Contractors looking for the best contractor tax solutions available or people contracting in the UK need to be aware of the following things when choosing a tax scheme to lower their tax burden.
the conventional wisdom is to use a limited company with the right of substitution clause to prevent hmrc claiming you should be a paye employee or you suck it up and become a paye employee and pay full taxes..
there is a third alternative used by savvy contractors who choose not to pay more taxes than they absolutely have to, and they use tax efficient structures usually based offshore using a trust/loan based system.
Of course theres more to it than that but thats the simplest way to put it, the tax avoidance schemes used by contractors as their taxation solution all use offshore schemes, most notably the Isle of Man, well the isle of man tends to have the best schemes because they have very beneficial tax haven laws that protect the person using trust based loan systems.
Why you should use an isle of man based offshore tax avoidance scheme.
most of the other isles used do not have an enforced trust based structure ie separate company money from the beneficiaries(clients) monies.. leading to risks such as the debacle with pocket kings who used a similar structure without a trust and when they went ‘under’ due to the feds, there was no way to recover their clients money.. this would NEVER happen in the ISLE of MAN as you are not allowed to keep company money with client money, client money is always safe no matter what happens to the company..
There seems to be a lot of debate about the ethics of contrators using tax solutions that have agressive tax planning or avoidance..
However it is perfectly legal and sensible to pay the least amount of tax you can, why would you pay more tax than you absolutely have to? All wealthy people and companies use their very company structures to avoid paying extra tax.. These companies have argued that they have a responsibility to the shareholders to make it as profitable as possible..
Thats why they are in business after all, they are not socialist entities..
Smart contractors have been turning to contractor tax solutions as a means to lessen their tax burden since 2004, and they consistently put more income into your bank at the end of each month
for more info: