IT Contractors as Tax Avoiders
While contractors see themselves as small businesses, the Government and HMRC appear to see all contractors as tax avoiders. IT Contractors, typically, operate through Limited Companies, or Personal Srevice Companies, as the Government likes to call them, or through umbrella companies.
IT Contractors are risk-takers. If they are no working they don’t get paid.
Like most of those in business on their own account, they can claim some things against tax like the cost of equipment to their businesses and the cost of getting to clients’ offices.
However, there are some in high places who see all contractors as tax avoiders.
Umbrella Company and Limited Company Contractors as Tax Avoiders
We are not counting here, just those who use offshore umbrella companies.
We are including contractors who use limited companies and even those who use umbrella companies, for goodness sake.
All umbrella company contractors can claim for is a few other minor things like membership of a trade organization, equipment (their PC) and pension contributions (like everyone else).
Paying Umbrella Companies a Monthly Fee
To get that small amount of tax back they have to pay their umbrella company a monthly fee which may turn out to be more than they get back in tax credits.
The Chancellor took away travel and subsistence which means, almost certainly, umbrella company contractors will be paying out in fees more than they get in in tax deductions.
The Chancellor has also promised to strengthen IR35 too. He is not content with the IR35 handed over to them by New Labour.
Contracting Profession to be Abolished
Now, the newspapers and contractor news sites are abuzz with rumours that the Chancellor is going to force contractors who work for a client for more than a month into having to go on the payroll of a company or the agency who has placed the contractors.
He wants, it seems, to do away with intermediearies, i.e. umbrella companies and personal service companies (limited companies for contractors).
So, who are these people who are hammering contractors incessantly and see even umbrella company contractors as tax avoiders.
Chancellor George Osborne
Firstly, step up Chancellor George Osborne.
It was revealed a few years ago that George Osborne has an offshore trust for his family.
When quizzed about it by newspapers he said that the correct amount of tax will be paid on the money when it comes back onshore.
However, the whole point of offshore trusts is that the money never comes back onshore, so he will never have to pay the tax.
There’s various ways of dealing with the money, e.g. he can get loans in lieu of the money which lapse on is death.
Next, step up David Cameron.
When he Tories got into power in 1979, one of the first laws that Mrs Thatcher passed was to allow money to go offshore without being taxed.
This opened the door to Tory grandees who set up all sorts of offshore schemes to help people avoid UK tax.
One of those was Ian Cameron, David’s father. Much of Cameron’s inheritance came from money from those offshore tax avoidance schemes.
The Camerons spend some time in Scotland at the home of his father-in-law, Lord Astor, at a house owned from he Bahamas.
Next step up Margaret Hodge.
She is a Labour MP and is the Chairperson of the Public Accounts Committee.
She is the scourge of major companies and contractors whom she sees as tax avoiders.
Much to everyone’s astonishment (and amusement) it turned out that she benefited from an offshore trust, as well, run by her brother.
Her family had an offshore trust called Stemcor of which she has £280,000.
She said, similarly to George Osborne. ‘any shares I held were above board and that I paid all relevant taxes in full. Every time I received any benefit from the company this happened.’
However, it turned out in 2012 that her family had paid less than 1% tax on the money.
So, these are the main people who see contractors as tax avoiders and who want to make contractors pay tax like permanent employees.
You couldn’t make it up!
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