Offshore Schemes legal says top HMRC boss

Offshore Schemes Legal

Offshore Schemes Legal

Are offshore schemes legal? Are the Offshore Umbrella Companies that contractors use legal?

Offshore Schemes can be perfectly legal HMRC’s Commissioner and Director General for Enforcement and Compliance, Jennie Granger, said. According to today’s Times she conceded that “There is nothing illegal about an international structure, especially in a globally integrated economy and these arrangements may be particularly legitimate”.

So, many contractors and freelancers are now aping the bigger companies and even members of Parliament. They are using offshore schemes such as offshore umbrella companies.

Offshore Schemes Legal – Tax Systems of Countries

Jonathan Schwartz, a barrister at Temple Tax Chambers and a professor in international tax law, said “All laws influence and tax laws are no different. The tax behaviour of companies is largely driven by the tax systems they engage with.

“Tax administrators must apply the law as it exists rather than what they, or anyone else, might think it ought to be”.

Offshore Umbrella Companies Legal

That makes a lot of sense. There’s no point in Governments or MPs moaning about companies behaving immorally, when avoiding tax, when they just follow the tax rules created by Governments. It is their laws that make offshore schemes legal.

Usually the companies are just using schemes that the Government created, like special tax dispensation for the film industry, so that they come to the UK rather than go elsewhere.

The UK Government complain about companies avoiding paying tax whilst, at the same time, progressively cutting Corporation Tax. This is with the purpose of undercutting other countries. It is their stated intention to have the lowest Corporation Tax of all the G8 countries.

David Cameron’s Legacy

Then there’s David Cameron whose family money came from his father Ian’s use for himself, and others, of offshore schemes. There’s Chancellor Osborne who has an offshore family trust worth £4.5m.

Then there’s Margaret Hodge herself, the hammer of the multinationals like Google, whom she calls immoral. She has been exposed as owning part of an offshore company.

Stemcor paid her dividends of £50,000 last year. Her stake is worth over a million pounds. Tax was paid at less than 2%. Google would have been appreciative.

Said Mike Dean of Milestone International Tax partners “The companies under fire are doing nothing wrong legally, morally or ethically. They are, in fact, using the tax system in the way intended”.

Therefore, its Government laws that make offshore schemes legal like offshore umbrella companies.

Gain an Advantage

It is Governments who have been trying to ‘cheat’ and gain an advantage on other countries, in certain areas, that has caused this problem. Offshore schemes and offshore umbrella companies are just taking advantage of all of this.

So, it is Governments who make offshore schemes legal.

See our Offshore Umbrella Company Directory

offshore umbrella company list

Offshore Umbrella Company List

Offshore Umbrella Company Benefits

Offshore Umbrella Company Benefits

Offshore Umbrella Company Benefits

Benefits – so what are the offshore umbrella company benefits?

The main benefits are all connected to the money. This is the best way for contractors to keep most of their money. They can keep anywhere between 84% and 90% of their hard-earned money.

The exact amount depends on how much they are earning.

Mrs Thatcher Changed the Loan laws

Offshore Umbrella Companies started up when Mrs Thatcher changed the laws so that money sent offshore was no longer taxable. It was one of the first laws she brought in when she became Prime Minister in 1979. The Tory party grandees were among the first to get the benefits.

One of the earliest to benefit was David Cameron’s father Ian. He quickly saw the benefits  and set up lots of offshore schemes. Indeed he made his money that way. That’s where David Cameron’s inheritance came from.

Many of the Tory grandees saw the benefits and operate schemes like these including Lord Astor, David Cameron’s father-in-law and Lord Ashcroft, the Tory party’s main donor.

How Loans Works

So, the money that is sent offshore stays offshore. The Offshore umbrella company loans the contractor money in lieu of that loan. The loan is never paid back. The contractor defaults on that. The Offshore Umbrella Company takes the money in lieu of that.

Money is not taxed until it comes back onshore. The money never does. It is different money. Loans aren’t taxable. This is how it all works. It’s how the contractor benefits.

Tax Avoidance

It is tax avoidance, of course. However, it is legal and it is not tax evasion which is illegal.

The Government complain about it. However, it is they who make the rules. It is they who can change them. Contractors and others are only taking advantage of the rules as they are. They take the benefits from the Governments own laws.

Indeed it is the legal duty of the directors of a company to maximise the returns for shareholders.

Of course, the Government don’t want to change the rules as it benefits many of their party sponsors. Indeed George Osborne has a £4.5m family offshore trust. He sees the benefits of it.

Benefits Not Intended

It’s annoying for the Government when newspapers reveal that comedians and rock stars are reaping these offshore umbrella company benefits.

The benefits weren’t intended for the likes of them and contractors. The Government had to react. However, they don’t change the law.

For some examples of these companies see Offshore Umbrella Company List

offshore umbrella company list

Offshore Umbrella Company List

Offshore Umbrella Companies and how they work

How They Work - Offshore Umbrella Companies

How They Work

Contractors want to know how they work.

Offshore Umbrella Companies normally operate through loans. In 1979 the Thatcher government, in one of its very first bills, allowed money to go offshore untaxed. It doesn’t get taxed till it comes back onshore, if ever.

This opened the way for offshore schemes and offshore umbrella companies which operate in places like the Isle of Man, Jersey, the Bahamas, Bermuda etc.

Indeed most of the world’s hedge funds operate from one of the UK’s offshore islands.

How they work is that money held offshore is not taxed unless it returns to the UK. Among the first to take advantage of this were the Tory Party grandees.

David Cameron’s father made his money this way by setting up schemes both for himself and others. David Cameron’s inheritance came mostly from money earned this way. Another to benefit is Chancellor Osborne who has £4.5m held offshore in a family trust.

Tory Party’s Money

Much of the Tory party’s money comes from people who operate these schemes. Lord Ashcroft, the top donor and fundraiser for the Conservative Party operates these offshore schemes. Now contractors and freelancers are enjoying the benefits of it too.

How they work is that most of the offshore umbrella companies and offshore schemes operate through loans. Because they’ve sent money offshore untaxed, i.e. the money they earn, that money is not taxable till they bring it back onshore. However, it never does.

Because they have that money offshore, the offshore umbrella companies that they operate through will loan them money back in lieu of that. They will then take that money back at the end to pay back that loan. Money loaned is not taxable.

Different Money Comes Back Onshore

Basically it is different money that comes back onshore than the money sent off. How they work is that he contractor receives loans and never pays them back as the offshore umbrella companies take the money sent offshore in lieu of those loans.

This is all completely legal. There is nothing HMRC can do about it as it is all framed in UK law. They would have to change the law to stop it and that is fraught with difficulties and would hit the Tory Grandees who basically pay for the Conservative Party.

Very Neat Scheme

There is one other scheme, which is quite neat, which one offshore umbrella company operates. They basically invest your money in a whole range of safe companies and send you loans in lieu of that money. You may even make a profit when you eventually quit the scheme and the only tax you would pay would be capital gains tax on the profits.

The beauty of it is that you can operate this through your own limited company and it would be invisible to your agency. See details of it here – Offshore Scheme using your Limited Company

To see details of these offshore umbrella companies see Offshore Umbrella Companies Directory

Finance Bill 2016 – How Contractors Affected by Chancellor

Finance Bill 2015 contractor effects

Finance Bill 2016

So, how will UK contractors be affected by Chancellor George Osborne’s Finance Bill 2016, the details of which he will announce on Wednesday afternoon?

UK contractors felt that they dodged a bullet in the Chancellor’s Autumn statement a couple of weeks ago.

Chancellor’s Leaks and Rumours affecting Contractors

Prior to that there had been statements from the Chancellor, leaks and rumours that:-

  1. He would take away the right of both umbrella company and personal service company contractors to be able to offset travel and subsistence expenses against tax.
  2. He would force clients, who hired contractors for more than a month, i.e. virtually all contractors, to take those contractors onto their payroll. He called these contractors off payroll employees – which shows what he really thinks of them
  3. He, with HMRC, was devising a new online IR35 test. Clients would make contractors sit this new online IR35 test. If they passed it they could operate as normal as contractors. If they failed it they would have to go on the client company’s payroll. HMRC would also keep the results of failed online tests for future reference
Finance Bill 2015 and Contractors

Finance Bill 2015 and how it affects Contractors

Chancellor Osborne’s Autumn Statement

When the Chancellor read his Autumn Statement, most of these were missing.

The only one that was there was only partially there.

He  would still stop contractors who are caught by the Intermediaries legislation (IR35), i.e. umbrella company contractors, from offsetting travel and subsistence expenses against tax.

However, those not caught by IR35, i.e. personal service company contractors, would still be able to offset travel and subsistence expenses against tax.

Chancellor Finds Extra Tax

In a press release, IPSE (ex-PCG) claimed that as a great victory for they, and their members, lobbying efforts beforehand.

This may be true. However, another factor could have been that the Treasury suddenly found an extra £27 billion in tax receipts, which they would get in the next year, meaning that the Chancellor needed less tax money.

This, and the Lords defeat, may have been why the Chancellor changed his mind on Tax Credits.

It may, also, be a reason why he pulled back out the triple threat above.

However, there is a third possibility.

Finance Bill 2015 as it affects contractors

Finance Bill 2016 and its effect on contractors

Anti-Contractor Measures in Finance Bill

That is that he is going to introduce the measure in his Finance Bill which he will produce on December 9th.

Contractors are not out of the woods, or murky water, yet.

It would seem unlikely that the Chancellor will stop personal service company contractors claiming travel and subsistence expenses against tax after saying he wouldn’t a couple of weeks earlier.

Umbrella Company Threat

However, there may be some truth in he second and third threats, i.e. forcing contractors caught by IR35 onto a client company’s payroll rather than using an umbrella company.

That would be an existential threat to umbrella companies.

Good Umbrella Companies Contractors

Good Umbrella Companies Contractors prefer

He may use the Finance Bill 2016 to announce this measure and may use it to announce a new IR35 test which has legal bearing as well.

The life of UK contractors, since IR35 was brought in, has been a constant worry.

December 9th is the next date for contractors to worry about.

David Cameron’s Dad’s Offshore Money – Where Did it Go?

David Cameron's Dad

David Cameron’s Dad’s Offshore Money

What happened to the offshore money built up by David Cameron’s Dad?

One of the first things that Mrs Thatcher did, when she came to office in 1979, was to change the laws so that money leaving the UK was untaxed.

This set off a whole load of offshore money-making schemes for Tory Grandees and party contributors such as Lord Ashcroft, who was the Tory party’s main contributor, and Lord Astor, David Cameron’s father-in-law.

Another of these was David Cameron’s father Ian using his Blairmore vehicle.

Offshore Umbrella Companies for contractors

Offshore Umbrella Companies for contractors to save tax

Ian Cameron – No UK Tax

For 30 years Ian Cameron was setting up offshore schemes that meant his customers would not pay UK tax.

He also invested his own money in tax havens.

In all that 30 years he never paid any UK tax on the offshore money.

You would have thought that he had many millions.

Ian Cameron’s Worth

How much do you think that someone, who had spent 30 years helping people shelter from UK tax, and paying no UK tax for 30 years on his own offshore income, would be worth?

I would have guessed he would be worth many millions, perhaps in the tens of millions and maybe even in the hundreds of millions.

So what did he leave in his will?

David Cameron’s brother got a house out of it. David Cameron, himself, got £300,000 and his sister got some money as well.

That strikes me as being a piffling amount of money for a guy who had been helping others avoid UK tax for 30 years and who had paid no UK tax on his own offshore money for 30 years.

Ian Cameron’s Money

So, what happened to all the money that he must have made?

Paying UK Tax

Paying UK Tax

It’s possible that he gave it to his children to avoid death duty before he died.

It’s also possible that it is still out there in offshore funds in places like Panama, Jersey, the Bahamas etc.

As there is no revelation, no one would ever know.

We only know, because of a firm of lawyers being hacked in Panama, that David Cameron sold shares in an offshore trust in 2010, before he became Prime Minister, for £31,500 – a profit of £19,000.

No Capital Gains Tax on Offshore Profits

Although he paid dividend tax in the income he got from it, he didn’t have to pay any capital gains tax.

It’s now been discovered that there were another couple of companies in which he had shares that were held offshore.

None of this would have been known without the Panama lawyers being hacked.

Downing Street Statement

Downing Street first said that Cameron had “no shares, no offshore trusts, no offshore funds”.

Later this was clarified to: “The prime minister, his wife and their children do not benefit from any offshore funds.”

Later again Downing St said that there were “no offshore funds or trusts the family would benefit from in future.”

That left wiggle room about the past.

Contractor Tax Avoidance sches on Isle of Man

Contractor Tax Avoidance schemes

Where’s the Money?

So, what did happen to all the millions that David Cameron’s dad must have made?

Why did he leave such a relatively small amount of money to his children?

Did he manage to give them it before he died?

Was he spectacularly unsuccessful over 30 years in a field where making heaps of money seems to be easy?

Or are there other offshore trusts out there, in other tax havens, that only David Cameron and his family know how to get hold of?

In recent years UK contractors have been taking advantage of measures, both offshore and onshore, to minimise their taxes, just like David  Cameron’s dad Ian, David Cameron, George Osborne, Lord Ashcroft and Lord Astor.

What’s sauce for the goose is now sauce for the gander.

For an explanation of those tax minimization opportunities for contractors, where they can keep up to 90% of their money, see Onshore and Offshore Umbrella Companies List.

Offshore Tax Avoidance – Why the Government doesn’t Stop it

Offshore Tax Avoidance

Offshore Tax Avoidance

Many people, including contractors are bemused by the fact that the Government doesn’t just stop Offshore Tax Avoidance schemes completely.

“Why don’t they just shut them all down?” they ask. Why don’t they just get in touch with the people and say “You owe us a whole load of tax?”

The answer is that they can’t.

Don’t Break UK Tax Law

Top Umbrella Companies offshore and onshore

Top Umbrella Companies for returns

They don’t break UK laws. Indeed the offshore umbrella company schemes are designed to fit in with UK law. It may not be in a way that the Government intended, or wanted,  but they do comply with UK tax law.

That’s why it is legal tax avoidance rather than tax evasion.

According to HMRC’s Commissioner and Director General for Enforcement and Compliance, Jennie Granger, “There is nothing illegal about an international structure, especially in a globally integrated economy and these arrangements may be particularly legitimate”.

Legal Tax Avoidance

International tax law expert, barrister Jonathan Schwartz said “All laws influence and tax laws are no different. The tax behaviour of companies is largely driven by the tax systems they engage with.

“Tax administrators must apply the law as it exists rather than what they, or anyone else, might think it ought to be”.

That’s exactly correct. Those who run offshore tax avoidance schemes design their solutions to fit in with current UK law.

Change Tax Laws Back

Of course, the Government could change the laws back to where they were before – but they don’t want to do that.

They make those laws for a purpose. They may want to bring more film companies to Britain or to support the burgeoning UK music industry. They give tax incentives for film makers or music producers to operate from the UK.

Offshore Schemes for UK contractors to save tax

Offshore Schemes for UK contractors to save tax

It does do that – but it also opens the door to those who want to use this for tax avoidance.

Offshore Umbrella Company Loans

Then there is the fact that, in many offshore tax avoidance schemes like offshore umbrella companies, the money is sent offshore untaxed and stays there.

The offshore company gives the contractor a loan in lieu of the money.

That loan money is never paid back so the offshore company keeps the money sent offshore in lieu of it.

So, what should the Government do about it? Make loans taxable?

Think what would happen to the banking system then or to the City of London and all the commerce that goes on there.

Upholding the UK Tax Laws

As tax expert Jonathan Schwartz said “Tax administrators must apply the law as it exists rather than what they, or anyone else, might think it ought to be”.

The courts must do that also. It’s Government that makes the laws. It’s the duty of the courts to apply those laws.

The Government may fulminate against offshore tax avoidance but it is they who create the laws that allow it.

Money Leaving UK Untaxed

One of the first things that Mrs Thatcher did when she came to power was to bring in a law that allowed money to leave the UK untaxed.

Many Tory grandees have taken advantage of this to send their money offshore untaxed. This includes David Cameron’s father Ian, his father-in-law Lord Astor and the Tory party’s main funder, Lord Ashcroft.

Paying UK Tax

Paying UK Tax

It also includes Chancellor, George Osborne, who has a £4.5 trust offshore. He says he will pay the appropriate tax when it comes back onshore. However, it never will. It was sent offshore in the first place to avoid UK tax.

Margaret Hodge and Stemcor Tax Avoider

The hammer of the offshore companies, and big companies who avoid UK tax, is Margaret Hodge, a Labour party MP who is in charge of the Public Accounts Committee in Westminster.

However, it was revealed that she owns part of an offshore company called Stemcor, which her brother runs, and that her stake  is worth a million and saved her 50 grand in tax annually.

Of course, the Government could reverse Margaret Thatcher’s tax law and make money that leaves the UK taxable.

What would that do for British business and the City of London, and the Tory grandees, income streams?

Offshore Tax Avoidance Schemes to Continue

So, the Government may fulminate against offshore tax avoidance schemes every time they are ‘exposed’ in the press. They have to do that.

What they are not going to do is make money that goes offshore taxable again or to make loans subject to tax.

So, offshore tax avoidance will continue as long as the laws of the land allow it – and courts will continue to rule that loans are not taxable.

For a list of hose companies who operate offshore (and onshore) tax avoidance schemes click on Offshore Umbrella Companies List

Crushing HMRC defeat in Rangers offshore tax case

Rangers Tax Case

HMRC Defeat

There was a crushing HMRC defeat in its appeal against Rangers football club’s use of offshore Employee Benefits Trust (EBTs) to pay its players. There was a major HMRC defeat in the original case by 2-1.

HMRC said that these were payments rather than loans. The First Tier Tribunal (FTT) said they were loans. HMRC lost.
The case, and the tax said to be owed, was a major in bringing down Rangers Football Club.

HMRC Appeal

It was a crushing HMRC defeat but they quickly decided to appeal. They have now lost that appeal. The tribunal judge Lord Doherty ruled against HMRC and in favour of Rangers. It confirms that the EBTs and offshore umbrella companies were completely legal.

This HMRC defeat will have major consequences. Tory Grandees, including David Cameron’s father, his father-in-law, Lord Astor, and the Tory Party main sponsor, Lord Ashcroft, have long used these schemes. George Osborne has an offshore family trust.

However, they didn’t like it when this nice scheme spread to the likes of actors, pop artists, footballers and comedians. Nowadays, contractors and freelancers us them. Many of them are in offshore umbrella companies.

Sleep Safely

Now, after this huge HMRC defeat, freelancers and contractors who use offshore umbrella companies can sleep more safely in their beds at night.

A spokesman for Murray International holdings (MIH) which owned Rangers and made the offshore payments to players said:-

“We are pleased with the judgement. It again leaves negligible tax liability. It overwhelmingly supports the views collectively and consistently held by our advisers, legal counsel and MIH itself”.

Rangers were forced into liquidation in 2012 by HMRC.

Rangers Update

HMRC appealed this case again and won. Rangers are now going to appeal that to the Supreme Court.

More Info

For a list of Offshore Umbrella Companies for Contractors click on Offshore Umbrella Companies List

See also Offshore Schemes legal says top HMRC boss

Offshore Umbrella Companies and how they work

Begging Letters Sent Out by HMRC on Offshore Umbrella Companies

Begging Letters from HMRC to UK Contractors

Begging letters from HMRC

As regards Offshore Umbrella Companies HMRC is to continue sending out threatening begging letters to contractors. This is an attempt to get money from them for using offshore schemes that are completely legal.

Said one offshore umbrella company owner “To be honest it’s HMRC scare mongering. They know they can’t legally demand retrospective taxes. However they sent out 30,000 letters in 2013 and will again this year”.

They cannot hope to process that number of contractors, especially when their staff numbers have been cut. However, they are hoping to scare contractors into sending them money.

Tax Avoidance, Not Tax Evasion

Their big problem is that offshore umbrella companies are tax avoidance rather than tax evasion. One is legal and one is illegal.

