Offshore Tax Avoidance Schemes
There are plenty of legitimate ways for contractors to take benefit of the tax planning opportunities available to them to save money and reduce their tax bills. Many of these conform to the guidelines provided by HMRC, and these are preferred as a means of minimizing your tax bill so long as you meet any specified criteria. In this way, your particular expenditure elements can be written off against tax if your business and situations mean that you qualify.
Whether you’re considering about an investment or tax saving scheme to be legitimate or not, if it appears too good to be true, it is likely to be a primary consideration. Most of these schemes are illegal, and with the taxman paying most of their attention to their use and abuse, more people than ever before are being entangled and having to pay any tax owed along with the penalties which can be substantial.
Is it offshore?
When you’re living and working in the UK, then unless your business matches some very particular criteria, you will be required to pay tax in the UK. Any investment scheme should be only viewed with suspicion which needs money to be moved out of the country and that do not attract tax on it.
Some of the most common schemes which employ this model include issuing several forms of loans instead of an actual salary, sometimes these loans are made against foreign currencies which devalue over time and can look to be worth less than the original contract value.
Other schemes depend on the use of permissible schemes which the investor is not actually eligible to get the advantage of, such as the Section 615 pension scheme which is meant to offer benefits to those who hold pensions with companies conducting business outside the UK.
The Employee Benefit Trust is another system whereby minimal wages were taken by the contractors and accepts the remaining contract value in the form of a loan which was not liable for the tax. The theory was that the loan would be written off with the contractor having a tax-free sum in hand, whereas any legitimate use of such a trust would mean that the recipient would be liable for the full tax rate on any loan payments as soon as the loan was written off.
What could happen to users of these schemes?
People are avoiding to pay their impending tax on the schemes they owe induces the HMRC’s interest, the chances are such that the given scheme being investigated and closed down is relatively high. It is expected to those who have been using such schemes to pay any tax owed as soon as the investigation starts, as well as being fined.
Schemes found to be completely designed to avoid tax are often shut down by HMRC, and recent court cases have made provisions for the department to issue payment notices which will permit them to collect interest, outstanding tax, and fines whilst still inspecting in any such schemes.
How can I make sure I am not using one of these schemes?
You will get a Scheme Reference Number from scheme providers which claim that their scheme has been approved by HMRC. This is not the case—the department guidelines are quite particular about the fact that they do not issue blanket acceptance for any scheme as so much can be subject to how they are used, who by and under what situations.
Any provider which claims that you take home 95% of your contract value or the same will often be abusing the system, leaves you exposed to the risk that HMRC will follow you for the difference between what you have paid and what you need to pay. As a result, you will be expected to evaluate the advantages of an investment scheme or similar for any likelihood of it being disapproved by HMRC.
Ignorance of abuse of the tax system will not be taken as an excuse to avoid tax in this manner unless, in exceptional situations, courts have made it very clear that individuals will be held liable for any unpaid tax that they are found to owe.
How can I save tax and comply with HMRC?
You can follow any of the effective tax planning ways which save your money rather than avoidance schemes which claim to offer. One of the famous and best known is that trading through a limited company permits you to gain the benefit of some tax savings, such as drawing down dividends along with taking a salary from your business. There is a wider range of expenses limited companies can claim rather than individuals operating as sole traders, and there is sufficient information about how to do this on HMRC’s website, which is one way of knowing the legitimacy of any deductions.
Although avoidance scheme will usually claim that they will permit you keeping around 90 percent of your income, a more accurate evaluation of your take-home pay using legitimate means would never go around 75 or 80 percent. In order to get the best optimization of lawful savings, a specialist accountant will be able to provide you advice, information, and support about how you can work more tax efficiently. Selecting an experienced firm who have an experience in representing contractors is the ideal way of ensuring that you are obtaining a sound advice which will help you to make decisions which suits you best and to your business.
How can Nexa Accountants help?
As we are a specialist in representing locums, contractors, and other independent professionals, we are distinctly placed to offer you advice and information which will help you in saving money without exposing you to any risks. We only suggest those schemes which are entirely overboard, and we will demonstrate the ins and outs of anything that we recommend to ensure that you have full confidence in the manner your finances are taken care of. You will be able to speak to our own devoted accountant at any time, call us today on: 020 3004 9303.