Labour Tax Plan | Umbrella Companies in Uproar

Labour Tax Plan

Umbrella Companies are in uproar over the Labour Tax Plan, announced yesterday by Ed Milliband, which would see umbrella company contractors not able to claim expenses and subsistence against tax.

He and the Labour see the claiming of expenses and subsistence to offset against tax as tax avoidance. They reckon that a crackdown on it will net them an extra £650m a year. They plan to spend this on the National Health Service.

Payroll Services

The Umbrella Companies provide a payroll, admin and accounting service to contractors who may be caught by IR35 or who just don’t want to do the paperwork.

The contractor is effectively an employee of the Umbrella Company. All they do is fill in a timesheet. The Umbrella Company invoices the client company, subtracts the tax after expenses and subsistence allowances are deducted and pays the contractor.

However, Labour see the small amount of expenses that umbrella company contractors are able to offset against tax as tax avoidance. The Labour Tax Plan would stop this.

Umbrella Company Reasons

One of the reasons contractors go into umbrella companies is because they are able to claim those expenses.

Indeed the Government could lose out if lots of umbrella company contractors decided that it wasn’t worth it any more and decided to take their chance with IR35 and set up a Limited Company like virtually all contractors used to do before IR35.

There are an estimated 200,000 contractors in Umbrella Companies.

I’ve done the Maths. If Labour are to save £650m that way then they are expecting to make £3,250 per contractor after they bring in this new law (if elected).

Labour Tax Plan – Treasury Gets More

However, it is reckoned that the Treasury gets £10,000 more in tax and national insurance contributions from an Umbrella Company contractor than from a Limited Company contractor.

Some contractors are sure to become Limited Company contractors again, if the Labour tax plan gets implemented, if their umbrella companies were not able to offer them that tax relief.

Graham Jenner, Director at NoPalaver, says:-

“Umbrella companies provide a very useful service by providing an efficient way for income tax and National Insurance Contributions to be collected from large numbers of workers by one company. This makes it much easier for HMRC to administer the tax of large numbers of self-employed people.”

Umbrella Companies Uneconomic to Run

He said that removing the tax relief would make umbrella companies uneconomic to run. They charge their contractors monthly. In return they are able to get contractors some tax relief. If there was no tax relief there wouldn’t be much point in contractors using umbrella companies – especially if they were being charged for it.

Said Graham Jenner: “Getting rid of umbrella companies could encourage more self-employed people to set up as limited company contractors, which are much harder for HMRC to police for any tax discrepancies.

“Jeopardising what has proven to be an effective and efficient way to collect income tax and national insurance contributions is a big risk to take for the small reward of bringing in a marginal amount of extra income from expenses deductions.”

Labour Tax Plan Should be Challenged

“The assumption that people employed by umbrella companies should not be entitled to tax-deductible expenses should be challenged. Flexible workers paid through an umbrella company are not like full-time employees – for example, they don’t travel to the same job in the same place every day.

“Removing this allowance may make it uneconomic for them to work as contractors, and the businesses that benefit from access to a flexible skills base will be the losers.”

The Labour Tax Plans have not gone down well with Umbrella Companies who can see their businesses collapsing.

How the Chancellor will crackdown on Tax Avoidance

Crackdown on Tax Avoidance

Here’s what the Chancellor said in his Autumn Statement on how he will crackdown on tax avoidance:-

“The latest figures show that 30 per cent of all income tax is paid by just 1 per cent of taxpayers.

“We’ve given incentives to enterprise, cut punitive tax rates.

“But alongside those paying the most tax are those who try to avoid paying their fair share of tax.

“So today we set out in detail the largest package of measures to tackle tax avoidance, tax evasion, fraud and error so far this Parliament.

“Together it will raise over £9 billion over the next five years.

“We’re going to tackle the growth of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights like the minimum wage in a bid to avoid employer national insurance.

“We’ll halve the final period exemption for capital gains tax private residence relief. We will end the abuse of dual contracts, offshore oil and gas contracting, derivatives linked to profits and share buy backs.

“And we will ensure the tax advantages of partnerships aren’t abused either.

“We are introducing a new, limited power that requires people to pay upfront their taxes where the scheme they used has already been struck down by the courts. 2

We’ll know more about the detail of the crackdown on Tax Avoidance in the coming days.

Applying for Contractor Mortgages

If you want to find out more see Specialist Contractor Mortgages

To apply for one of those specialist contractor mortgages see Contractor Mortgages Application

HMRC resignations soar as Morale plummets

HMRC Resignations

According to UHY Hacker Young, HMRC are losing staff at the highest rate for 4 years. 1,687 staff quit this year compared to 1,629 last year. That’s more than 2.5% of all their workers. Remember that this is a Civil Service job where many people stay for life – and are hard to get rid of anyway. HMRC Resignations should be minimal.

It seems that they are under so much pressure to curb tax evasion and tax avoidance that they have little time to do their normal duties. It has been shifting its priorities and staff towards this area. It’s not just at the lower levels that resignations are coming thick and fast. Nine senior civil servants have quit this year alone.

The biggest number of resignations have come amongst those dealing with personal taxation.

Inevitable

HMRC told AccountingWeb “Like all large organisations, it is inevitable that some of HMRC’s 64,000 staff will leave or retire, whilst others will join. This has not affected performance – the most accurate measure of the tax gap shows it is going down, last year’s yield was our biggest ever, and we carried out over 700 prosecutions. Since 2010 almost £1bn has been invested in HMRC to police the tax rules and more people are employed in our compliance posts than before.

“The popularity of our on-line services has enabled us to move staff away from the mass processing work of the past into more specialised and skilled work of tackling evasion and avoidance.”

Job Cuts

In the last 8 years they have had to cut 37,000 jobs and are still expected to be as effective. THis has had a massive effect on morale especially since their merger with Customs and Excise. There have even been strikes. It seems that there are plans to cut another 10,000 jobs in the next two years.

No wonder morale is low. They live with an axe constantly hanging over them in a job they thought was for life when they first started.

It seems that they are pretty miffed with the new Appraisal System from the Government. Every year they are give a rating.

20% are told that they have achieved more than expected.,

70% are told that they have achieved what was expected and

10% are told that they have achieved less than expected and must do better.

That would be great for morale.

Cameron fails to stop Offshore Umbrella Companies at G8 summit

Offshore Umbrella Companies

David Cameron’s high hopes of getting agreement amongst the G8 countries to clamp down on Offshore Umbrella Companies and tax havens has failed miserably according to pundits. He also failed to get the G8 countries to act in tandem to get multi-national companies to pay more tax in their jurisdictions.

The G8 said that it was up to individual countries to act. The US said it was up to individual states to act and with Delaware being an internal tax haven in the US, this leaves everyone free to act as before.

David Cameron knew that the UK could not act unilaterally as it could potentially cause major multi-national companies to exit the UK. Although many of these companies pay little Corporation Tax in the UK, this is mainly because they’ve loaded costs onto the UK which sees them making little profit on their sales here. These costs include setting up manufacturing and service businesses which employ a lot of people who pay a lot of income tax.

Double Take

Cameron wanted to have his cake and eat it. He wanted the companies to employ a lot of people in the UK who would pay a lot of tax and also have a lot of Corporation tax from the companies. However, many of the companies don’t make profits as they are employing people in the UK to make goods or provide services to people in other countries.

In terms of Offshore Umbrella Companies, the UK has only got the G8 to suggest that there should be disclosure about people who hold assets in those offshore domains. Contractors who put their money through these offshore umbrella companies have nothing to fear from this G8 summit. Jersey and the Isle of Man already make those disclosures and so are ahead of the game. According to Jersey this G8 will not cause them to change anything at all.

Said Geoff Cook of Jersey’s Financial Lobby Group “”We have been doing what is being commended for quite a long time. So my message to the G8 is… Level Up!”

So, Cameron has failed in his objective of getting the G8 to take joint action and he fears that taking unilateral action will chase away the multi-nationals. It looks like the multi-nationals and the offshore umbrella companies that UK Contractors use can sleep a little more soundly.

It may be tax avoidance – but it is legal tax avoidance.

To see details of these offshore umbrella companies see Offshore Umbrella Companies Directory

Government stokes public sector Umbrella Company bonanza

Umbrella Company Bonanza

We predicted that this would happen at the time and it has come to pass. We predicted that there would be a massive Umbrella Company bonanza resulting from the Government’s new rules and guidelines for its own departments.

As ever, the new Government rules come in the wake of a media ‘scandal’ about journalists at the BBC operating through limited companies. As usual, as with IR35, they took a sledgehammer to crack a nut.

They introduced new rules into the public sector which said that if a contractor earned more than £220 a day and had been there for more than 6 months he or she had to show that they were paying their right amount of tax.

PCG

According to the Professional Contractors Group “PCG has received reports that some Departments are refusing to accept the validity of the contract reviews. Instead they are, under threat of contract termination, forcing contractors to operate IR35 or move to using an Umbrella, regardless of their actual IR35 status.

“In some cases Departments are insisting that contracts are reviewed only by HMRC. HMRC’s own guidelines are unclear and Departments are apparently gold-plating them”.

Umbrella Company Option

As we all know, and from Government figures, very few contractors will take the IR35 option. Virtually all of them will opt for the Umbrella COmpany option. THis is providing a major boost to umbrella companies.

The PCG are going to take the Government to court over this as they don’t think it is legal for the Government to operate this way. One thing to keep in mind is that if the Government think that this is the way forward in the public sector might they not, in the future, decide that this is the right way forward for the private sector too? That really would cause an Umbrella Company bonanza.

For more Umbrella COmpany news and advice see Umbrella Company News
For news and advice on offshore umbrella companies see Offshore Umbrella Companies

Why do Governments always bash Freelancers?

Freelancers

Successive Governments have seen fit to harass freelancers, setup rules and legislation like IR35 to bash them and invite people from other countries to come here and compete for their jobs.

So, why do they do it? Don’t they know that someone who works as a freelancer works completely differently from a permanent person? They take risks, they don’t get paid when not working, don’t get sick pay, holiday pay, maternity benefits, pensions, share options etc.

They are not part of the structure of the company and even if they do well they will not be promoted. They can be got rid of pretty sharply without redundancy money and sometimes without even any notice period.

So, why do they see people who operate this as ‘disguised employees’ (for tax purposes only)? Do they not understand this?

Labour

My instinct is that Labour when in power didn’t truly understand this. After all the party was set up to represent workers against the bosses. There were only two groupings when they were set up and it was a class war for the protection of the workers against the bosses.

Even when in power Old Labour still saw it that way to a certain extent and many of the ministers in the cabinet had at least traces of Old Labour in them still.

