The Accountancy SolutionsThe Accountancy Solutions
Free enquiry
0121 629 7768
  • Twitter
  • Facebook
  • Google Plus
  • LinkedIn
  • Skype
  • YouTube
  • Home
  • About Us
    • Who We Are
    • What We Do
    • Join The Extraordinary Team
  • Services
    • Business Services
      • Business Startup
        • Self Employment
        • Company Incorporation
        • Partnership Registration
        • Business Planning
      • Book Keeping
        • Online Data Entry
        • Control Accounts
        • Year End Adjustments
        • Tax Provisions
      • Cloud Accounting
        • Accounting Systems
        • Financial Records
        • Financial Reporting
        • Annual Financial Accounts
      • Payroll Compliance
        • Payroll Registration
        • Real Time Information
        • Employee Benefits Deductions
        • Workplace Pension
      • Financial Management
        • Management Accounts
        • Variance Analysis
        • Industry Comparison
        • Financial Health Check
    • Tax Services
      • Self Assessment Tax
        • Self Assessment Tax Returns Individuals
          • Self Assessment Tax Returns Employed Persons
          • Self Assessment Tax Returns Directors
          • Self Assessment Tax Returns Pensioners
        • Self Assessment Tax Returns Sole Traders
        • Self Assessment Tax Returns Landlords
        • Self Assessment Tax Returns Partnerships
        • Domicile and Resident Status
      • Corporation Tax
        • Types of Corporation Tax
        • Unincorporated Business
        • Reliefs and Allowances
          • Research and Development Relief
          • Creative Industries Relief
          • Disincorporation Relief
        • Foreign Companies
        • Corporation Tax Exemption
      • Value Added Tax
        • VAT Registration
        • VAT Rates and Scheme
          • VAT Flat Rate Scheme
          • VAT Margin Scheme
          • VAT Retail Scheme
        • VAT on Imports and Exports
          • VAT Online Trading and Services
          • VAT Intrastat Returns
        • VAT on Special Trades
          • VAT on Builders
          • VAT on Vehicle Sales
          • VAT on Tour Operations
          • VAT on Jewellers
      • Capital Gains Tax
        • Personal Capital Gains Tax
          • Personal Capital Losses
          • Capital Gains Tax Payment
          • Non Resident Investors
        • Business Capital Gains Tax
        • CGT Relief and Allowances
          • Business Asset Roll Over Relief
          • Incorporation Relief
          • Gift Hold Over Relief
          • Entrepreneurs Relief
        • CGT Efficient Investments
      • Inheritance Tax
        • Inheritance Tax Reliefs and Exemptions
        • Estate and Wills
        • Double Taxation Treaties
    • Advisory Services
      • Corporate Planning
        • Business Plan Review
        • Business Growth Strategy
        • Exit Strategies
        • Employee Benefit Planning
      • Investment Planning
        • Venture Capital Trusts
        • National Saving Plans
        • Personal Saving Plans
        • Offshore Investment
      • Retirement Planning
        • Pension Arrangements
        • Work Place Pension Scheme
        • SIPP Reviews
        • Individual Retirement Plans
      • Tax Planning
        • Personal Tax Panning
        • Business Tax Planning
        • Tax Liability Forecast
        • Profit Extraction
    • Specialist Services
      • Forensic Accounting
      • Tax Investigations
        • Code of Practice 8 Investigations
        • Code of Practice 9 Investigations
        • VAT Investigations
      • Research And Development Tax Relief
      • Family Office Services
    • Corporate Finance
      • Merger Acquisitions
      • Business Disposals
      • Commercial Loans
      • Due Diligence
      • Business Plans
  • Sectors
    • Technology Sector
      • Engineering Contractors
      • Software Developers
      • IT Contractors
    • Media and Entertainment
      • Marketing Companies
      • Printing and Publishing
      • Entertainment Sector
    • Professional Services
      • Architects and Surveyors
      • Legal Firms
      • Limited Liability Partnerships
      • FCA Regulated Business
    • Consumer Industries
      • News Agents and Retail
      • Precious Metal and Jewelers
      • Recruitment Sector
      • Renewable Energy
    • Healthcare Sector
      • NHS Doctors and Consultants
      • GP Surgeries and Locum GP
      • Dentists and Optometrists
      • Care Homes and Social Care
    • Travel and Leisure Sector
      • Holiday Parks
      • Travel Agencies
      • Pubs and Restaurants
      • Sports and Health Clubs
    • Not for Profit Sector
      • Charity Sector
      • Community Interest Companies
    • Real Estate and Property
      • Property Investors
      • Construction Firms
      • Estate Agents
    • Education and Childcare
      • Language Schools
      • Independent Academies
