Contractors' Questions: Is this tax scheme viable or to be avoided?
Contractor’s Question: I responded to an online advert from a firm behind a tax scheme which gives its address as Plymouth. After filling in their online form, someone at the firm called me from the Isle of Man. An email from a third party followed and they signed off with an address in the Midlands.
These multiple locations are concerning me, as is an unspecified legal opinion which endorses the firm’s claim of ‘full UK tax compliance.’ The scheme proposed involves a trust; there is also a modest salary liable to PAYE and a periodic dividend, with the net effect allegedly amounting to no more than 15% (including fees). Is this viable or one to avoid?
Expert’s Answer: HMRC announced on 9th December 2010 the proposed Disguised Remuneration legislation. I believe that it meant that those individuals who had participated in Employee Benefit Trusts were given a further opportunity to waste fee-costs on exiting EBTs involving more tax scheming.
More recently, there was the Court of Session on 4th November 2015, where it appears that it was found that if income is derived from an employee’s services it is earnings subject to PAYE even if the employee funds are diverted through an intermediary. If earnings/bonuses are paid into the trusts based on the work carried out by each employee, then I believe the court concluded that the payments into the trust were merely redirected earnings.
It is due to this ruling, and other reasons, that the brief proposition you outline is not viable. As it appears devoid of any specification; I’d go so far as to say that it is a nonsense. Even a literal interpretation of “unspecified legal opinion” informs even a careless reader of the firm’s advert that it is all a bit too vague; clothed in secrecy, and ‘barge pole’ territory.
If it is operated by a UK-based trustee then it appears to be entirely onshore and by diverting funds to another tax jurisdiction, it looks suspicious. Or, if it is not UK-based, then it is covered by the offshore intermediaries legislation.
Lastly, even if a legal opinion on the scheme is requested by you and then provided, it could be worthless unless the instructions to counsel were also produced, by which time you would likely find yourself in hot water with HMRC. In short, avoid.
The expert was Chris Leslie, a former head of investigations at HM Revenue & Customs and the director of Tax Networks Ltd.
Editor’s Note: Further Reading –