They didn’t understand this new entity of the freelancer who looked like a worker but behaved like a company. That couldn’t be right could it? They must have been up to something.

They must be disguised employees operating for tax purposes as if they were a company. That was a bit sneaky. They needed to be caught and taught a lesson. They were getting a bit uppity thinking themselves as companies rather than ordinary workers like everybody else.

IR35

However, they operated more as companies rather than permanent employees and took the risks that real businesses took – even if they only had one customer at a time.

That’s why Labour brought IR35 in (as well as to calm a media frenzy about genuine disguised employees who left permanent jobs on a Friday and started as contractors at the same firm on a Monday).

IR35 should have been framed to catch those people and stop that practice (which it has. No one does it now). However, it sucked in genuine freelancers who had been freelancing for years.

Conservatives

As far as the Conservatives are concerned I do believe, unlike Labour, that they understand what a freelancer is. I think their attitude to freelancers is a lot more cynical and not based on any ideas of a class war.

I think they think that UK freelancers are a soft touch and they can extract more tax from them to help cure the deficit and they can offer their jobs as a bargaining chip to countries like India to get access to their markets for our big companies especially in the banking and insurance sectors.

They cosied up to the Professional Contractors Group before the last election hoping for a whole load of freelancer votes which they are likely to have got at the last election. If the PCG thought that they had intended to abolish IR35 then that was well and good.

They didn’t actually say that. All they said was that they would ‘look at’ IR35 again – which they did after the election and decided that they would not abolish it.

Promise kept.

Cynical

This is the cynical bit – the main reason that the panel they set up recommended that IR35 should be kept was that if it was abolished many contractors would dump their umbrella companies and set up Limited Companies.

That would cost the Government as Limited Company contractors pay around 10 grand less in taxes and NICs than umbrella company contractors. So, there wasn’t any moral reasons for deciding that many freelancers should continue to be seen as ‘disguised employees’.

The Tories fully understood what a freelancer is. It was purely a bean count. Freelancers are not treated as employees in any other way financially except when it comes to being taxed.

Further

The cynicism goes further. Having seen that treating genuine freelancers as disguised employees was quite lucrative for them they decided that more freelancers should be considered as disguised employees for tax purposes only.

Then they could pull in even more taxes from them. So, the Chancellor announced in his 2012 budget that the Government would STRENGTHEN IR35 and he has spent much of the past year putting in place measures to get more of these freelancers to go into Umbrella Companies rather than operate through Limited Companies.

And yet who could be more of a ‘disguised employee’ than someone who operates through a PAYE Umbrella Company. Everyone knows that they are not real employees of these companies.

Ruse

It’s just a ruse so that they can set some expenses against tax.They do no work for those companies at all.

And that’s the cynicism of it. The Government knows that.

They don’t take in much from people who declare themselves caught by IR35 as most people who think they are caught by IR35 become ‘disguised employees’ of PAYE Umbrella Companies.

However, the Government and HMRC don’t care as they act as per se tax collectors for them and they get the money monthly rather than annually so they are happy enough to let them claim some expenses that a real employee couldn’t.

No Morals

What could be more cynical than to create a law to fix ‘disguised employees’ and then forcing real freelancers into to become disguised employees of PAYE Umbrella Companies?

It’s nothing to do with morals. It’s a pure bean count and the reason that this Government does it is for money and because they see freelancers as soft touches.

That’s all.

Offshore Tax Avoidance – 8 Ways the Chancellor intends to crack down

Offshore Tax Avoidance

The Chancellor announced a number of measures he is going to take to crack down on offshore tax avoidance. Indeed he is going to pay for other measures like the mortgage scheme for first time buyers with the £4.6bn he expects to get from cracking down on offshore tax avoidance. Some experts are sceptical about the sums he would raise from it.

The Chancellor claimed that it was one of the largest tax avoidance and evasion packages ever announced in a Budget. So let’s see what he is proposing then:-

1. He is going to tighten the rules for companies that arrange loans for their directors instead of them paying income tax and National Insurance. It seems that HMRC have identified three loopholes, yet to be announced.

2. He is going to crack down on the misuse of partnerships. He reckons that companies and people are disguising what is really an employment relationship.

3. He wants to use next year’s Finance Bill to crack down on the use of intermediaries. He has started a consultation process on this. It seems that some companies are putting the salaries of onshore temporary workers through intermediary companies in places like Jersey and Guernsey, often unknown to the temporary worker, in order to avoid income tax and NICs. This is illegal on the Isle of Man who are quicker to cooperate with HMRC and the UK Government on information sharing.

4. Agreements have been signed with the Isle of Man, Jersey and Guernsey as regards the right of the UK Government to demand financial information about the arrangements of UK citizens without having to supply evidence of wrongdoing. This will mainly apply to those holding bank accounts in those offshore areas to hide it from the UK Government. It is aimed more at tax evaders than tax avoiders. The Chancellor reckons that this will bring him in billion pounds in extra tax and payments. Tax experts on the islands are sceptical.

5. The Government will be introducing a General Anti-Avoidance Rule (GAAR) which will be a catch-all for tax avoidance. It will look to close loopholes and at how offshore schemes allow tax avoidance on income tax, company tax, inheritance tax, capital gains tax and stamp duty. This may turn out very complicated to do and may be why this is taking some time since it was first announced.

