Keep More of Your Income

Keep More

Keep More of Your Income

You can keep more of your income, i.e. 85% or more using one of three methods:-

Tax Efficient Umbrella Companies

There are both onshore and offshore umbrella companies. Using the standard onshore one will mean that you lose 40% or more of the money you earn.

This could be even more, however, after the Chancellor ruling that umbrella contractors can no longer offset travel & subsistence against tax.

One way to get around this was to use an offshore umbrella company. Another way is to use a more tax efficient onshore one. That’s so you can keep 85% of your money with one of those.

To lean more click on Umbrella Companies

Tax Efficient Limited Companies

The majority of IT Contractors use Limited Companies. These are termed Personal Service Companies when one person earns most of the income in the company.

However, most freelancers don’t use their companies in the most tax efficient way.

They could retain 85% of the money they earn and more if they optimised its use.

So, to find out more click on Limited Companies

Apply for More Information on Both Options

Fill in the form below to get your information pack on how the above three work. Click Y against each of those options for which you want to receive the Infopack.

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Favourite Umbrella Companies for UK Contractors

Favourite Umbrella Companies

Favourite Umbrella Companies

Many people have their favourite umbrella companies. That’s especially true for agencies who tend to only include those umbrella companies on their Preferred Supplier List who give them bungs for sending contractors their way.

The 2010 Bribery Act bans this but it happens.

However, that’s another story.

So, what constitutes a favourite umbrella company?

Dodgy Umbrella Companies

Firstly, one that doesn’t try to con you in the contract.

Make sure you read the contract and if you see any clause detailing any penalties for leaving the umbrella company, run a mile.

Umbrella Company Recommendations for UK Contractors

Umbrella Company Recommendations for UK Contractors

If they are being sneaky and duplicitous in the beginning that’s because they are, well, sneaky and duplicitous.

If you go with that umbrella company you really have started off on the wrong foot.

Umbrella Company Recommended by Agency

So, should you go with the umbrella company recommended by your agency?

You would if you were an idiot.

There’s almost certainly one reason, and only one reason, that your agency are recommending a particular umbrella company to you and that is that they expect to get a fee from the umbrella company for every contractor that they send them.

What about that then?

Too many contractors think of their agency as their agents, e.g. like the Mr. Ten Percents in the Acting and Football professions, who look after their clients’ interests.

Nothing could be further from the truth.

‘Your agent’ wants to extract as much money as he, or she, can from you. If they can possibly take half of the rate that is paid by the client for you then they would happily take it without any scruples.

Umbrella Company Preferred Supplier Lists

If your agency demand that you use a particular umbrella company, or an umbrella company on their Preferred Supplier List, you should refuse to do so.

If they tell you that you have to, ask them to put that in writing and see how they react.

It is illegal under the 2010 Bribery Act for agencies to induce contractors to join a particular umbrella company for a fee.

Don’t worry about standing up to them.

Umbrella Company Costs

Umbrella Company Costs for UK contractors

They won’t dump you. The main fee you get for them is the margin they get on your weekly earnings.

The bung the umbrella company give them is just a bit extra on the side.

They are not going to reject the main course for a little dessert.

Your Favourite Umbrella Companies

Your favourite umbrella companies should pay you weekly and pay you on receipt of your timesheets.

Certainly run a mile from an umbrella company who say “we’ll pay you when we get paid” or make you wait for payment.

Many umbrella companies pay you straight away so use one of them.

Umbrella Company Fees

Before you join an umbrella company, examine the fees they charge and what you get for that.

Don’t necessarily go for the cheapest. Go for the best service at the best price. Look at what they are throwing in.

Umbrella Company Fees and charges

Umbrella Company Fees and charges for using them

See, if they throw in are any insurances like Professional Indemnity Insurance.

They can purchase these insurances in bulk so they can get them for you more cheaply than if you applied for the insurances yourself.

Tax Deductible Umbrella Company Expenses

One thing that is very important, if they are to be among your favourite umbrella companies, is to find out of they’ll help you to claim expenses as tax-deductible – and what expenses you can claim.

You can more than cover the cost of your umbrella company fees by setting expenses off against tax.

Umbrella Company contractors already pay an average of £10,000 a year more in tax and national insurance contributions than a personal service company contractor does.

