Off-shore Companies

It was highlighted in The March 2006 Budget just how careful contractors need to be if they become involved with offshore companies. Some of the known schemes were made illegal, and the Chancellor has promised further investigations.

Over the years there have been a number of offshore schemes offering reduced tax liabilities, often by utilising legal loop holes. There are many territories where taxation is much lower than in the UK.

Please find below details of some of the main methods of reducing UK tax liabilities using offshore companies: Employee Benefits Trusts (EBTs). In this scheme the EBT would pay the gross invoice value from the client/ agency into the contractors account. The contractor would then take a lower salary to save tax and National Insurance Contributions. Legislation introduced in 2003 significantly reduced tax benefits to EBT’s and they have to be registered with HM Revenue and Customs – Using an EBT could greatly increase your chances of a full HMRC investigation.

Offshore invoicing agents. The offshore agent will invoice the contractors’ clients directly. The contractor would register as self employed, so they only need to complete a tax return at the end of the year.

Foreign currency loans are offered by an offshore company that obtains a loan in the contractors’ name. The loan is based on a devaluing foreign currency, often in a politically and economically unstable country. The hope is that the currency's value continues to fall, below the level it was when the loan was taken out. If it does, the offshore company pays the loan and takes a profit. If not, the contractor faces a significant financial loss, not to mention a HMRC investigation. Despite claims by many organisations who promote offshore companies, none of these options protect you from IR35. The crucial point to remember with IR35 is that: If the intermediary was not there, whether it's a UK company or an offshore scheme, would the relationship between you and your client be considered as direct employment? If so IR35 applies.

If you would like to speak with a representative of Churchill Knight via telephone please call on 01707 871610 or e-mail
Enquiry@churchill-knight.co.uk