6. He is aiming to punish firms bidding for public sector contracts who have been involved in tax avoidance schemes by counting them out for public sector contracts in areas like IT. However, he is having to backtrack on making this retrospective. He is hoping that this causes major public sector contractors to change their behaviour and start paying more taxes if they want any share of the lucrative public sector market. This comes into effect next month.

7. He is intending to name and shame those who promote tax avoidance schemes. He said “My message to those who make a living advising other people how aggressively to avoid their taxes is this: ‘This government is not going to let you get away with it.'”

8. He left out any mention of tax avoidance by multi national companies like Google, Apple, Starbucks, Facebook etc. which are the biggest tax avoiders in terms of amount of income and profits avoided. The Government are going to use their presidency of the G8 to get international cooperation on getting the multi nationals to pay more tax. This will be a difficult job as the countries like Switzerland, Luxembourg and Ireland are not going to give up their low corporation tax rates easily and companies can choose where to pay the main bulk of their company tax.

Gamekeepers

It could be said that the Government are being hypocritical here. After all David Cameron’s inheritance came mainly from the offshore schemes set up for himself and others by his father Ian. Chancellor Osborne also has an offshore family trust worth £4.5m. Other members of the cabinet avoid tax offshore. The Conservative’s leading donor and fundraiser Lord Ashcroft avoids tax using offshore schemes as does Cameron’s father-in-law Lord Astor.

Perhaps, as poachers turned gamekeepers, that makes them the best people to work out how to crack down on them. It will be interesting to see what the Government proposes over the next few months. The offshore operators are very nimble on their feet and when one door closes and a tax avoidance scheme is made illegal they simply open another door with another type of scheme. Most of the above Government proposals won’t come in until April 2014.

There is the danger too, that if they clamp down too much on the Channel Islands where they do have some clout the schemes might simply go to other countries outside the UK sphere of influence.

PAYE Umbrella Companies delight at Chancellor’s tax changes

PAYE Umbrella Companies

Many onshore UK companies were avoiding payroll tax by sending wages through intermediaries offshore. Many of the temporary staff they used didn’t even know it was happening and were in danger of losing sick pay and maternity benefits. Now the Chancellor has put a stop to it.

Said one PAYE Umbrella Company owner “This is a great piece of news for us here.

“This is a scheme which operates as a direct competitor to our standard UK umbrella company. Essentially these companies make no deduction for Employers NI and pay the extra to the contractor which means we can’t compete on returns.

“They’re run from Guernsey and the companies must have done a deal with the Guernsey government somehow. It’s always been borderline legal.

“We missed out on 100’s a client’s to these companies. I’ve actually got the sales guys contacting all of the firms that we’ve lost out on contracts with over the last couple of years”.

How Umbrella Companies will be affected by Budget 2013

Umbrella Companies

The days of the Chancellor and HMRC bashing PAYE Umbrella Companies seems to be over. They took aim at Managed Service Companies and abolished them and many people thought they would then take aim at PAYE Umbrella Companies next. After all the Government had set up IR35 to stop ‘disguised employees’ avoiding tax by setting up Limited Companies.

However, as a question to Parliament found out, the Government were taking in just a pittance in IR35 tax every year. The reason was that many contractors joined Umbrella Companies in order to avoid some of the tax by being able to set some expenses against tax that a permanent person would not be able to claim. They became ‘disguised employees’ of the Umbrella Companies.

Ruse

Surely the Government would see through this ruse, this device, and crack down hard on the Umbrella Companies closing them down and hitting the contractors for tax. But this was the dog that didn’t bark in the night. As it turned out, HMRC were happy to trade losing that bit of tax as the Umbrella Companies were acting virtually as tax collectors for HMRC and instead of having to deal with 200,000 contractors and their tax returns they had to deal only with a few hundred Umbrella Companies.

So, Umbrella Company contractors are unlikely to be hit in this budget. However, it coud be a bot of a bonus for Umbrella Company operators as this seems to be the preferred route that HMRC and the Government want contractors to take.

The Chancellor is mor likely to take aim at offshore Umbrella Company operators and their owners and the contractors using them. Limited Company contractors are likely to be hit by rules strengthening IR35 which will force more and more of them into PAYE Umbrella Companies.

Those Umbrella COmpany contractors can sleep safely in their beds at night pre-Budget.

Why PAYE Umbrella Companies are loved by the UK Government

PAYE Umbrella Companies

Do you wonder why the Government loves PAYE Umbrella Companies so much?

The Government announced yesterday that the auction for 4G licences for the telecoms companies had brought in £2.3bn.

That’s less than the expected £3.5bn and much less than the £14bn raised during the auction for 3G during the dotcom and Y2K boom.

It is being touted that they will use this money to boost the economy and raise growth.

It’s less than they thought that they would get but will prove useful if they do use it to stimulate the economy.

IR35

Let’s look at that figure of £2.3bn that brings such great hope for the economy.

There are over 200,000 freelancers now using Umbrella Companies when there were hardly any when IR35 came in during 1999.

It has been estimated that they pay an average £10,000 a year in tax and NICs than a Limited Company contractor.

That comes to more than £2bn a year extra in tax.

That’s a figure which is not too dissimilar to the one-off boost that they will get from the 4G auction – and they will get this every year.

IR35 Panel

That’s why the Government, despite winks and nods to the PCG before the election that they would ‘look at’ IR35 again if they were elected causing the PCG to rush out a press release with news of this ‘coup’ just prior to the last election.

Indeed the IR35 Panel that they set up recommended that IR35 should be kept otherwise contractors would dump their PAYE Umbrella Companies and go back to their Limited Companies.