      • Child Care
  • Our Blog
  • Resources
  • Contact Us
The Accountancy Solutions
  • Home
  • About Us
    • Who We Are
    • What We Do
    • Join The Extraordinary Team
  • Services
    • Business Services
      • Business Startup
        • Self Employment
        • Company Incorporation
        • Partnership Registration
        • Business Planning
      • Book Keeping
        • Online Data Entry
        • Control Accounts
        • Year End Adjustments
        • Tax Provisions
      • Cloud Accounting
        • Accounting Systems
        • Financial Records
        • Financial Reporting
        • Annual Financial Accounts
      • Payroll Compliance
        • Payroll Registration
        • Real Time Information
        • Employee Benefits Deductions
        • Workplace Pension
      • Financial Management
        • Management Accounts
        • Variance Analysis
        • Industry Comparison
        • Financial Health Check
    • Tax Services
      • Self Assessment Tax
        • Self Assessment Tax Returns Individuals
          • Self Assessment Tax Returns Employed Persons
          • Self Assessment Tax Returns Directors
          • Self Assessment Tax Returns Pensioners
        • Self Assessment Tax Returns Sole Traders
        • Self Assessment Tax Returns Landlords
        • Self Assessment Tax Returns Partnerships
        • Domicile and Resident Status
      • Corporation Tax
        • Types of Corporation Tax
        • Unincorporated Business
        • Reliefs and Allowances
          • Research and Development Relief
          • Creative Industries Relief
          • Disincorporation Relief
        • Foreign Companies
        • Corporation Tax Exemption
      • Value Added Tax
        • VAT Registration
        • VAT Rates and Scheme
          • VAT Flat Rate Scheme
          • VAT Margin Scheme
          • VAT Retail Scheme
        • VAT on Imports and Exports
          • VAT Online Trading and Services
          • VAT Intrastat Returns
        • VAT on Special Trades
          • VAT on Builders
          • VAT on Vehicle Sales
          • VAT on Tour Operations
          • VAT on Jewellers
      • Capital Gains Tax
        • Personal Capital Gains Tax
          • Personal Capital Losses
          • Capital Gains Tax Payment
          • Non Resident Investors
        • Business Capital Gains Tax
        • CGT Relief and Allowances
          • Business Asset Roll Over Relief
          • Incorporation Relief
          • Gift Hold Over Relief
          • Entrepreneurs Relief
        • CGT Efficient Investments
      • Inheritance Tax
        • Inheritance Tax Reliefs and Exemptions
        • Estate and Wills
        • Double Taxation Treaties
    • Advisory Services
      • Corporate Planning
        • Business Plan Review
        • Business Growth Strategy
        • Exit Strategies
        • Employee Benefit Planning
      • Investment Planning
        • Venture Capital Trusts
        • National Saving Plans
        • Personal Saving Plans
        • Offshore Investment
      • Retirement Planning
        • Pension Arrangements
        • Work Place Pension Scheme
        • SIPP Reviews
        • Individual Retirement Plans
      • Tax Planning
        • Personal Tax Panning
        • Business Tax Planning
        • Tax Liability Forecast
        • Profit Extraction
    • Specialist Services
      • Forensic Accounting
      • Tax Investigations
        • Code of Practice 8 Investigations
        • Code of Practice 9 Investigations
        • VAT Investigations
      • Research And Development Tax Relief
      • Family Office Services
    • Corporate Finance
      • Merger Acquisitions
      • Business Disposals
      • Commercial Loans
      • Due Diligence
      • Business Plans
  • Sectors
    • Technology Sector
      • Engineering Contractors
      • Software Developers
      • IT Contractors
    • Media and Entertainment
      • Marketing Companies
      • Printing and Publishing
      • Entertainment Sector
    • Professional Services
      • Architects and Surveyors
      • Legal Firms
      • Limited Liability Partnerships
      • FCA Regulated Business
    • Consumer Industries
      • News Agents and Retail
      • Precious Metal and Jewelers
      • Recruitment Sector
      • Renewable Energy
    • Healthcare Sector
      • NHS Doctors and Consultants
      • GP Surgeries and Locum GP
      • Dentists and Optometrists
      • Care Homes and Social Care
    • Travel and Leisure Sector
      • Holiday Parks
      • Travel Agencies
      • Pubs and Restaurants
      • Sports and Health Clubs
    • Not for Profit Sector
      • Charity Sector
      • Community Interest Companies
    • Real Estate and Property
      • Property Investors
      • Construction Firms
      • Estate Agents
    • Education and Childcare
      • Language Schools
      • Independent Academies
      • Child Care
  • Our Blog
  • Resources
