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Clamp-down on Loan Schemes
Newsletter issue - February 2011.
There are a number of tax saving schemes marketed to freelancers and contractors, but these schemes can be sensitive to changes in the tax law. One such scheme that involves loans made though particular trusts (known as EBTs) has recently been taken off the market by various suppliers.
Under the EBT scheme the freelancer becomes an employee of the company in the scheme but receives only a small wage, which is subject to tax in the normal way. All his other income is provided as a loan through an EBT. The freelancer pays no tax or NI on the loan capital, but he is charged tax on the deemed interest on the loan, (i.e. on 4% of the value of the loan). The scheme assumes the loan will remain outstanding forever, so the capital value of the loan (which increases with each payment) is never taxed.
However, new tax legislation has been proposed that will apply a tax charge to loans provided under such schemes from 9 December 2010. The employer will be responsible for paying the tax due, as if the loan was regular salary. The tax and NI savings are thus eliminated.
This new tax legislation does not prevent shareholder/ directors taking loans directly from their own companies, or employees receiving season ticket loans from their employers. In both these cases the loan is not provided through a third entity such as an EBT, so it is not taxed as regular salary. However, tax charges can apply to both the company and the director when a director borrows from their own company.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
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