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Thursday
Jan302014

HMRC shuts down offshore tax avoidance plan

HMRC is set to collect around £400m in income tax and national insurance contributions, following a ruling that shut down a scheme whereby around 350 contractors and freelancers were collecting their income as forex loans.

The plan was created and marketed by Consulting Overseas Ltd as a ‘fool proof’ method of avoiding paying HMRC. Contractors were employed by a company in the Isle of Man, with up to 60 per cent of their income paid as foreign currency loans.

The ‘loans’ were then put into currency trades, so that employee earnings were transformed into non-taxable foreign exchange gains.

The closing of this particular scheme has netted HMRC over £5m in income tax and NIC. It is estimated that up to 15,000 contractors and freelancers have been involved in similar schemes through offshore umbrella companies, which could yield up to £400m for HMRC.

In a test case against one contractor, Philip Boyle, the judge ruled that the loans were “in substance and reality income from his employment, bearing in mind in particular that Boyle had no need for a loan, there was an entirely artificial exchange rate; the reality is that there was no borrowing by Boyle and he never believed that the loans were other than a means of receiving his income without tax.”

“No evidence has been provided at any stage during HMRC’s lengthy investigation of the scheme, despite many requests for such evidence, to show that the foreign currency ever existed.”

There is no doubt that tax avoidance schemes such as this one are coming under HMRC’s spotlight. However, your tax bill can be minimised through legitimate means, and St Matthew are the ones to help you with your tax planning strategy. Contact us to see how we can help.

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