Don’t make it even worse by not offsetting your expenses against tax.

Umbrella Company Contractors Who Don’t Claim Expenses

I was astonished to find that between 50% and 60% of umbrella company contractors don’t claim any expenses at all.

That would increase the tax differential between umbrella company contractors and personal service company contractors to perhaps £15,000.

Soon you’ll be talking real money.

Travel and Subsistence Expenses

From April 2016, umbrella company contractors are longer be able to offset travel and subsistence expenses against tax if they are Supervised, Controlled and Directed by their client when working for them.

It would be relatively easy for you to change your contract and working practices to make it  so that you aren’t Supervised, Controlled and Directed by the client.

Umbrella Company Comparison

Umbrella Company Comparison for UK contractors

If the client previously gave you a piece of work, told you how long it should take and told you how to do it, supervised you doing it and where you should do it, negotiate a change in the contract and working practice here.

Supervision, Direction and Control

You are an experienced contractor.

Agree the piece of work to be delivered by the client and get the agreement signed off. Do the same with the estimate for the project. Agree that and get the agreement signed off. Agree where it is best done, at your home office or at the client’s site and document that agreement.

You surely don’t need to be supervised in doing the task. When the task is delivered ask your customer to give you a signed acceptance on what you have delivered to them.

If your umbrella company won’t give you advice on how to get these expenses offset against tax after April 2016 it may be because they don’t want you to be Unsupervised, Uncontrolled and Undirected.

They may not want not to change your contract to reflect your new way of working.

Outside IR35

Why, would they not want to do this?

One good reason, from their point of view, is that Supervision, Control and Direction is one of the three major planks of IR35.

The other two major planks are the Right of Supervision and Mutuality of Obligations, i.e. the obligation for them to pay you for turning up and for them to pay you whether there is work for you or not.

IR35 and UK Contractors - Inside or Otsideu

IR35 and UK Contractors and the tax they pay

If you are able to get outside the first plank of IR35, i.e. Supervision, Direction and Control, and you enter a Right of Substitution clause in your contract, then you are only a very short step away from being outside IR35 altogether – and not have to lose all that money each year by being in an umbrella company.

Maybe that’s why many umbrella companies are not too bothered about their contractors not claiming any expenses at all against tax.

Onshore or Offshore Umbrella Companies

Of course, the favourite umbrella companies for contractors could be either onshore ones or offshore umbrella companies.

The average IT Contractor earns £425 a day. That equates to around £100,000 a year once you take out time off.

An onshore PAYE umbrella company contractor would keep somewhere between £60,000 and £65,000 in tax and NI contributions.

Offshore Schemes for UK contractors to save tax

Offshore Schemes for UK contractors to save tax

An offshore umbrella company contractor would keep somewhere between 85% and 90%, depending on circumstances, mostly on what they earn.

Umbrella Company Alternatives

So, the offshore umbrella company contractor could be keeping as much as £40,000 more than an onshore umbrella company contractor – particularly one who doesn’t claim any expenses.

Other alternatives to onshore umbrella companies include Tax Efficient Limited Companies for Contractors.

Both return £85% or more to contractors.

Expenses Umbrella Company Contractors Don’t Claim

Expenses Umbella Company Contractors Don't Claim

Expenses Umbrella Company Contractors Should Claim

There are quite a few expenses umbrella company contractors should claim but don’t.

Chancellor Osborne stated in his Autumn Statement 2015 that he was going to take away the right of umbrella company contractors to claim travel and subsistence expenses against tax if they were under the supervision, direction and control of their clients.

It was immediately thought that this could be a complete game changer for umbrella companies and their owners. It was thought that it could be an existential threat to them.

After all, if contractors will pay a monthly fee greater than what they are able to get back in tax deductions then surely there was no point in them staying in the umbrella company.

Working through Umbrella Companies

Working through Umbrella Companies for maximum returns

Umbrella Company Contractors Don’t Claim Expenses

However, figures from giant group showed that 60% of the contractors in their umbrella company don’t bother claiming any expenses at all.

So the Chancellor shutting down the travel and subsistence expenses wouldn’t affect them at all.

Many of them probably don’t even know that it has happened. When April comes they will probably be oblivious to it.

So, for what could they have been claiming?

