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Is this legal?

Is this legal?

I have a client who is a subbie in the construction industry but has recently been taken on the books by a UK registered Ltd company. His wages less PAYE are being supplemented by a dividend paid from an Irish registered company with no tax deducted. The dividend is higher than his gross wage.

I cannot see how this can be legal from a tax point of view. 

Any thoughts and what would you do next? Report the company to the IR? Tell the client to find a new job of which there aren't many. Could he be liable for more tax?

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By Tosie
09th May 2011 21:03

It maybe legal

The employee becomes a shareholder in the Irish Company. The dividend is taxable in the normal way in the UK
There are conditions under Irish Tax law were DWT is not applied and employee shareholding is one such case.

It avoids NIC.

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10th May 2011 14:44

I agree but...

I agree but only to a degree. How can it work from the commercial justification point of view? The only reason for doing it is to save tax & NI for the employee and NI for the "employer". Surely it fails on those grounds. In reality, can you see 80+ construction workers investing in an Irish Ltd company even if it is only 1 share each?

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By Tosie
10th May 2011 16:46

I agree with you but.........

There are hundreds of these schemes around and people seem to be getting away with it.

There is no tax loss only nic.

I came across it when a client told me that his "friend" did not pay any tax and he had the same income as my client.

A familiar story but when I went into it I found that it is common practice in the IT industry and there is a similar scheme for supply teachers.

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11th May 2011 16:12

Sting in the tail

Thanks.

After further research, I find the Irish company has been struck off in January 2011 but is still in theory paying dividends. I think this one may still have some way to go !!!!!

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