Finance and Business Blog

As part of the recently published Finance Bill 2011, the Government has moved to close a loophole that allows contractors to use Employee Benefit Trust (EBTs) schemes to reduce their tax bill.

Rob Crossland, chief executive of umbrella company Parasol, had this to say.

“It was no surprise that the Government has taken a hard-line with EBTs and other forms of tax avoidance as this has been discussed for some time.”
 
“There must be a distinction made between umbrella companies who work closely and openly with HMRC in order to protect contractors, and companies that exploit loopholes and make bold or unrealistic claims about take home pay. Correctly structured and compliant umbrella companies have nothing to fear from the Finance Act, and the reality is that this provides an opportunity to demonstrate that compliance and transparency to Government, contractors and the agencies that place them.”

“In the past, this industry has been tarnished by unscrupulous providers making unrealistic claims about the amount of take home pay a contractor can expect, by offshore providers not fully explaining the risks involved in using an EBT scheme or operating with a lack of transparency to a level that even the contractors involved in the schemes cannot fully explain how they work. Thousands of contractors have also been persuaded to join these schemes without being informed of HMRC investigations into them.”

“This had to stop and therefore the Finance Act 2011 should be welcomed by umbrella companies. It now remains the duty of leading umbrella companies like Parasol, and organisations such as the FCSA, to support and educate contractors and the agencies that place them, encourage further transparency, open discussion and compliance throughout the industry, and ensure that the bad practice of a few does not bring down the industry and prevent professional contractors from running their business and making a valuable contribution to the UK economy.”

MyBookkeepingManager - Bookkeeping Software for Freelancers, Contractors, and other Micro Businesses

With effect from 4th January 2011, the standard rate of VAT increases from 17.5% to 20%. The VAT Flat Rate Scheme (FRS) percentages will also change. For Computer & IT Consultancy, the rate will change from its current 13% to 14.5%.

The normal tax point rules will apply: date of invoice or date of payment, whichever comes first. So if the invoice or payment is made before 4th January, VAT will be at the rate of 17.5%; anything after that date will be at 20%.

More information is available on the HMRC website:

http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm