Is this black, white or a grey area?

[bowcot84]

Good morning all. Interested in people's views on a proposal I've received.

The suggestion is for me to take non-voting, i.e. non-controlling shares, in a Jersey registered company, where corporation tax is 0%.

This company would invoice my UK Ltd company for financial services and advice, thus reducing UK corp tax.

The Jersey company would return 95% of this to me via dividends on my shares (on which I would pay UK dividend tax of 8.75%).

Is this a new thing? Do people outside of the millionaire's club actually do this? Has it been tested in the courts? Is it an out-and-out scam (the Jersey company looks legit on a fairly broad Google)?

Not sure how I feel about this.

 

[bovine]

if you have no control over the company, whats to stop whoever does have control deciding to not distribute your dividends?

Even if it is legit, at some point hmrc will decide its not and come at you. Really not worth it for the relatively small savings.

 

[Ozzy]

In simple terms, if the purpose of this setup is to avoid tax then it's tax avoidance and not allowed.
If this company is genuinely providing you ongoing business services that you can evidence, then no issue. Based purely on the way you've framed the question it looks like a no-go to me.

 

[Newchodge]

This company would invoice my UK Ltd company for financial services and advice

What financial services and advice?

 

[Argentum Tax]

In simple terms, if the purpose of this setup is to avoid tax then it's tax avoidance and not allowed.

It sounds like it would in fact be tax evasion, rather than what might be legitimate tax avoidance.

 

[Ozzy]

Sorry yes, @Argentum Tax I got my terminology mixed as I did mean to say evasion

 

[UK Contractor Accountant]

The Ramsay Principle is in play here!

WT Ramsay Ltd v IRC [1982] AC 300, (1981) 54 TC 101,

Lord Diplock considered that, in order for the Ramsay principle to apply, there must be:

1) a series of transactions; which are

2) pre-ordained; and

3) into which there are inserted steps that have no commercial purpose apart from tax avoidance.

The Ramsay principle had hitherto been confined to tax avoidance in the form of artificial schemes containing steps that were, in effect, self-cancelling.

 

[WaveJumper]

And like all things with these schemes unless you are talking about very large sums the expense of running them generally out weighs any advantages you make be seeking

 

[TheSkyisGray]

Would the costs for this financial services advice be tax deductible in your company though? Where is the Jersey company managed and controlled?

 

[Gyumri]

Where is the Jersey company managed and controlled?

Could the answer be Jersey?

 

[bowcot84]

What financial services and advice?

Looks like "how to avoid tax" basically!

 

[bowcot84]

Could the answer be Jersey?

Correct

 

[UK Contractor Accountant]

OP asked abut being tested in the Courts - have a look at a recent UT Case initiated by HMRC.

A recent ruling by the Upper Tribunal in Dunsby v HMRC [2021] has confirmed that efforts to avoid paying income tax by deploying an elaborate tax avoidance scheme can be thwarted by taking ‘a realistic view of the facts’ or, in other words, applying some common sense.

This is a useful ruling for anyone contemplating using a tax avoidance scheme. The courts will take a pragmatic view on the basis that if each element of the scheme has been deliberately set up in such a way to help a particular individual, or group of individuals, to avoid paying income tax, then it is likely to fail. In other words, if a scheme seems to be too good to be true, it almost certainly is - even if it has been disclosed to HMRC.