  • Contact Us
The Accountancy Solutions
  • Home
  • About Us
    • Who We Are
    • What We Do
    • Join The Extraordinary Team
  • Services
    • Business Services
      • Business Startup
        • Self Employment
        • Company Incorporation
        • Partnership Registration
        • Business Planning
      • Book Keeping
        • Online Data Entry
        • Control Accounts
        • Year End Adjustments
        • Tax Provisions
      • Cloud Accounting
        • Accounting Systems
        • Financial Records
        • Financial Reporting
        • Annual Financial Accounts
      • Payroll Compliance
        • Payroll Registration
        • Real Time Information
        • Employee Benefits Deductions
        • Workplace Pension
      • Financial Management
        • Management Accounts
        • Variance Analysis
        • Industry Comparison
        • Financial Health Check
    • Tax Services
      • Self Assessment Tax
        • Self Assessment Tax Returns Individuals
          • Self Assessment Tax Returns Employed Persons
          • Self Assessment Tax Returns Directors
          • Self Assessment Tax Returns Pensioners
        • Self Assessment Tax Returns Sole Traders
        • Self Assessment Tax Returns Landlords
        • Self Assessment Tax Returns Partnerships
        • Domicile and Resident Status
      • Corporation Tax
        • Types of Corporation Tax
        • Unincorporated Business
        • Reliefs and Allowances
          • Research and Development Relief
          • Creative Industries Relief
          • Disincorporation Relief
        • Foreign Companies
        • Corporation Tax Exemption
      • Value Added Tax
        • VAT Registration
        • VAT Rates and Scheme
          • VAT Flat Rate Scheme
          • VAT Margin Scheme
          • VAT Retail Scheme
        • VAT on Imports and Exports
          • VAT Online Trading and Services
          • VAT Intrastat Returns
        • VAT on Special Trades
          • VAT on Builders
          • VAT on Vehicle Sales
          • VAT on Tour Operations
          • VAT on Jewellers
      • Capital Gains Tax
        • Personal Capital Gains Tax
          • Personal Capital Losses
          • Capital Gains Tax Payment
          • Non Resident Investors
        • Business Capital Gains Tax
        • CGT Relief and Allowances
          • Business Asset Roll Over Relief
          • Incorporation Relief
          • Gift Hold Over Relief
          • Entrepreneurs Relief
        • CGT Efficient Investments
      • Inheritance Tax
        • Inheritance Tax Reliefs and Exemptions
        • Estate and Wills
        • Double Taxation Treaties
    • Advisory Services
      • Corporate Planning
        • Business Plan Review
        • Business Growth Strategy
        • Exit Strategies
        • Employee Benefit Planning
      • Investment Planning
        • Venture Capital Trusts
        • National Saving Plans
        • Personal Saving Plans
        • Offshore Investment
      • Retirement Planning
        • Pension Arrangements
        • Work Place Pension Scheme
        • SIPP Reviews
        • Individual Retirement Plans
      • Tax Planning
        • Personal Tax Panning
        • Business Tax Planning
        • Tax Liability Forecast
        • Profit Extraction
    • Specialist Services
      • Forensic Accounting
      • Tax Investigations
        • Code of Practice 8 Investigations
        • Code of Practice 9 Investigations
        • VAT Investigations
      • Research And Development Tax Relief
      • Family Office Services
    • Corporate Finance
      • Merger Acquisitions
      • Business Disposals
      • Commercial Loans
      • Due Diligence
      • Business Plans
  • Sectors
    • Technology Sector
      • Engineering Contractors
      • Software Developers
      • IT Contractors
    • Media and Entertainment
      • Marketing Companies
      • Printing and Publishing
      • Entertainment Sector
    • Professional Services
      • Architects and Surveyors
      • Legal Firms
      • Limited Liability Partnerships
      • FCA Regulated Business
    • Consumer Industries
      • News Agents and Retail
      • Precious Metal and Jewelers
      • Recruitment Sector
      • Renewable Energy
    • Healthcare Sector
      • NHS Doctors and Consultants
      • GP Surgeries and Locum GP
      • Dentists and Optometrists
      • Care Homes and Social Care
    • Travel and Leisure Sector
      • Holiday Parks
      • Travel Agencies
      • Pubs and Restaurants
      • Sports and Health Clubs
    • Not for Profit Sector
      • Charity Sector
      • Community Interest Companies
    • Real Estate and Property
      • Property Investors
      • Construction Firms
      • Estate Agents
    • Education and Childcare
      • Language Schools
      • Independent Academies
      • Child Care
  • Our Blog
  • Resources
  • Contact Us
Contractors | Loan Schemes and Tax Avoidance

