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