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Contractors to lose out in HMRC ruling

Following recent updates to legislation governing offshore umbrella companies Lisa Keeble, managing director of ContractorUmbrella Ltd and co-founder of All Umbrella Companies Are Equal, sought clarification from HMRC on the changes.

Mrs Keeble asked “Contractors join offshore umbrella company schemes in a bid to avoid tax – from what I have read, the updated legislation would make that contractual arrangement null and void as the full contract value (less agency margin) would be subject to PAYE and NIC’s. Therefore, the arrangement that had been entered into between the contractor and the offshore umbrella company would be pointless as there could be no possibility of the offshore umbrella offering any sort of tax saving. Is my understanding in this matter correct? “

A policy advisor confirmed that her understanding was quite correct. So what does this mean?

Well, basically, any offshore umbrella company that operates an employment model but uses tax loopholes to promise 80%, 85% or 90% take home is out of business. Contractors who use these schemes will now receive payment direct from the recruitment agency that contracts with the end client they will be responsible for deducting tax and national insurance contributions on the full contract value less the agency margin. Therefore, there will be no tax benefit to a contractor using this type of avoidance scheme.

A crushing blow from HMRC, reminiscent of the MSC legislation, which put many intermediary companies out of business overnight. Further proof, if it were needed, that their stance on tax avoidance is less customer care and more Vulcan death grip!!

Lisa Keeble is the Managing Director for ContractorUmbrella Ltd and founder member of AllUmbrellaCompaniesAreEqual.

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