Offshore companies & Sanzar, Flemming Lang and Montpelier

Special update January 2010 - Offshore tax scheme warning - Royal Court of Justice ruling
If you have once used or are thinking of using an offshore tax scheme as a way of avoiding UK tax please read the note below. Thursday 28 January at 9:30am the Royal Court of Justice ruled the retrospective effect of BN66 is not unlawful. Which in plain English means that HM Revenue and Customs can now go back in time and retrospectively apply a piece of tax legislation which will affect thousands of contractors who either once used or are still using an offshore scheme/company as a way to avoid paying UK taxes.

HMRC can now go back as far as 1987 (which is when BN66 was imposed), so even if a contractor used a scheme in 1987 for one day or one year, they may now have to pay both fines and backdated taxes.

This news further supports the fact that contractors should think very carefully before using offshore schemes as a way of avoiding paying UK taxes.

Basically if you live in the UK, work in the UK, get paid for work you do in the UK, there is no way and has never been any way of avoiding UK taxes. Working through your own UK limited company is and has always been the most tax efficient way of working legally.

If you have any questions about working through your own legitimate UK limited company, as many hundreds of thousands of contractors already do and many millions of other UK limited companies do, please don’t hesitate to call 01442 275789 or email: newbusiness@sjdaccountancy.com. End of special update.

Offshore tax schemes

So why would you use an Offshore umbrella company like Sanzar, Flemming Lang, Montpelier or one of the many companies that provide offshore tax schemes? With most of these companies guaranteeing contractors 80-85% of their contract value, it’s hard to see why contractors wouldn’t use an offshore scheme!.

These companies work by getting your contract income paid outside the UK so you can avoid paying UK taxes. Payments are typically made via loans, trusts, expenses and dividends. They nearly always involve exotic and convoluted tax planning schemes. Fees are usually high, which is fair enough as I’m sure they have some high paid tax specialists trying to run rings around the mighty HMRC.

Now if you didn't live in the UK or even work in the UK, I'm sure these schemes will be fine. However, my guess is you ‘do’ live and ‘do’ work in the UK which will mean you will have to pay tax as if you lived and worked in the UK (death and taxes as the old saying goes). Now some companies will tell you all sorts of things about government approved scheme’s, they may even show you illustrations, send you the tax legislation that shows just how legal it is, they might even put you in contact with an impartial tax team who will back it all up.

Our advice is simple - get all the information and the have a chat with your local tax office. If it’s truly a scheme that the government approves you will have nothing to fear.

Alternatively, you could just trade through your own limited company which millions of people do quite safely. And I very much doubt the Government will deem this to be illegal, after all what’s the alternative?

Click the link for more information about Offshore limited company schemes EBT and Offshore invoicing and here for details on BN66 Double Taxation Treaty Abuse offshore schemes.

You may also find our Offshore tax schemes or UK Limited company? page useful.

If you would like to understand more about how to work through your own limited company and what you could be taking home, please visit the following pages:

Two-minute guide to contracting through your own limited company

Take home pay through a limited company

If you'd like to speak to one of our experts, call us on 01442 275789 or email newbusiness@sjdaccountancy.com.