The Government were very happy to take that recommendation.

Freelancers

It was highly unlikely that the Government would hand back £2bn a year to people earning an average of £400 a day in these times when they are desperate for money.

The Government and their donors and cronies all send their money offshore where they pay little tax.

So, someone has to foot the tax bill.

As Leona Helmsley once said ‘it is only the little people who pay tax’.

And they need one-man-band freelancers to stump up.

For a selection of go0d Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

and

Clever Paye

Isle of Man Umbrella Companies legal

Isle of Man Umbrella Companies

Offshore Umbrella Companies set up in the Isle of Man are normally legal according to UK laws on loans set up by the Thatcher Government.

Within the first month of getting to power the Thatcher Government made moving funds offshore untaxable and loans free of tax too.

Tory Grandees have used that to set up tax avoidance schemes for themselves and others.

Offshore Umbrella Companies

Indeed David Cameron’s father Ian was an early user of the schemes and got others to participate.

Much of David’s inheritance came from money made in those schemes.

The Cameron family spend holiday time at his father-in-law Lord Astor’s house in Scotland which is registered in the Bahamas.

Lord Astor is a regular user of offshore tax avoidance schemes as is the top Tory fundraiser and donor Lord Ashcroft.

Indeed Chancellor Osborne has an offshore family trust.

IT Contractors

Now IT Contractors are taking advantage of this.

The way these schemes normally work, the contractor pays his or her money to the offshore umbrella company who loans him or her back the money.

As loans are not taxable there is no tax paid.

Contractors can normally get 84% and upwards returned to them.

The Isle of Man umbrella companies have to make full disclosure to the UK tax authorities about any Tax Avoidance schemes but that is no problem as they are legal anyway.

Umbrella Companies

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

and

Clever Paye

Will all one-client Freelancers be in Umbrella Companies?

Umbrella Companies

What is the end game for the Government as far as Freelancers, Limited Companies and Umbrella Companies are concerned? Most freelancers used Limited Companies in 1999 pre-IR35 and few were in Umbrella Companies. Now there are over 200,000 freelancers using Umbrella Companies. However, the majority are stilling using Limited Companies. According to one source there are 800,000 freelancers using Limited Companies.

Here are a few clues as to where the Government is heading in this.

Clue 1

After setting up an IR35 Panel after the least election the Government decided to accept its recommendations that IR35 should be kept. The main reason given by the panel as to why IR35 shouldn’t be abolished was that it was thought that there was a danger that freelancers in Umbrella Companies might leave them and set up Limited Companies. This would result in less tax and NICs for the Government.

Clue 2

At the last Budget Chancellor Osborne said that the Government was going to strengthen IR35.

Clue 3

The Government has put in rules in the public sector a rule where any freelancers earning more than £220 a day and who have been there for six months must prove that they are paying their fair rate of tax.

Clue 4

The Government has said that Controlling Persons in its own departments must not operate through Limited Companies. Controlling Persons are those in charge of people and budget.

Clue 5

The Government has made a rule change in its autumn statement to say that Office Holders at any organisation, including the private sector, could no longer operate through Limited Companies and must be permanent members of staff.

Clue 6

Recently, the Irish Revenue said that they were going to go after freelancers, mainly IT Contractors, who had only one client at a time but who were ‘deliberately avoiding tax’ by operating through Limited Companies. They were offering an amnesty and said they wouldn’t name and shame them in the press if they gave themselves up and admitted their ‘culpability’. Although the UK Government has not gone as far as this yet it may only be a matter of time.

Future

I think that we have enough clues there to show what the Government thinking is on one-client contractors operating through Limited Companies. The Government makes £2bn more a year from the 200,000 Umbrella Company contractors than they would have had they been in Limited Companies. Yet that 200,000 is just 20% of the whole with 80% still in Limited Companies. With the Government looking for more revenue in these times of austerity it is likely that they will try to get the percentage of freelancers in Umbrella Companies up and those in Limited Companies down. Governments usually get their way.

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

HMRC appeal Rangers use of Offshore Umbrella Companies

Rangers

HMRC have lodged an appeal over Rangers FC’s use of offshore umbrella companies as they are commonly called or Employee Benefit Trusts as they are technically known. Rangers used this mechanism for paying part of the wages of their players between 2001 and 2010. HMRC said that this was income and not a loan. However, a Tax Tribunal ruled that HMRC were wrong and that it was a loan and tax didn’t need to be paid on it. The decision was by 2-1 – a home win for Rangers.

HMRC didn’t want to bargain with Rangers and take a reduced payment along with other creditors and so Rangers went into first administration and then receivership before coming out of it as a new entity playing in Scotland’s 4th top tier. It seems that other clubs in the UK were doing this as well and HMRC had intended going after them next after making an example of Rangers. It must have come as a shock when they lost their case.

Appeal

However, there is too much in it for them just to drop it so they are going to appeal it. It seems it could go all the way to the Supreme Court. It was good news not only for Rangers but for freelancers who use offshore umbrella companies and EBTs in particular. The Government had plans to go after those EBTs which are now in disarray. Most of those who provide offshore umbrella companies had moved out of EBTs anyway and were using newer forms of tax avoidance for their freelancers.

Rangers won their battle at the First Tier Tribunal and this one is now going to the Upper Tier Tribunal. The process is likely to take a couple of years anyway which will at least set HMRC back some time and may set them back for good if they lose it.

