IR35 and umbrella companies

If it looks like a duck????

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My client has been told that he is within IR35 so we have advised that he should be paid via an umbrella company going forward.

One umbrella company is proposing a very modest salary of say £20k per annum, and then also dividends, because client's company will buy shares in a networking company and receive a share of profits from there - all which will quite conveniently work out at % of client's invoice to main customer.  Apparently the networking company is all above board and people pay subscriptions into it and gain other benefits from it by being a member.

Am I wrong to be hugely suspicious of this?  If this all good and above board, does the fact that it does not look or sound like a duck mean that it is still somehow a duck?

Do you think HMRC will be challenging these set ups in due course?

What would you say to your client?

Thank you

Replies (8)

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By Moonbeam
06th Apr 2021 16:20

I've only got one client left now who is likely to encounter this situation. I plan to tell him I couldn't possibly advise him, and that unfortunately will have to disengage.

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By paul.benny
06th Apr 2021 16:32

This sounds like a "heads we win, tails you lose". Umbrella co take their fee and if the scheme turns out to be unlawful or ineffective, all the tax liabilities, penalties, costs fall back onto the worker.

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paddle steamer
06th Apr 2021 16:47

How does client in future realise his/her investment within said networking company?

What price does he/she need to pay per share, is that price reasonable, how is it arrived at, does it change over time?

There are surely no guarantees of dividends being paid going forward and past performance is likely no guide to the future?

Whether this works for tax or does not I am not skilled enough to say, but ask your client one question, if it were not for the perceived tax benefit would they ever entertain being what is likely a minority shareholder in a private company managed by others?

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By SXGuy
06th Apr 2021 17:05

Sounds very similar to an old scheme I recall from some years ago. Hmrc shut that down in the end obviously.

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Replying to SXGuy:
By Paul Crowley
07th Apr 2021 18:48

Yes I had come across this.
Not quite the same as the worker became a shareholder with up to say 10 others and then 'arranger' arranged a new company in number sequence for the next group
Eg Brighton 1144 Ltd, then Brighton 1145 Ltd, Brighton 1146 Ltd

The companies were also struck off having never filed trading accounts at companies house in groups of similar numbers eg Brighton 800 Ltd to Brighton 840 Ltd

Did no work for the taxpayer, just a couple of meetings and calls. Noted that taxpayer removed our authority just before deadline for SA submission

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blue sheep
06th Apr 2021 17:14

smells whiffy to me - avoid

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By lesley.barnes
07th Apr 2021 09:36

I would be asking the client how the Networking Company is generating its profits to pay dividends? Have you been able to look up this company in Companies House or is it offshore? Stepping back from IR35 would your client normally buy shares in a company without doing their due diligence? If it looks to good to be true it usually is.

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By Paul Crowley
07th Apr 2021 19:01

In the current climate I would be asking client directly whether he believes that this is a tax avoidance scheme and that he should see the prior detailed three year accounts of the company that his company is buying shares in
Quite specifically is there a DOTAS number

Hallmarks would be scheme sellers telling client that client needs a 'better' accountant

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