Loan in Lieu of Bonus - offered by many payroll services (Umbrellas) with directors based in the Isle of Man! Is this compliant?

There are a variety of companies offering the following!

"Using this payroll service would enable your candidate to take home approximately 80% of your total gross.  

Our management team ensure our company's income is efficiently managed, to ensure all members receive the best value and return whilst subcontracting their skills as services of *** Limited.

With returns of up to 80% from contract work, this solution is more efficient than most other options including self-employment, PAYE umbrella services or when working as a director of your own company.

How the payment is efficiently structured:

*The attached salary illustration is based on 40 hours per week at ￡25.00 per hour.

·        Through *** your candidate would receive ￡817.07 into your bank. (approx 80% of the total gross)

·        The received payment of ￡817.07 is broken down as follows: ￡300.00 would be your official salary amount, and the other ￡517.07 would be a Bonus/loan in lieu of bonus.

The ￡300.00 Salary:

We give your candidate an official salary based on 40 hours per week at the national minimum wage. This comes to ￡300.00 and will be titled as your official salary on your payslip.

The salary of ￡300.00 is subject to Tax and NI deductions after his weekly UK Tax relief of ￡211.54 has been applied. 

The ￡517.07 Bonus/Loan in Lieu of Bonus:

As your candidate would be employed by *** Limited he would be in line for a weekly employee bonus of ￡517.07, but it is not offered to him as a bonus because it would then be legally subject to Tax and Ni deductions.

Instead the exact amount of ￡517.07 would be offered to your candidate as a Loan in Lieu of your Bonus. He would keep the loan and we would keep the bonus.

Importantly now, your candidate is officially receiving the ￡517.07 payment as a Loan in Lieu of the Bonus, it is now, by law not subject to Tax and National Insurance deductions.

The above payroll procedures are how your candidates are able to legitimately achieve 80% of thier total gross."

Agency healthcare professionals please, please be careful because these companies are operating outside HMRC regulation, they are not practising in the spirit of the HMRCs guidelines or tax laws and they are here today, gone tomorrow.

What tax avoidance is

Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended.

It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.

Most tax avoidance schemes simply do not work, and those who engage in them can find they pay more than the tax they attempted to save, once HM Revenue and Customs (HMRC) has successfully challenged them.

How to identify tax avoidance schemes

Here are some of the warning signs that you might be in a tax avoidance scheme or that you are being offered to join one.

It sounds too good to be true

It probably is. Some schemes promise to lower your tax bill for little or no real cost. They will say you do not have to do much more than pay the scheme promoter and sign some papers.

Pay in the form of loans

Some schemes designed for contractors involve giving you some or all of your payment in the form of a loan that you’re not expected to pay back. It’s diverted through a chain of companies, trusts or partnerships and you’ll be told this is to save you tax.

Huge benefits

The benefits of the scheme seem out of proportion to the money being generated or the cost of the scheme to you. The scheme promoter will claim there’s very little risk to your investment.

Round in circles

The scheme involves money going around in a circle back to where it started, or some similar artificial arrangement.

HMRC has given it a Scheme Reference Number (SRN)

This is where HMRC has identified the arrangement as having the hallmarks of tax avoidance and are investigating it. You will have been given an SRN by your promoter and will have included it on your tax return. Having an SRN doesn’t mean that HMRC has ‘approved’ the scheme. HMRC does not approve any tax avoidance schemes.

Schemes HMRC has concerns about

You can find examples of tax avoidance schemes HMRC is looking at closely. Even if a scheme is not mentioned, it will still be challenged by HMRC.

If you enter into a tax avoidance scheme

If you’re involved in a tax avoidance scheme HMRC will fully investigate your tax affairs, and may also:

Require to you pay the tax you’re trying to avoid upfront

You may receive a tax bill called an accelerated payment notice. This is a requirement to pay the full amount of tax or National Insurance contributions HMRC calculates as being due, upfront and within 90 days.

It has been reported that there are a number of framework agencies promoting such Umbrella services to benefit commercially, put you at risk despite and avoid the auto-enrolment pension, apprentice levy and weekly real time information for the HMRC.

If we read and digest the facts correctly it points to working via a 'vanilla' Umbrella, PAYE or a LTD company but accept the fact its time to start paying weekly PAYE tax and Employees NI with a final take home of circa 62%.

It maybe wise to review your weekly and monthly overheads, drive efficiencies and make adjustments accordingly to ensue you can adjust to a 62% NET pay whether you chose a compliant (vanilla) umbrella company, LTD company or PAYE.

Recruiters are simply directed and often don't understand the ramifications associated to such services, they are often innocent and unqualified to advise you so please lean on the right people and avoid being fined, being investigated and prison.

If you want to learn more please click the following link; https://www.gov.uk/guidance/tax-avoidance-an-introduction