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

Revenue to target IT Contractors who avoid tax

IT Contractors who avoid tax

The Irish Revenue have decided to have a clampdown on IT Contractors. They say that IT Contractors avoid tax by setting up Limited Companies. Many UK contractors work across the Irish sea. The Irish Revenue are gearing up to chase thousands of contractors working in Ireland.

They are targeting those who have set up Limited Companies but work only for a single client. The Revenue say that they have uncovered ‘deliberate misunderstatement’ of tax by IT Contractors using this ‘ruse’. The Irish Revenue have been trying in recent years to get more and more people to pay PAYE, even if they don’t have employment contracts, if they work for one single client at a time.

IT Contractors

Now it looks as if they are going to go for the jugular. This is their first attack on freelancers to try to make them pay PAYE. The Irish Government, like the British Government, has put in place a massive austerity programme and is looking for someone to pay for it. That looks to be IT Contractors and other freelancers.

They are offering reduced penalties to contractors if they ‘come clean’ about their alleged tax evasion. Tax experts say that it is IT Contractors who are the main targets. The Revenue has its eye on all the expenses that IT Contractors can claim against tax so reducing their tax burden.

In Ireland tax defaulters are named and shamed in the press. Contractors are being told that they won’t be shamed if they admit their tax evasion and come clean. They are being told that they must stop their nefarious practice of setting up Limited Companies to avoid tax and own up.

Tax Letter

A letter has been sent by the Revenue to the Irish Tax Institute saying:-

“We have established that in many cases there are deficiencies in accounting for input costs and expenses, with the result that there has been a significant understatement of tax liability to the benefit of the directors. As a result of these findings, this area will be a significant focus of regional enquiries through 2013, and it is likely that similar explorations will be initiated in other regions.

It said that this evasion of tax resulted from ‘deliberate behaviour’.

UK IT Contractors

Is this the future for IT Contractors in the UK? After all, the Chancellor said in the Budget that he was going to strengthen IR35. Will he be casting eyes across the Irish Sea for ideas?

It looks as though the Government and HMRC, like the Irish Government and Revenue, want contractors, who work for one client at a time, out of Limited Companies. They want as many of them as possible paying PAYE.

This may be great news for Umbrella Companies but IT Contractors in the UK will be fearful again about the future.

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella
and
Clever Paye

HMRC Umbrella Company Preference

HMRC Umbrella Company Preference

The HMRC Umbrella Company relationship is a misunderstood one. It used to be thought that HMRC didn’t like Umbrella Companies as they allowed contractors to claim expenses against tax that permanent employees could not. It was thought that HMRC and the Government would rather have them paying IR35. The Professional Contractors Group trumpeted the fact that the Government was taking in just a pittance each year in IR35 tax. They claimed this showed it was a failure.

However this was the dog tha didn’t bark in the night. HMRC and the Government seemed relaxed with this. The reason is that they are more than happy that freelancers are using Umbrella Companies. The HMRC Umbrella Company Relationship is one of mutual interest. HMRC have had to chase a lot of individual contractors to try to get them to pay IR35 tax. With the help of the PCG and others, HMRC have lost most of the cases. Some of these investigations took years and are very heavy on the time of both contractors and HMRC.

HMRC

HMRC have lost 10,000 workers because of Government cutbacks. They can’t chase all the freelancers for IR35. They tend to chase the ones they do to encourage the others as it would not be cost-effective just to do it from the tax they raise from the caught contractors and the amount of time they spend chasing.

They did crack down on Managed Service Companies (MSC) as some of these companies were allowing contractors to claim excessive amounts in expenses when the MSC’s were claiming they had special dispensations from HMRC when they did not. However, HMRC appear happy to have contractors in Umbrella Companies. They may get slightly less tax from them than they would if the contractors had to pay IR35 Tax and weren’t able to claim any expenses.

Worth Paying

However, it seems they reckon that this is a price well worth paying. It means that they only have to monitor, and legislate for, a few hundred umbrella companies rather than a million freelancers. There are now more than 200,000 freelancers using Umbrella Companies now. The HMRC Umbrella Company relationship is likely to mean that there will be a lot more in the future. After all Chancellor Osborne has said that he is going to Strengthen IR35. It looks like the endgame for the Government is to get as many freelancers, who work for only one company at a time, out of Limited Companies and into Umbrella Companies. And the Government have the wherewithal and the means to make that happen.

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

PAYE Umbrella Company History

Umbrella Company History

The PAYE Umbrella Company history started circa 1999. There may have been Umbrella Companies prior to that but few freelancers used them. Most freelancers, instead, used Limited Companies. THat all changed in 1999. THere was a clamour in the press about what they called ‘disguised employees’. There was a rash of companies laying off employees on the Friday, some of them longstanding, and re-hiring them as contractors on eth Monday.

The Government decided that this was tax avoidance and were determined to stamp it out. So, they introduced IR35. This would separate the sheep from the goats as far as the Government and HMRC were concerned, or those who were genuinely in business on their own account and those who were just ‘disguised employees’ as the Government would see them. THis would separate those that had a contract of service (disguised employees) and those who had a contract for services (genuine freelancers).

Unfortunately, many of those who had been operating as genuine freelancers for years through their Limited Companies were caught in the IR35. Even the Government minister involved admitted that IR35 legislation had caught many in its nets many contractors that they hadn’t intended to catch.

