Monthly Archives: December 2012

Facebook avoiding UK Tax

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Facebook

Facebook

Facebook are the latest company caught avoiding UK Tax. They made £840m in profits last year. However, they paid just £2.9m in tax – all of it in Ireland. Although they only hire 287 staff in Ireland all, of the advertising outside the USA they book to Facebook Ireland.

They book the profit to Ireland. However, they then move that money out of Ireland to the Cayman Islands and its Californian parent. The technique is called Double Irish. They charge the Irish company royalties for using the Facebook brand in much the same as Starbucks do. They moved £750m that way.

Advertising Revenues

Facebook then reported a loss of £15m loss in Ireland despite all the advertising revenues outside the US ending up there. This is even though 44% of Facebook’s revenues come into Ireland.

At least they gave Ireland £2.9m. They gave the UK just £238,000 in Corporation tax. Facebook say that they comply with all UK laws – and of course they do. They just know how to work the system.

It said that it picked Ireland as its European base because it was the “best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe”.

The low Corporation Tax of 12.5% and the ability to do be able to do a Double Irish, it seems, played no part in the decision to go there. Of course, Ireland didn’t get any great benefits from Facebook in terms of Company Tax. Although Facebook’s Irish staff pay income tax there.

UK Tax Avoidance

The Chancellor George Osborne has promised to do something about it. However, it will be difficult and he risks major companies pulling out of the UK. He is going to target high income earners in the UK who hide money overseas.

However, most of the schemes are completely legal. Neither the individuals or companies, like Facebook, are breaking any laws. It is legal tax avoidance rather than illegal tax evasion.

The big problem is with companies who charge other companies within the group royalty payments for using the brand name. They are perfectly entitled to do so. They are perfectly entitled to charge them anything they want for the use of it too.

Perhaps that is one area where the UK can legislate, i.e. to limit the amount that they can charge for using the brand name. Of course, those companies will then look for other costs that they can load up in the locations where they want to load up costs.

Office Holders Boost for Offshore Umbrella Companies

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Office Holders

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

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Forced Disclosure

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.