Employment Status

Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.

Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.

Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.

The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]

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Offshore and EBT schemes for contractors

Offshore and EBT

Are you Based in the UK?

The courts have given a sharp reminder that if you live and work in the UK, you must pay tax in the UK. Offshore umbrella companies and EBT schemes will more than likely leave many contractors liable for big bills.

"EBT schemes which are established for no other reason than to avoid paying UK income tax will leave members liable for massive bills as HMRC are vindicated by the Appeal courts for using retrospective tax legislation."

Clear and Excellent

After months of consideration Appeal Judges have given their verdict in the case of Huitson V HMRC. It's not good news for contractors who use DTA's (Dual Taxation Agreements) to avoid paying the proper levels of income tax and National Insurance in the UK.

The appeal was summarily dismissed with the original judgement in the case being described as 'clear and excellent'.

Laws Backdated

Huitson V HMRC is important as it concerns the extent to which HMRC may bring forward retrospective legislation to combat tax 'schemes'.

It is an important general principle that retrospective legislation should be avoided as citizens need to know that there is legal certainty in order to carry on their activities.

Isle of Man

Huitson used a tax planning scheme by Montpelier Tax Consultants which claimed to use the UK/IOM Double Tax Agreement to exempt Huitson's earnings from UK income tax.

In 2008 HMRC changed the law so the Double Tax Agreement cannot be used to create such a result. It also changed the law so that the new clause was deemed to have always been in effect.

Background

Huitson is an IT consultant and is a resident of the UK and liable for UK taxation on his worldwide income. As it happens, the end users of Huitson's services are all based in the UK.

Until 2000 Huitson operated as a self-employed consultant working through an intermediary.

Schedule 12

The Finance Act 2000 (Schedule 12) says that contractors could be treated as if they were employees rather than self-employed for income tax and NI .

Consequently Huitson became a client of Montpelier in June 2001; they provided advice to Huitson with respect to a tax avoidance scheme seeking to take advantage of the UK/IOM Double Tax Agreement.

What to Do?

"It's unrealistic to think you don't have to pay tax. If you are currently involved with a business that uses offshore tax structures, or loan schemes, now is the time to change to a compliant umbrella company."

If you're based purely in the UK then you must pay the correct amounts of tax and National Insurance on all your earnings.

That's the way it is, legal vs illegal. Now you have the facts.

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HMRC Compliance

It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.

Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].

Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.