Offshore Umbrella Companies and how they work

Posted on April 14, 2016 by admin

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

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

Posted on April 8, 2015 by admin

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

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

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

Rangers Tax Case – HMRC accused of bringing them down

Posted on July 10, 2014 by admin

Rangers Tax Case

Rangers Tax Case – a former owner has accused HMRC of bringing a great football club, Glasgow Rangers, down via a spurious tax claim against them.

HMRC demanded more than £46m from Rangers after they used offshore Employee Benefit Trusts (EBTs). HMRC lost the Rangers tax case in a 2-1 verdict at a First Tier Tribunal in November 2012.

So, they decided to appeal it. The judge has now thrown that appeal out too.

EBTs for UK Contractors

HMRC said that Rangers were using EBTs to pay top players salaries. However, the tribunal and then the judge said that the money given to the players were loans.

Now, former owner, David Murray, said that the tax demand was instrumental in Glasgow Rangers being liquidated.

He said that the case hanging over the club caused the market to have a lower perception of the value of the club.

Bought by Craig White

Eventually Craig Whyte bought the club for just £1.

Rangers Tax Case from Rangers football club

He would have to pay the debt of £18m to Lloyd’s Bank as part of the agreement. Unfortunately, he financed that out of future season ticket sales.

As a result of Rangers not making it into the group stages of the Champions League and Rangers season ticket income already being spent, they got into tax and VAT trouble. So, they went into administration and then liquidation.

Rangers Enquiry

Now David Murray wants the Government to start an enquiry over the Rangers Case and how HMRC acted. It seems that Rangers offered HMRC a substantial amount of money to settle the case but turned it down.

Rangers tax case and their defeat could have huge ramifications for HMRC. They were using Rangers as an example.

It’s estimated that there are 5000 other companies using this route, including a number of top English football clubs.

So, a win for HMRC in the Rangers Tax Case could have produced a huge windfall for HMRC.

However, defeat in the Rangers Case has now caused them a lot of trouble amongst football fans and club owners. There will be a backlash against HMRC.

Rangers Supporters Club

According to a Rangers Supporters Club the Rangers tax case has caused a lot of pain to Rangers. They said “Rangers Football Club and its fans have been the victims of a witch-hunt by HMRC. It has done tremendous damage to a proud Scottish institution.

“Why did HMRC continue with this spurious claim when they were offered settlement? We deserve answers as to why this was done to our club”.

It was revealed, last year, that HMRC had come to settlement with many major firms. They were panned for it.

Therefore, the Rangers tax affair could still up a whole can of worms for HMRC. Football fans are not to be trifled with.

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

Rangers Update

HMRC appealed the case again and won it. Now Rangers are going to appeal to the Supreme Court.

Crushing HMRC defeat in Rangers offshore tax case

Posted on July 10, 2014 by admin

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

Offshore Umbrella Companies and how they work

Offshore Isle of Man Umbrella Companies – Autumn Statement leaves them alone

Posted on December 6, 2013 by admin

Autumn Statement

Offshore Isle of Man Umbrella Companies are in the news due to the Chancellor’s Autumn Statement.

The Chancellor unveiled his new tax avoidance measures yesterday in the autumn statement. He says will net the government £9bn extra in taxes. However, he has made those predictions before and only managed to get a fraction of what he expected to get. Most contractors using offshore Isle of Man Umbrella Companies will not be hit.

There are two areas that the Chancellor is attacking as regards tax avoidance.

Intermediary Companies Legislation

Firstly, the Chancellor is targeting Intermediary Companies.

This is where UK companies register their UK employees as self-employed and pay them through Intermediary companies offshore. This saves the employer paying National Insurance on them.

Several hundred thousand construction workers are ’employed’ this way. It is the companies that get the main benefit. It is not something that affects most contractors in Offshore Umbrella Companies.

False Partnerships Crackdown

Secondly, the Government is going to crack down on what they see as false partnerships, i.e. those set up just to avoid tax. This may affect some Offshore Umbrella Company contractors, if the Isle of Man Umbrella Companies have set them up as partners. However, it is only a small percentage that are set up this way.

All that would happen here is that the offshore Isle of Man Umbrella Company owner would change to a new scheme that is legal and move their contractor over to it.

This legislation is not retrospective so there would be no legacy problems for contractors here. There will be no back payments that HMRC can claim. The very fact that they are changing the law on partnerships means that it was legal before. It will be legal right up to April 2014 when the contractors, presumably, will move to a new legal Offshore Umbrella Company scheme.