Contractors | Loan Schemes and Tax Avoidance

27/06/2017 by The Accountancy Solutions

Contractor loan schemes are a relatively new form of tax avoidance. While the exact details that you’re told by whoever is offering you the scheme may change, and the exact level of risk can vary between fairly safe and extremely aggressive, HMRC is doing their best to recover every penny of the tax that they can. Read on to find out a little more about what these loan schemes are, how to recognize excessively aggressive schemes, and what the likely outcome is of getting involved in this sort of tax avoidance.

What are loan schemes?

Loan schemes are a method of tax avoidance which is currently being offered by tax avoidance contractors. In a scheme like this, rather than being paid directly for your work, you’re paid in the form of a loan through either a trust (sometimes referred to as a ‘remuneration trust’) or an umbrella company. This loan will not come directly from the business you’re actually working for but will be diverted through a series of shell companies or trusts until it gets to you. On the other hand, some businesses simply offer you the ‘loan’ directly. Again, the exact details can change.

Of course, the point is that it’s not really a loan. It’s just declared to be one. You never have to pay anything back; so from your end, nothing is different compared to getting paid through the normal route. Nothing, that is, except that you pay less tax since HMRC think it’s a loan! These ideas are nothing new, and have been used for the past twenty years or so.

Various measures have been introduced to stop businesses from paying people with this method, but even so, a loophole in part 7a of the Income Tax (Earning and Pensions) Act 2003 means that it’s still possible. Essentially, loan schemes these days avoid section 7a by claiming that they are operating on a commercial basis and that since this method has been around for a good twenty years or so that it doesn’t fall under the General Anti-Abuse Rule, or GAAR of the Finance Act 2013.

What kind of schemes are there?

These loan schemes come in a number of shapes and sizes. Currency arbitrage is one of the riskier methods. The idea behind it is that through signing up with an off-shore company, and receiving exotic foreign currencies in exchange for loans, that your earnings can be turned into non-taxable foreign exchange gains.

The Icebreaker scheme is a well-known name for this type of tax avoidance. Essentially, the contractor forms a partnership with a business in the creative industry which ostensibly trades in the rights to songs, ideas for books and so on. The business then claims tax relief on their losses, and these losses are passed on to the members of the scheme to save on their personal taxes.

But as we’ve already pointed out, these schemes come in any number of shapes and sizes. So don’t be surprised if what you’re told doesn’t sound exactly like currency arbitrage, for instance: do your homework and think about what you’re being offered. If it’s too good to be true, it probably is!

What are the likely signs that you’re being sold one of these schemes?

