If you have once used or are thinking of using an offshore tax scheme as a way of avoiding UK tax please read the article below.
On Thursday 28 January 2010, the Royal Court of Justice ruled the retrospective effect of BN66 is not unlawful. In plain English this means that HM Revenue and Customs can now go back and retrospectively apply a piece of tax legislation as far back as 1987 (which was when BN66 was imposed). This may affect thousands of contractors who either once used or are still using an offshore scheme/company as a way to avoid paying UK taxes. Even if a contractor used a scheme for one day or one year, they may now be looking at paying both fines and backdated taxes.
Are Offshore Schemes worth the risk?
As a contractor you should think very carefully before using offshore schemes as a way of avoiding paying UK taxes.
Let’s use some common sense; if your work is predominantly in the UK and you mainly live in the UK, you are going to be liable for UK taxes! Working through a compliant umbrella company is a legal, tax efficient way of working.
Fees could be in the region of 7% of a £600 per day contract for 40 weeks totalling around £8,400.00, making offshore schemes quite costly in return for a take home pay of 80% plus. In comparison, for a compliant umbrella company you could be looking at a margin of around £1,100.00 for a similar contract. Still tempting?
We all know that HMR&C aren't fools; they are aware of tax avoidance and these so called magical schemes, scams and loopholes that promise ultra high take home pay. Unfortunately it may take some time before laws are passed that bring these schemes down, however when they do it may have devastating effects on the contractors who used them and also the recruiters who recommended them.
There really is no way of avoiding UK taxes. No matter what anybody tells you or whatever marketing ploys they may use to entice you, you will eventually be liable for UK taxes. What this doesn't mean is that you shouldn't seek to operate in the most tax efficient way possible.
One of the most legal, tax efficient way of working in the UK is through a compliant UK based umbrella company. However be cautious of companies who promote unrealistically high returns, ALL UK umbrella companies 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, only the umbrella company margin will differ.
So are offshore schemes really worth the risk? Your call… As recently stated in a BBC Panorama programme entitled “Uncovered: How to Dodge Tax”, if you want to sleep soundly, pay your tax!