What HMRC really need to do, if they want all that tax money, is to get the Government to change the laws to make it illegal.

However, despite what they say, the Government have little interest in shutting this down. They are not keen for comedians like Jimmy Carr to use tax avoidance schemes or indeed common or garden contractors.

Legal Tax Avoidance

Most of their donors use tax avoidance. Indeed Cameron’s own money came that way as his father was a setter-up of offshore avoidance schemes and was into it earlier than most people. So, this is where Cameron’s inheritance came from.

George Osborne has an offshore family trust worth around £5m. They probably teach Tax Avoidance at Eton.

Most of the offshore tax avoidance islands around the world are British colonies where the hedge funds ‘reside’.

Isle of Man

Offshore Umbrella Companies for contractors, which are mostly in the Isle of Man, are allowing contractors to do the same as the ‘knobs’ and avoid tax.

As regards offshore umbrella companies HMRC would love this to be changed. However, there is no way that the Tories will annoy their benefactors and sponsors by killing off this golden goose. It is annoying for them that contractors and comedians can’t be kept out.

So, as regards offshore umbrella companies, HMRC just have to send out begging letters to thousands of contractors. They may or may not be using offshore umbrella companies. They hope to can scare them into sending them money.

For a list of Offshore Umbrella Companies you should click Offshore Umbrella Companies List

Offshore Umbrella Companies storm has died down

Offshore Umbrella Companies Storm

Offshore Umbrella Companies Storm

There was an Offshore Umbrella Companies storm a while back. The Times whipped up an offshore umbrella companies storm and the Government decided that they needed to react. The press spouted a lot of hot air. David Cameron even brought it up at the G8 summit.

He did that as he didn’t want Britain to go it alone and give competitive advantage to other countries. After all, Britain is the world’s leading exponent of owning territories which run offshore schemes.

However, the G8 didn’t back Cameron, who was probably only doing it to show the press that he was doing something. The G8’s rejection has let him off the hook. We have since learned that the Conservative Party have received £45m in contributions from hedge schemes many of which operate from offshore addresses.

We then learned that those hedge funds had received a tax break recently worth £145m. A Labour MP was called a ‘stupid woman’ by Foreign Minister William Hague for suggesting that there might be a connection.

Margaret Hodge

We also learned that Labour MP, Margaret Hodge, who is Chairperson of the House of Commons Public Accounts Committee has a share in an offshore company run by her brother call Stemcor. She has called major companies and people who avoid tax as unethical. Her stake is worth millions and the company pays as little tax as the major company tax avoiders.

Not only has David Cameron piped down about it recently but Margaret Hodge has been a little quieter too. He is, no doubt, too busy eating humble pie. There is little point in attacking the major companies for avoiding tax. It is their duty to shareholders to maximise profits.

Umbrella Company Contractors

There’s no point in haranguing contractors for using offshore umbrella companies either. They are just doing the same.

It’s the Government who makes the rules that big companies and contractors take advantage of. However, the Government doesn’t want to change those rules unilaterally.

So, it looks as if the offshore umbrella companies storm has all died down. So, it is business as before for the operators of, and those who use, offshore umbrella companies. It remains tax avoidance and not tax evasion.

For a list of legal Offshore Umbrella Companies see Offshore Umbrella Company List

Margaret Hodge an Offshore Tax Avoider too

Stemcor and Margaret Hodge

Margaret Hodge

It turns out that Labour MP, Margaret Hodge, is a tax avoider too.

You couldn’t make it up. The newspapers revealed, not long ago, that two senior managers at HMRC were putting their salaries through Limited Companies to save tax. This was whilst they were hunting down genuine contractors who were doing so.

They have now revealed that the Hammer of Google, Facebook, Starbucks etc., Labour MP Margaret Hodge, has a share in an offshore fund as well and is an offshore tax avoider.

The newspapers revealed that Chancellor Osborne is an offshore tax avoider and has an offshore family trust worth £4.5m. They also revealed that David Cameron’s father Ian was an offshore tax avoider He made most of his money (and David Cameron’s inheritance) from offshore funds.