Because these schemes can save a business a lot of money, they’re being pushed quite hard at the moment. That means that if you’re a relatively successful contractor or freelancer, and you do a lot of your work with specific companies, then you’ve probably been offered something like this before. Certain schemes of this kind will promise that if you do, you will be able to keep between 80 and 90% of your income, tax-free. In reality, no deal could possibly be that good; HMRC will be on it in a shot. But that is of little concern to the promoter, who would have long since had their fee.

You’re also likely to be told that the service you’re being offered is HMRC approved, or that you won’t have to declare what you’re doing. Of course, there are perfectly legal ways of limiting the amount of tax you pay- although whether HMRC ‘approve’ of that sort of thing or put up with it is a different question- so whenever you encounter a new way that you may be able to save on your taxes, do your research and find out whether it is legal or if it’s likely to land you in hot water. Don’t take any promoter at their word!

What’s the likely outcome of using one of these schemes?

HMRC challenge every case of this kind of avoidance that they detect, and in the event that they detect your part in a tax avoidance scheme, you will be placed under a COP8 Investigation. These investigations can target individuals, partnerships, limited liability partnerships, companies, and trusts, and can uncover unpaid taxes, duties, and levies. In essence, there’s not much room to hide.

Where the outcome is litigation, HMRC wins around 90% of the cases that are taken to court. So if you are detected, and you are challenged for having taken part in a loan scheme, then you are likely to lose your case. An accelerated payment notice may be sent to you as part of HMRC’s investigation, which would mean that you have to pay the disputed tax up front. Even worse, if your loan was paid through a trust, then you may have to pay inheritance tax on what you ‘earned’ either after the investigation or at some point in the future.

These sorts of tax avoidance schemes are exactly what HMRC tax recovery is currently targeting. Using their state of the art Connect Computer System, HMRC is better able than ever to detect schemes such as these and come down hard on those who use them, and those who offer them.  HMRC’s official guidance is to avoid engaging with a promoter offering you something of this nature, or if you are already avoiding tax, to withdraw from the scheme and immediately settle any tax you owe. If you voluntarily withdraw from the scheme, you avoid the twin costs of investigation and litigation and lower the penalty you may be charged.

If you have used anyone of these schemes and are worried about the tax liability which may arise if the scheme fails please contact The Accountancy Solutions on 01216297768 for a free and no obligation advice.

GET IN TOUCH WITH US
FREE AND NO OBLIGATION ADVICE

31/03/2018
ContractorsContractual Disclosure FacilityCOP8 tax fraud investigationCOP9 criminal tax fraud investigationEBTEmployment Benefit TrustsHMRC InquiriesHMRC InvestigationSpecialist Tax AccountantsTax AvoidanceTax Investigation
RSS Stay update with HMRC
  • Detailed guide: Tell HMRC about your credit or debit card or cash payment transactions
  • Detailed guide: Worldwide Disclosure Facility: make a disclosure
  • Our Blog (57)
    • HMRC (36)
    • Tax Avoidance (9)
    • Tax Case Laws (4)
    • Tax Evasion (9)
17/04/2018 Code of Practice 9 Investigation: What you need to know
05/04/2018 Disclosure of Tax Avoidance Schemes | An Accountants Approach
25/03/2018 Cash basis for landlords | Unincorporated Property Business
Self-Assessment for Self-Employed | HMRC Investigations 20/04/2017
Trivial Benefits Exemption | The Accountancy Solutions 15/03/2018
Tax Savings for Individuals & Owner Managed Business 04/08/2016
  • Twitter
  • Facebook
  • Google Plus
  • LinkedIn
  • Skype
  • YouTube
Newsletter
  • 44 121 629 7768
  • info@theaccountancysolutions.com
  • support@theaccountancysolutions.com
Our Services
  • Business Services
  • Tax Services
  • Advisory Services
  • Specialist Services
  • Corporate Finance
Our Locations
  • The Accountancy Solutions Birmingham
    Fort Dunlop, Fort Parkway B24 9FE
    0121 629 7768
  • The Accountancy Solutions London
    79 College Rd, Harrow HA1 1BD
    0207 078 4001
Accountants London City | Accountants Birmingham City
Copyright © 2018 The Accountancy Solutions, All Rights Reserved.
  • Legal Disclaimer
  • Privacy Policy
  • Careers