Allowable Umbrella Company Expense Claims

For a start, everyone travels to work so they could have been getting 45p a mile deductible for the first 10,000 miles and 25p thereafter.

If you are giving someone from an umbrella company a lift to work you can claim another 5p a mile for them.

Your parking fees are claimable as are any toll charges.

If you take the train or bus to work (or even aeroplane), you can claim the full cost back in tax.

Umbrella Company Expenses

Umbrella Company Expenses explained

No Travel and Subsistence After April

This is going to go in April for those who are supervised, directed and controlled. However, why do so many current umbrella company contractors not claim for any of this?

Surely, they don’t all live in walking distance of work.

Then there are subsistence expenses.

If you are working away from home you can claim the cost of hotels and meals.

You can also claim for rented accommodation although not for food. They reckon that you would probably eat anyway.

If you do any extra work and have to eat then you can claim it too.

Expenses Deducted from Wages Before Tax

All expenses are deducted from your ‘wages’ before tax is calculated.

However, 60% of giant’s contractors don’t.

giant are not unusual other umbrella companies tell me that more than half their contractors don’t claim any expenses.

All of the above are about to go in April for those who are supervised, directed and controlled at their client’s site.

However, it is strange that so few umbrella company contractors claimed them in the first place.

Maybe they couldn’t claim subsistence as they were not working away from home. However, everybody has to travel into work.

As the umbrella company deducts  your tax and NI contributions from your salary before  it ia calculated, it could be money saved at the higher rate of tax.

Umbrella Company Costs

Umbrella Company Costs for UK contractors

Other Expenses Claimable by Umbrella Companies

So, what else can they claim.

They can claim for postage, stationery and phone calls related to their work

Also, they can claim for equipment like PCs and printers etc. that they use on their assignment

They can claim for fees paid as membership of trade bodies like contractors group IPSE

Again, they can claim for training costs and even the cost of eye tests and glasses.

A significant saving is tax-deductible for a pension scheme. Do they not claim for that?

Maybe the umbrella company has a pension scheme and claims for them but I don’t know.

Even the umbrella company’s fees are tax-deductible.

Maybe the umbrella company claims that for them automatically – but maybe they don’t. I don’t know.

Put in Umbrella Companies by Agencies

It just seems very strange that so many contractors could cut their tax bill but don’t.

Perhaps they just don’t know any better.

Maybe when they came into contracting they were edged towards an umbrella company by an agency who get bungs from umbrella companies for sending contractors to them.

Perhaps they have just remained in those umbrella companies ever since.

Contractor Tax Advice

Contractor Tax Advice on umbrella company alternatives

Umbrella Company Contractors Outside IR35

It could even be that they are outside IR35 and able to use a personal service company but don’t know it.

The difference in tax paid by an IT Contractor earning £425 a day, or £100,000 a year is currently around £10,000 a year.

When the ability to claim for travel and subsistence expenses goes in April 2016 that could rise to £15,000 a year.

With the gap rising umbrella company contractors who do claim travel and subsistence expenses against tax may look at alternatives to umbrella companies.

Umbrella Company Alternatives for Contractors

They could sue a plain old personal service company which could save them £15,000 a year in tax and NI contributions.

Also, they could use a tax efficient Limited Company Solution which would save them £25,000, or more, a year.

They could also use an Offshore Umbrella Company which would save them £25,000 to £30,000 a year.

Tax Efficient Limited Partnerships

Tax Efficient Limited Partnerships for UK contractors

Umbrella Company Contractors Who Don’t Claim Expenses

However, as regards the 60% of umbrella company contractors who don’t even bother to claim expenses, one presumes that they will carry on regardless, oblivious to it all.

There are many expenses that umbrella company contractors could claim but don’t.

Over a period of ten years they may pay a quarter of a million more in tax than they need to.

Invested properly over a ten-year period that could easily be turned into half a million.

Perhaps a new term could be coined for those contractors, who, after all, are permanent employees of their umbrella companies for tax purposes.

Maybe they could be called semi-perms.

Umbrella Companies Dilemma over Supervision, Direction and Control

umbrella companies dilemma on supervision, direction and control

Umbrella Companies Dilemma

The Chancellor Osborne’s Autumn Statement and 2016 Finance Bill has caused a huge umbrella companies dilemma.

