Special update: 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 9:30 am 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 contact us using the form below.
End of special update.
Are Offshore schemes worth the risk?
With fees usually in the region of £2,000 – £4,000 or 5% – 7% of your contract value, offshore schemes are quite costly. However, some do promise returns as high as 80% plus, but are they really worth the risk?
Let’s face it, HM Revenue and Customs aren’t fools, they know about all tax avoidance, tax avoidance and magical schemes, scams and loopholes that promise ultra high take-home pay. Unfortunately, like all huge super-sized organisations, HMRC can sometimes take a while to pass laws that snuff out these schemes but when they do, it can have devastating effects on the contractors and clients who used them.
Certain offshore schemes are the latest (BN66), if the government closes this scheme it will affect anybody who has used it, and when we say anybody, that’s exactly what we mean, even if you used the scheme five years ago for just one year, HMRC will be sending out back tax demands and possible penalties.
Think about it for one moment; if your work is predominantly in the UK and you mainly live in the UK, you are going to be liable for UK taxes! There really is no legal way of avoiding UK taxes. No matter what anybody tells you or whatever you read however jazzy the sales blurb or hyper-promotional the literature may be, you will eventually be liable for UK taxes.
This doesn’t mean you shouldn’t seek to operate in the most tax efficient way possible. The most tax efficient way of working in the UK is through your own limited company, any UK professionally qualified accountant will tell you this.
Again, be cautious of companies who promote unrealistically high returns, ALL UK accountants are bound by the same government regulations and tax laws. Therefore, on the whole, providing they know what they are doing, your take-home pay from one firm to another should be roughly the same.
Of course, it is best to seek an accountant with specialist knowledge and experience in supporting contractors Your local accountant may provide excellent advice to local shop owners, tradespeople and SME’s on industrial estates but contractors needs and ways of working are unique. It, therefore, makes sense to appoint a firm that specialises in the contractor market.
So are offshore schemes worth the risk? We’ll let you decide for yourself.
If you traded through your own legitimate UK limited company your returns would typically be 75% – 80%. Additionally, UK accountancy fees are nowhere near as expensive as offshore providers, SJD (we are the UK’s largest accountancy firm for Contractors working through their own limited company’s and have over 15,000 clients) only charge a fixed fee starting from £120 plus VAT per month and have offices across the UK.
One last point – you’ll be hard pushed to find any UK accountant that uses such scheme themselves, surely that speaks volumes.