Rather than pay tax as if they were an employee, many contractors joined the newly set up PAYE Umbrella Companies. Freelancers were effectively employees of these companies. However, they still had the advantage of being able to earn freelancer rates which are normally about double what a permanent employee would earn. They were also ably to claim some expenses against tax like travel expenses, overnight accommodation, membership fees for trade organisations etc.

Instead of filling in timesheets for the client and sending the agency the invoice, the contractor now fills in the timesheet for the Umbrella COmpany who invoices the agency or end client if there is no agency involved.

The Umbrella Company charges a monthly fee to the freelancer. However, the freelancer no longer has to pay an accountant as he or she is being ‘employed’ b the Umbrella COmpany. There are now more than 200,000 freelancers who use Umbrella COmpanies when the numbers were minimal before IR35 came in during 1999. Numbers are expected to grow in he future.

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

David Cameron profited from Offshore Umbrella Companies

Offshore Umbrella Companies

David Cameron’s family made its fortune from Offshore Umbrella Companies in places like Geneva, Jersey and Panama. Ian Cameron, David Cameron’s father, set up the schemes after Margaret Thatcher relaxed the rules on money sent offshore in her very first month in power.

In those days it was only the people in the know that were sending money offshore and paying no tax on it. Nowadays, people like freelancers and comedians are using offshore umbrella companies and other offshore schemes.

David Cameron’s father ran a network of these schemes which provided David Cameron’s inheritance. These were, of course, entirely legal but would be what David Cameron called ‘legal but not ethical’ when comedian Carr did it.

Jimmy Carr

Said Cameron when asked about Jimmy Carr “I think some of these schemes – and I think particularly of the Jimmy Carr scheme – I have had time to read about and I just think this is completely wrong. People work hard, they pay their taxes, they save up to go to one of his shows. They buy the tickets. He is taking the money from those tickets and he, as far as I can see, is putting all of that into some very dodgy tax avoiding schemes.

“That is wrong. There is nothing wrong with people planning their tax affairs to invest in their pension and plan for their retirement – that sort of tax management is fine. But some of these schemes we have seen are quite frankly morally wrong. The Government is acting by looking at a general anti avoidance law but we do need to make progress on this. It is not fair on hard-working people who do the right thing and pay their taxes to see these sorts of scams taking place.”

Dirty Money

It looks as if his own inheritance came from ‘morally wrong’ money and his political career was built on this ‘morally wong’ money. Indeed Ian Cameron boasted of being able to stay outside UK tax due to measures brought in by Margaret Thatcher’s Government. Ian Cameron was ahead of his time and the structures he set up are now widely used by hedge funds.

When he died in 2010 he left £2.74m from which David Cameron got £300,000. His elder brother Alexander had already been given the family home in Newbury valued at £2.5bn. David Cameron’s two sisters got another family home in Kensington worth £1m between them. David Cameron appears to have got less than the rest both from the will and from the allocation of family property before his father died.

Offshore Assets

However, the will left by Ian Cameron only shows assets left in England and Wales. It is not known how much is in the offshore trusts based in Geneva and Panama City. However, Blairmore Holdings based in Panama City of which he was a director is worth £25m and he was also a director of Blairmore Asset Management based in Geneva.

His wealth was estimated to be £10m according to the Sunday Times Rich List in 2009. Surely David Cameron is not holding a major stake in offshore trusts while he was busy panning Jimmy Carr and major multinationals was he?

Prospectus

The prospectus for the companies set up by Ian Cameron said “The fund is not liable to taxation on its income or capital gains as long as such income or capital gains are not derived from sources allocated within the territory of the Republic of Panama. The Directors intend that the affairs on the Fund should be managed and conducted so that it does not become resident in the United Kingdom for UK taxation purposes. Accordingly … the Fund will not be subject to United Kingdom corporation tax or income tax on its profits”.

Speaking to small business last year David Cameron said “With the large companies, that have the fancy corporate lawyers and the rest of it, I think we need a tougher approach. One of the things that we are going to be looking at this year is whether there should be a general anti-avoidance power that HMRC can use, particularly with very wealthy individuals and with the bigger companies, to make sure they pay their fair share.”

Hanging On

I wonder if he is going to hand back his inheritance money or some of it in the way that Starbucks offered to do when found to be paying little tax in the UK. Downing Street said that this was a private matter for the Cameron Family.

The real problem is that the plebs are now doing what was formerly only done by the Patricians. Comedians are joining schemes and freelancers are joining perfectly legal Offshore Umbrella Companies.

If anyone wants to join the Cameron family in taking advantage of the rules allowing money sent offshore to be able to avoid tax which was set up by the Conservative Government in 1979 in their first month in power check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

The Best Umbrella Company market for years

Best Umbrella Company Market

This is the best umbrella company market for a number of years. Contractors are moving more and more towards them. This is helped, in no small part, by the Government’s new attitude to Umbrella Companies. It used to be thought that the Government was opposed to Umbrella COmpanies. Indeed they went after Managed Service Companies. However, they seem to have nothing against the ordinary PAYE Umbrella Company.

Indeed you could go further and say that the Government actually prefers contractors to be in Umbrella Companies. OK, they are able to get some expenses that a permanent worker would not get. However, look at the advantages for HMRC. Instead of trying to track hundreds of thousands of contractors they can just track and legislate for a few hundred Umbrella Companies.