The Chancellor has said that all Umbrella Company contractors will be deemed to be under the Supervision, Control and Direction of their clients – unless it can be proved otherwise.

This would mean that they are no longer able to offset travel and subsistence expenses against tax.

As this is the main expense that umbrella companies can claim for their contractors, it means that their contractors are going to take a huge hit in their pockets.

Umbrella Companies will have to tell contractors this before April and before they notice a huge chunk mission from the money returned to them.

Umbrella Company Expenses

Umbrella Company Expenses explained

Leaving Umbrella Companies or Staying

It will also mean that many of those contractors will have a decision to make, whether to stay with their brolly or to take themselves out of IR35 and use a personal service company.

Some contractors will stay and some will go.

They have to pay upwards of £100 a month to umbrella companies, basically just to pay them.

This was offset by what they would save on an Accountant and even more by what the umbrella company could offset in taxes for them.

What they gained was more than they paid out to the umbrella company.

So, it was worthwhile for them to stay in the umbrella company rather than pay the IR35 tax.

Autumn Statement and Finance Bill

However, that situation has now changed after the Autumn Statement and Finance Bill 2016.

The main expense they could offset against tax was the travel and subsistence expenses.

That will be gone from April 2016.

So, many umbrella company contractors will now be paying the umbrella companies more than they are saving in tax.

The contractors will have a decision to make and so do the umbrella companies.

Umbrella Company News UK Contractors need

Umbrella Company News for UK contractors

Changing the Contract for SDC

However, the brollies will now have a dilemma.

Should the umbrella companies try to take contractors outside the Supervision, Direction and Control of clients?

In terms of the contract this should not be too hard to do.

The contract would say that for any task, or piece of work, the client would have to agree this with the contractor.

They would have to agree the estimate too.

Employers tell permanent workers what to do and how long it should take. Suppliers, with a contract for services, would agree with their customer what should be delivered and when.

Changing Contractors Working Practices

As I said, it would be easy enough to change contracts to reflect this. After all, umbrella companies normally have a cosy relationship with agencies who supply them with contractors.

Providing the client is reasonable, and most are, they would be happy to change the contractor’s working practice to match the contract.

Both parties would agree the piece of work,  as would the estimate. The contractor would complete the task unsupervised, using his, or her, own knowledge and experience.

Of course, they are taking a bit of a risk. If they got it wrong they could get hit for the missing tax.

However, theres is no reason to get it wrong,

It’s fairly simple. The contract HAS changed. The relationship between the contractor and the client HAS changed to a customer / supplier relationship in terms of agreeing what has to be delivered and the time it should take.

So, it is not fraudulent. It is just a fact – a change way of working.

Working through Umbrella Companies

Working through Umbrella Companies for maximum returns

Umbrella Company Options and Choice

So, here’s the umbrella companies dilemma.

Here is their Catch-22.

If they do help the contractor to be unsupervised, working without direction and uncontrolled by the client, this would get the contractor his travel and subsistence expenses back again.

That might save him, or her, £5,000 a year.

It might make it more worthwhile to stay with the umbrella company.

Contractor Now Outside IR35

However, it would also take him, or her, closer to being outside of IR35.

This would mean that he, or she, could now work through a personal service company.

Personal service company contractors pay an average of £10,000 a year less in tax than an umbrella company contractor.

There are three main IR35 factors which point to you being caught by IR35 or outside it.

Major IR35 Factors

They are:-

1 Supervision, Direction and Control

2 The Right of Substitution

3 Mutuality of Obligation

IR35 and UK Contractors - Inside or Otsideu

IR35 and UK Contractors and the tax they pay

Right of Substitution Contract Clause

We know, from a previous court case, that you can easily insert the right of substitution into your contract and a named substitute and that the burden of proof is with HMRC to prove that it was a sham.

They could only do that if the client triggered the substitute clause and the substitute failed to show up. That court verdict must have had HMRC gnashing their teeth.

So, of the three main pointers to IR35, putting a right of substitution clause that will never be triggered into your contract would allow you to tick that box.

The umbrella company has just helped the contractor to be outside the Supervision, Direction and Control IR35 factor.

So, the contractor is able to tick off two of the three main IR35 boxes.

