In December 2010 Employee Benefit Trust was legislated against by the Inland Revenue.
In recent years becoming a contractor has been the way of maximising earnings for both the employing company and the employee. In effect what happens is that the conditions of employment changed from being directly employed to becoming a contractor for the same company with a seamless break.
So that contractor tax avoidance scheme stopped, however there are other methods of contractor tax avoidance.
Contractor Tax Avoidance Schemes
There are always ways of contractor tax avoidance. Those currently in operation have criteria so typically in order to benefit from this the contractor would need to have an income in excess of £50,000 a year.
If you do not meet the criteria laid down by the HMRC for self-employment then you will fall into the IR 35 rules these rules will mean you will have to pay increase tax and national insurance liability, there are allowances for expenses and your income will be in the form of a ”deemed payment”.
The allowance for intermediary expenses (section 198 expenses) is 5%. Additional expenses can be claimed and the following items are allowable:
- Business travel
- Pension payments
- Subsistence, such as accommodation and meals when away from home.
- Professional indemnity cover.
- Benefits in kind for example private medical insurance.