Contracting Matters

Back in October 2008 I blogged on the changes to the Isle of Man disclosure rules and suggested it might make it more difficult for those solutions to prosper. Well I was partly right and partly wrong so let’s deal with the wrong first.

Since that time (and of course before) those “schemes” have happily continued and backed by fistfuls of “leading QC opinion” and “disclosure to HMRC” have happily carried on advertising 85% to 90% nett return on invoice value. They often are based around a two level solution, some income via a PAYE model and then other income via employee trusts and/or loan solutions. Sound complicated? It is. One of the odd parts is that by claiming to an “employment Umbrella” and state “employment taxation” they then go on to brazenly advertise 90% nett take home pay! Last time I checked you couldn’t work via PAYE and take home 90%. As the discarded Verve song goes, “The maths don’t work”. Of course there will be variants to this, more income put through PAYE to reduce the level of scrutiny the scheme might attract or more IR35 checks. For the contractor it can amount to hassle or a lot worse and for Recruitment Agencies, risk and pain. Let’s also not forget that the Government gave HMRC powers to go back in time to look at tax treaties in the past and Contractor forums are littered with tales of stress. There will always be some people who will take the riskier route and good luck to them but the heat is being turned up. I can categorically state that HMRC are aware of many of these schemes and only for a lack of resource it seems, have not yet got around to looking into all of them.

The BBC recently reported that a arrest was made in the Isle of Man in relation to an alleged offence with the BBC stating, “A spokesman from HMRC said: “The investigation centres around the suspicion that tax avoidance schemes have been implemented fraudulently”. Police suspect schemes could have been sold to more than 600 subscribers with an estimated tax loss in excess of £90m.” In the current climate do we think that HMRC can allow £90m or thereabouts to not be collected? I hope the 600 users of said scheme have got good investigation insurance.

Let me be clear though, I’m all for true entrepreneurial spirit and class myself in that category. There are some small company reliefs out there that are relevant and can help a business get started and thrive. Ir35 is not exactly a great solution and the UK Government does not fully understand the dynamics of the flexible workforce, that said if you push the envelop to the extent that some do, then you really cannot complain when the authorities then have to legislate. So if you’re a contractor thinking of signing up to a “scheme”, please think twice and understand the risks involved. Those risks could be at least hassle and at worse, truly painful.