Keeping More of a Contractor’s Income

He, or she, would naturally think “Maybe I can get outside IR35 and set up a personal service company so that I could save not just the £5,000 for travel and subsistence but also another £10,000 a year on top of that”.

So, that is the umbrella companies dilemma.

Should they arrange with the agencies and clients to change the contracts fo some of their contractors to take them outside the Supervision, Direction and Control clause?

This would mean that they could still claim their travel and subsistence expenses which might come to more than the monthly fee that the contractor pays to the umbrella company?

Intermediaries Rules for Contractors

Intermediaries Rules for Contractors over IR35

Big Question for Contractor Umbrella Companies

The big question for them is this:-

Will getting contractors outside Supervision, Direction and Control of the client be more likely to get umbrella companies contractors to stay with them or be more likely to show them how it is done and make it easier for them to leave the umbrella and set up a personal service company.

That’s the 64 million dollar question for umbrella companies.

They are going to have to decide, before April, whether they are going to open that box or keep it shut.

They are going to have to decide whether to twist or stick.

That is the umbrella companies dilemma and they need an answer to it well before April.

So, what will they do?

I’m absolutely certain which option they will take – but that is for another article.

Umbrella Company Alternatives

If they don’t answer it correctly, contractors could jump ship to Limited Companies or Offshore Umbrella Companies.

Tax Efficient Limited Partnerships

Tax Efficient Limited Partnerships for UK contractors

 

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.

Offshore Umbrella Companies Viable Alternative to Limited Companies

Offshore Umbrella Companies Viable Alternative

Viable Alternative

HMRC and Chancellor Osborne have taken away travel and subsistence expenses, as a taxable deduction, from PAYE umbrella company contractors. So, are offshore umbrella companies a viable alternative?

There are over 200,000 umbrella company contractors in the UK.

They pay a monthly fee of over £100 to PAYE umbrella companies, basically just to pay them.

Caught by IR35 Tax

Those contractors in umbrella companies were normally those who:-

  1. IR35 caught,
  2. IR35 Maybe caught them and they didn’t want to take a chance or
  3. they just wanted their admin done and get paid without any hassle.

There are others, still, who unscrupulous recruitment agencies shoehorned into joining umbrella companies. They  just wanted the bung they would get for sending contractors their way by the umbrella companies.

Under the 2010 Bribery Act this is illegal. However, it is well know that this happens.

Umbrella Company Contractors

Umbrella Company Contractors alternatives

Personal Service Company Contractors

Those contractors who operate through personal service companies pay around £10,000 a year less in tax and NI contributions than PAYE umbrella company contractors on average.

This could rise to up to £15,000 now that umbrella company contractors will no longer be able to offset travel and subsistence expenses against tax, from April 2016.

Many contractors will just stay with their umbrella companies as that is all they know. Many of them were not even claiming expenses against tax anyway.

Others will stay because they reckon they IR35 catches them and have no alternative anyway.

Best Umbrella Company Alternatives

Others, who agencies shoehorned into them, or who do claim travel and subsistence expenses against tax in umbrella companies, will have a look around to see if there are any alternatives.

They may make another assessment to see if IR35 really catches them.

Even if IR35 does catch them,, they may seek advice as to how to take themselves out of it by changing their contracts and working practices.

After all, they could be up to £15,000 a year richer if they were not operating through an umbrella company but using a limited company.

Offshore Umbrella Companies as an Alternative

Some may go further and look at using offshore umbrella companies as an alternative.

They could save even more money as those offshore umbrella companies can let UK contractors keep perhaps from 85% to 90% of the money that they earn.

They could keep £25,000 to £30,000 a year more than they could keep by operating through an onshore umbrella company.

offshore umbrella company list

Offshore Umbrella Company List

This will tempt many contractors. After all this adds up over a number of years.

It can make offshore umbrella companies a viable alternative.

For a list of offshore umbrella companies click on Offshore Umbrella Companies for Contractors.

UK Contractors Blackest Day Ever – Was it?

UK Contractors Blackest Day

UK Contractors Blackest Day Ever

Yesterday was arguably UK Contractors blackest day ever. Only the day they set up IR35 in 1999 could rival it. IR35 did not affect the majority of UK Contractors, however, like yesterday did.

It was the blackest, blackest day for Umbrella Companies who can no longer claim tax relief for contractors on travel and subsistence.