Umbrella Company Market

Every month the Umbrella Company does HMRC’s job for them and extracts the tax (after expenses) from the contractors invoice money, adds the tax money for all their contractors together and sends it off to HMRC. What could be better and simpler for HMRC? If they have to let contractors get a few expenses that’s all by-the-by. It’s almost like a service fee for them.

The Best umbrella Company news for them is the vast amounts of money that they receive from them. THose contractors in Limited Companies save more on their tax and NICs. However, it appears that the Government wants contractors out of Limited Companies and into Umbrella Companies. When the IR35 Panel that they set up to review IR35 said that IR35 should not be abolished as there was a danger that contractors would leave their umbrella companies on masse, that was an indication of Government thinking. The Government accepted their conclusions.

The Government only worry is that contractors are not only searching for the best umbrella company onshore but they are looking at offshore umbrella companies too.

For a selection of good Umbrella Companies check out Which Umbrella Company

For good examples of offshore Umbrella Companies which pay out a minimum of 85% of the contractor’s take home pay, click
BestPay
and
Tower Umbrella

Parliamentary Committee investigating dodgy Umbrella Companies

Umbrella Companies

A Parliamentary Committee are currently investigating Payroll Companies. These are known to you and me as Contractor Umbrella Companies. Although they are not specifically looking at the IT industry, indeed their focus is mostly on Construction, their conclusions will affect IT Contractors and their Umbrella Companies.

One of the senior Committee members is Labour MP John Cryer. He said “It essentially comes down to a simple issue—the division between people who are employed and people who are self-employed. That division traditionally was quite firm; there was a definite line between the two, but in recent years it has become blurred. “

That’s certainly true. The Freelance industry has been growing and growing and companies now see it as essential if they are to remain flexible. They don’t want to take on permanent staff for short term lifts in work, i.e. for one-off projects. However, freelancers are not as popular with MPS who often see them as tax avoiders or even tax evaders.

Disreputable

Said Cryer “Certain disreputable employers have had a very strong interest in blurring that line, on the basis that they can divest themselves of responsibilities if they transfer their work force into self-employment. For instance, they do not have to pay employers’ national insurance, holiday pay, sick pay and redundancy pay. They do not have to pay into a pension scheme. Also, the workers are relieved of many if not all of the rights that people have at work”.

Well, that’s because they are not employed by the company.The company needs a certain amount of permanent workers. It also needs a number of short term workers for short term upturns in work. These short term workers are Freelancers.

Payroll Companies

Said John “What we have seen in the recent past — this is a comparatively recent development — is the advent of what are now called payroll companies. Those companies will say to employers, “You give us the responsibility for your payroll and the responsibility for the relationship with the work force, and we will make sure that you don’t have to pay tax, national insurance”—and all the other things that I have mentioned. In some cases, they also say, “Do a deal with us and we’ll get Her Majesty’s Revenue and Customs off your back for good”.

That’s not actually how it happens. They’re still got their eyes on the disguised employees that IR35 was created for when companies laid off people on a Friday and hired them as Freelancers on the Monday. That practice has long ago died out in IT. Companies hire freelancers because of a temporary uptick in their workload – not to avoid paying tax and benefits. What they are doing is hiring freelancers who pay their own tax and organise their own sick pay, holidays, pensions etc.

Affects Everybody

Again they have their eye mainly on the construction industry – but what they decide will affect all of us. To be fair the company in the Construction industry that they had their eyes on mainly was Hudson who were explicit in trying to get employers to hand over some of their staff to the Payroll Company which would save tax all round.

However, as we have seen before, any legislation that comes out of it will hit genuine freelancers too. After all IR35 was only set up to catch those disguised employees who left their company on a Monday and stared as a Freelancer on the Monday.

It looks like freelancers are under fire again – especially those that use umbrella companies. The only hope is that they recognise that most umbrella companies operate perfectly legally and above board. But will they legislate that way?

IBM, Google, Dell, CSC, Oracle, Microsoft avoiding UK tax

Avoiding UK Tax

Some of the top multinational IT companies are avoiding UK tax.

The top companies operating in the UK like IBM, Symantec, Oracle, Dell, Google, CSC and Microsoft are paying only £78m in tax when MP and ex-tax lawyer Charlie Elphicke reckons they should be paying £879m in Corporation Tax in the UK. They are finding various ways of avoiding UK tax in the same way as Starbucks, by charging the UK company for the right to use the brand name. They load up costs on the UK side meaning that there is little or no profits and so little or no tax is paid.

Elphicke reckons that these IT companies earn almost £2bn annually from the UK Government. He reckons that when the Government is handing out contracts it should take into account how much of the money it will get back in tax from each of the tenderers.

Good Idea

That’s a novel idea. Let’s say that there is a tender for an IT contract. IBM say that it will do it for £10m whereas the UK company bid £10.5m to do it. normally, most things considered, IBM would win the contract. However, Elphicke is saying that the Government should subtract from those figures the amount that they are likely to get back in tax from the two companies on the amounts bid to see the real overall value of the bids.

He feels that hose companies avoiding UK Tax should not be treated equally in tenders with those who pay UK tax. It’s probably against some EU rule though. It is a nice solution, though.

Problem

So, why don’t the Government just get tough with those companies. The reason is that they don’t want to lose them. They bring a lot of jobs to the UK. Also, although they pay little corporation tax their employees pay a lot of Income Tax and NICs. The Government would like to have both the Income Tax and the Corporation Tax. However, these are multinational companies who might just pack up and move on elsewhere and the Government could end up with the worst of both worlds.