The new revelation is that the Chairperson of the Committee which looks into tax affairs and tax avoidance has a share in an offshore fund. Margaret Hodge is an offshore tax avoider too.

Stemcor Offshore Company

She has a shareholding in Stemcor – which paid just 0.01% tax last year. Google and Amazon would be proud of that. Hodge claimed in a grilling, by Michael Crick, that she just had a small shareholding in the company run by her brother who is an offshore tax avoider.

However it turns out that her shareholding is 1.26% of the company. That would mean that she would have been paid out £56,939 in dividends last year. Her shareholding is now worth £1.8m. That’s hardly a tiny, tiny amount as she claimed.

Stemcor have confirmed that it doesn’t even include shareholdings in her children’s names. It turns out that she owns several million pounds worth of shares when you include her children’s shareholdings. They will now pay no inheritance tax on it.

She was asked to explain what other purpose that there could be other than avoiding tax for her share in the trust? She hadn’t replied so far.

It’s always been the case that those in the know have been using these tax avoidance schemes. It’s to save paying their full whack of taxes.

The top Tories have been offshore tax avoiders for a long time. Now it looks like Labour MPs are at it too. They are using them while bashing multinational companies and genuine contractors who now use offshore umbrella companies.

To see some examples of offshore umbrella companies for contractors see Offshore Umbrella Companies

Offshore Umbrella Companies Boosted by UK Government

Offshore Umbrella Companies Boosted

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.

Offshore Schemes have Government foaming at mouth

Offshore Schemes for contractors

Offshore Schemes

The Government has fulminated about offshore schemes where big companies are able to avoid paying tax in the UK. David Cameron has criticised ‘clever accountants’ who set up these offshore schemes for their clients to avoid paying UK tax.

Margaret Hodge of the Public Accounts Committee has attacked the big Accountancy companies for setting up these schemes at a Public Enquiry.

However, one wonders who should be in front of this Public Enquiry, the big Accountancy companies or the Government. After all, it is the Government who are in charge of the law. The big Accountancy companies just follow the laws that the Government set up.

Offshore Schemes for UK contractors to save tax

Offshore Schemes for UK contractors to save tax

Thatcher Government

Perhaps the Committee should investigate members of the Thatcher Government. The Committee could ask them why one of the first pieces of legislation they put through in 1979 after being elected was to allow people to send money offshore without it being taxed. Why was that so urgent?

There’s a lot of talk also about trying to shame companies like Starbucks into paying more tax than they legally have to.

Perhaps they should put David Cameron in front of the Committee to ask him if he would hand over to HMRC a big chunk of his own inheritance which came from the offshore schemes set up by his father Ian, who was one of the early practitioners of such schemes.

George Osborne

Perhaps they can bring Chancellor George Osborne before the Committee. They could ask him if he would promise to that he and his family will pay not just the tax that they have to but the amount of tax that they would have had to do if their £4.5m family trust has been set up in the UK rather than set up offshore.

Contractor Tax Avoidance sches on Isle of Man

Contractor Tax Avoidance schemes

So, the problem for the Government is that these offshore schemes are mainly used by their supporters and backers. There’s not a huge amount of Labour backers with offshore trusts.

These offshore schemes are used by people like David Cameron’s father-in-law Lord Astor and the Conservative Party’s main sponsor and fundraiser Lord Ashcroft. However, it was Margaret Thatcher’s Conservative Government who brought in the laws allowing people to send money offshore untaxed.

Multinational Companies

What they don’t appear to like is multinational companies getting a slice of what was set up just for the upper and business classes in Britain to avoid paying UK Tax. The upper and business classes in Britain have been taking advantage of this for more than 40 years. However, they are now outraged that companies like Starbucks, IBM, Google and Microsoft are using them.

What really annoys them is that freelancers, many of them in IT, are using offshore schemes to avoid UK tax. IT Contractors mainly come from the middle and working classes. They didn’t set these laws up for them.  So, will Cameron and Osborne change the laws which have helped their supporters and sponsors for many, many years – or is this just a knee jerk reaction to a media frenzy.

We shall see. For the moment these offshore schemes remain perfectly legal.