Monthly Archives: February 2013

Offshore Umbrella Companies Boosted by UK Government

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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

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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.