Contractor offshore solutions use Employee Benefit Trusts (EBTs). These give tax-efficient benefits to the company’s employees. EBTs offer a vehicle for workers to become shareholders in the company they work in. In addition, most pension funds have offshore trusts.
Mechanism of EBTs?
The consultancy supply chain provider takes charge of a person’s contracts and employment-based in the Isle of Man. This provider employs the contractor and pays his salary. This salary is subject to National Insurance Contributions (NICs) as well as an income tax under PAYE. The company may make contributions to an Employee Benefit Trust established for the employees’ benefits.
The solution provider manages the contracts and now is hired as the provider’s employees. Excellent solutions provider offers employer’s support such as working on the paperwork. Moreover, since the contractors work as employees paying tax through PAYE, then IR35 legislation no longer works.
A consultancy supply chain provider that gives the opportunity to participate in EBT arrangement and a UK-based employer is that the Trustees of the EBT offers its contractor employees with receipts from the Employment Benefit Trust. These contractors obtain payments legally with a lesser tax burden. This tax burden is significantly less compared to an employer directly employed by a UK company or if the contractor works through their own contractor-limited company.
Does HMRC have the power to stop EBT?
EBTs are popular financial vehicles being used by companies. These have long exited and have a great number of UK legislation that is concerned about how it can be set up and used. The ground rules for EBTs were cleared and agreed by HMRC with its important test case, Dextra Accessories v Macdonald.
Moreover, UK’s law says that if a loan is repayable, then HRMC cannot reclassify the loan as income and obtain tax on the amount. The loan from the EBT that takes charge of the funds of its contractor employees remains an ongoing liability for the contractor and is not an income.
An offshore consultancy supply chain that utilizes EBTs might be fit for some contractors only. This is similar to an umbrella company or limited company options that do not fit every contractor. However, consultancy supply chains that use EBTs as a component of their flexible benefits are more likely to increase their take-up by freelancers during 2010 as they represent a legal option for contractions who want to make a change in the way they manage their contracting business.
Offshore consultancy chains that offer EBTs are a great option for contractors. If you need advice on this matter, you can contact our firm.