Umbrella companies’ best ever day was the day IR35 came in. They sprung up after that, disguising contractors as permanent employees so that they could claim tax relief on travel and subsistence for them.

No longer!

Yesterday was their worst ever day and the umbrella company industry will never be the same again.

However, the Chancellor also attacked those using limited companies. It was UK Contractors blackest day too. Read on for the impact of yesterday’s cruel budget on contractors which we got from an expert source.

SUMMER BUDGET 2015: UK CONTRACTORS BLACKEST DAY

The Chancellor of the UK delivered his Summer Budget yesterday. Within this there are a number of matters that will affect contractors. So, the main changes that will have an impact are:

· First of all, they announced a change to the taxation policy on dividends. Previously there was an advantage for those operating a Limited Company to take dividends rather than salary. This was available at a saving of up to 12.5% (on payments up to £150k).

However, the changes in the Summer Budget mean that they will remove the Dividend Tax Credit from April 2016 and they will introduce a new Dividend Tax Allowance of £5,000 a year. New rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

· Secondly, they aimed the other impact at those contractors that are the sole employee of their own company (PSCs). Previously an allowance was available for those PSCs paying employers Class 1 National Insurance on ordinary salary payments up to £2,000.

Umbrella Companies Worst Day

In his Budget, Mr Osborne has now removed access to this allowance for those operating PSCs.

· First of all, a key fact of Umbrella businesses is the ability to offset expenses on travel and subsistence. This enables contractors to reduce their taxable income. It is one of the most widely adopted methods of tax planning in the contractor market.

After first being discussed in the March 2015 Budget Plan, it was announced that this relief is to be removed with effect of April 2016.

· Secondly, IR35 has long been a key area for both contractors and HMRC. It has been the subject of a great deal of scrutiny. Again, the Government have chosen to review this. Although no specific guidance has been given, the likelihood is that this is an area of planning that will be open to a reduced cross-section of the contractor community.

 

Umbrella Company Crackdown by Government

Umbrella Company Crackdown

Umbrella Company Crackdown

The recent Budget is of particular notice to UK contractors because of an umbrella company crackdown by Chancellor George Osborne.

It will call into question the whole umbrella company industry which sprang up since they brought IR35 onto the statute book in 1999.

Those contractors outside IR35 used limited companies. However, those inside IR35 now use umbrella companies.

IR35 Tax

Very few people actually paid the IR35 tax. Figures produced by the Government after a question in parliament show that the tax take from IR35 was tiny.

From memory it was only around £12m a year. That’s not worth the bother legislating for the tax in the first place.

What those contractors who IR35 caught did was to join an umbrella company.

They couldn’t make the savings, nor get the returns, they could through using a limited company that they did previously.

Travel and Subsistence Via Umbrella Companies

However, they were able to claim travel and subsistence as well as a few other expenses against tax.

This generally saved the contractor up to 5% in tax relief – which was better than just paying the IR35 tax.

The contractor is termed as an employee of the umbrella company and they pay his, or her tax for him through PAYE.

So, as they were working ‘away from their main office’ the Umbrella Company was able to claim travel & subsistence for the contractor and get tax relief on it for him or her.

Umbrella Company Crackdown on Expenses

Now, the Government wants an umbrella company crackdown on expenses. They are detailing proposals to restrict the travel and subsistence tax relief for contractors. Those working through an intermediary such as an umbrella company or a personal service company will be affected.

As the contractor pays the umbrella company a monthly fee for processing his, or her, income and obtaining them the tax relief on travel and subsistence, the Government’s umbrella company crackdown appears to obviate the need for umbrella companies in financial terms anyway.

If Contractors are to get no tax relief on travel and subsistence by using an umbrella company, many of them will be asking what they pay the monthly fee for.

No Financial Benefit by Using Umbrella Companies

Some contractors will be happy to pay the fee to get their admin done by someone else.

For other contractors the Government’s umbrella company crackdown means that there is now no financial benefit in using an umbrella company.

They will be looking for other methods of processing their income which will be of greater financial benefits.

They will be looking at:-

Limited Companies

While limited companies are also affected by the Government crackdown on tax relief for travel and subsistence, there are still many other expenses that a contractor can claim.

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.