Government and HMRC

It would be different if the Government and HMRC fought a scheme through the courts and won. Then the contractors might have problems. However, the Government haven’t won many of these.

If the Government are to get anywhere near the £9bn that they expect to get then they are going to have to get it through the Intermediaries side of it. They may get some from onshore partnerships.

Offshore Isle of Man Companies

However, after this autumn statement those contractors using offshore Isle of Man Umbrella Companies can rest more easily. They weren’t in the Government’s line of fire this time around.

The vast majority of the offshore umbrella company schemes were legal and remain legal under current UK laws. If they do make them illegal, in the future, the legislation will not be retrospective. So, contractors whose schemes are made illegal will not lose out and have to pay back taxes.

For a list of legal Offshore Umbrella Companies you should click on Offshore Umbrella Company List

Applying for Contractor Mortgages

If you want to find out more see Specialist Contractor Mortgages

To apply for one of those specialist contractor mortgages see Contractor Mortgages Application

Office Holders Boost for Offshore Umbrella Companies

Posted on December 12, 2012 by admin

Office Holders IR35 Legislation

The Chancellor has given Offshore Umbrella Companies a major boost by his new office holders changes to the IR35 legislation. The more that the Chancellor tries to move contractors out of Limited Companies and into Umbrella Companies the more contractors now approach offshore umbrella companies about operating through them. They have been thriving recently.

Of course, the Government would like to knock these out. However, this is proving difficult for them as the companies are not in their jurisdiction. Also the courts have ruled that the system that they use is perfectly legal. This is where contractors are given loans rather than paid income.

PAYE Umbrella Companies

HMRC and the Government would like to see all freelancers in PAYE Umbrella Companies. They don’t want them in Limited Companies. They certainly don’t want them in offshore umbrella companies. However, their policies appear to be driving more and more contractors that way rather than becoming an effective employee of an onshore PAYE Umbrella Company.

IPSE Survey

There’s a lot to play for here. An IPSE survey showed that there were now 1.6m people who call themselves Freelancers in the UK. Only 200,000 of these are in Umbrella Companies. The Government take around £10,000 in tax and NICs more from an Umbrella Company contractor than a Limited Company contractor. There is a lot of money at stake for the Government. So, they want to herd as many contractors as possible out of Limited Companies and into Umbrella Companies.

However, if those contractors leave the onshore companies, and go offshore, the Government gets nothing at all in tax. They appear to be helpless to prevent this. This office holders legislation will cure nothing.

For a review of offshore umbrella companies see Offshore Umbrella Companies

Forced Disclosure for Isle of Man Umbrella Companies

Posted on December 8, 2012 by admin

Forced Disclosure

Forced disclosure is the latest Government tool against tax evasion.

The Government has just announced a new deal with the Isle of Man where the island will give the Government the names of UK citizens with offshore bank accounts. Forced disclosure is the latest in their war against tax avoiders. This has been whipped up by the media in the UK. Similar deals with Jersey and Guernsey are expected soon.

Said Danny Alexander, Chief Secretary to the Treasury, in an interview with The Times “Any jurisdiction that refuses to enter into one of these information disclosure agreements is taking a huge risk with their reputation. It’s the price of doing business”.

So, it looks as if the Isle of Man agreed voluntarily to a certain extent. Said Alexander “Every tax jurisdiction that once thought it could operate on the basis that it could be an offshore haven needs to think again. Everyone should pay their proper amount of tax.”

Isle of Man

The Isle of Man’s Chief Minister said “This decision is a well-considered next step in the island’s long-established policy of commitment to being at the forefront of tax transparency and international co-operation. It is logical for the Isle of Man to embrace new forms of tax co-operation with our largest trading partner, the UK”. So there you ar then.

So, what does that mean for contractors who are operating under offshore umbrella companies schemes there? Does forced disclosure mean that the game is up for them? Will those offshore umbrella companies have to shut down now?

Government Frustration

Far from it. Forced disclosure is more to do with tax evaders than tax avoiders. The Government’s frustration is because most of these schemes are legal under the laws of the UK. Therefore, it would be very hard for the Government to shut them down. Most of the companies in the Isle of Man already disclose this information anyway. They have nothing to hide if they are acting legally and the schemes are legal.

Government Frustration

As the Government can do little about it, what they are trying to do now, in frustration, is to scare contractors out of the offshore umbrella companies. They are doing this by forcing the Isle of Man to bring in disclosure rules to hand that information over to the UK Government. However, once the Government has that information they can’t use it to prosecute people who are operating within the law.