it sound true."
    - Voltaire/Benjamin Franklin/Anne Frank...

  7. #47

    Still gathering requirements...


    Join Date
    Oct 2019
    Posts
    22

    Default

    Quote Originally Posted by eek View Post
    There is however one very tiny upside to this sort of scheme. While you will have paid the promoter a juicy fee (and probably more to argue your case with HMRC) at least it isn't a loan scheme and the promoter (or liquidator) won't be asking for the whole loan to be repaid.
    This is correct - a liquidator wouldn't ask for the whole loan to be repaid

    He or she would probably have to pitch the claim as a combination of Unjust Enrichment / Dishonest Assistance / Transaction at an Undervalue / Transaction to Defraud Creditors

    I'm not sure how much comfort that distinction would bring to the OP

  8. #48

    Nervous Newbie


    Join Date
    Oct 2020
    Posts
    3

    Default

    Ok I got it!!!!

    It just that this one came along with a number of precise instructions involving HMRC in a complete transparent manner it was somehow reassuring...
    It definitely needed a bit more knowledge and details to understand why it still remains tax avoidance!!
    I am sorry "don't go there because it too dangerous" it never worked since I was a kid, always needed at least a bit of risk assessment!

    What can I say to all of you that spent time (...again) to put down precise, friendly, detailed posts it is just a big huge Thank You!!!

    You are nice people!!!!

    I wish you could have a return in life for your kindness

  9. #49

    More time posting than coding


    Join Date
    Jun 2015
    Posts
    218

    Default

    Removed
    Last edited by WalterWhite; 28th October 2020 at 17:00.

  10. #50

    bored now

    eek's Avatar
    Join Date
    Jun 2010
    Location
    😂
    Posts
    26,487

    Default

    Please don't publish anymore - I would prefer to keep the story on Nathaniel quiet until I'm in a position to launch.

    merely at clientco for the entertainment

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •