Offshore Umbrella Companies Boosted

We have now got offshore umbrella companies boosted by the UK Government.

The UK Government is inadvertently boosting them by their attacks on freelancers’ use of Personal Service Companies. The UK Government appear to want freelancers to get out of Limited Companies and get into Umbrella Companies. The UK Government can then grab more income tax and National Insurance Contributions from them.

Although, to a certain extent they are managing to do this, more and more fish are escaping their nets and slipping into the offshore umbrella companies net. This means that the Government will get very little tax at all from them if any.

Legal Offshore Companies

Most of these schemes are completely legal. The freelancers’ money goes to the offshore umbrella company as an investment. They get back a loan in lieu of the investment. They use the investment as collateral.

One such scheme has the freelancer’s money paid as an investment. This is then invested in a broad spread of 150 telecoms companies. They insure the investment against loss. Therefore, as they insure the investment against loss the offshore umbrella company is able to loan money to the contractor in lieu of that investment.

When the contractor wants to cash in the investment he, or she, will get any profit from the investment in the telecoms companies. All they will pay is Capital Gains Tax on any profit they have made.

Conservative Party

Of course, this is all completely legal. The Conservative Government knows that as it was they, under Margaret Thatcher, who legalised it in 1979 within a month of coming to office. Perhaps it was payback time for their sponsors.

A number of Tory Grandees have used it successfully. They include David Cameron’s father Ian, Lord Astor his father-in-law, Lord Ashcroft the Conservative Party’s main donor and fundraiser. Of course, the Chancellor himself, George Osborne has a family trust of £4.5m offshore.

IT Contractors

Of course, these schemes were never meant for the likes of IT Contractors and other freelancers. However, they cannot just exclude IT Contractor from this tax avoidance gravy train. If they stopped it they would be cutting off their noses to spite their faces.

So, contractors are happy to see offshore umbrella companies boosted by the Government.

Check out our Which Umbrella Company guide and our Which Contractor Accountant guide.