Offshore
We feel duty bound to tell you about the final option, or this wouldn’t be a comprehensive guide to getting started as a contractor. However, it’s not usually a viable route.
Offshore schemes are operated by providers who make all sorts of financial promises about maximising take home pay. By operating out of tax havens such as the Isle of Man, the Channel Isles or the Caribbean, these schemes exploit legal loop holes, which means you may pay far less tax and retain the majority of your earnings. They may claim that they have ‘Counsel’s opinion’ that they are legally viable, however, HMRC sees things rather differently. HMRC is clamping down on this type of tax arrangement and may apply legislation retrospectively, which basically means that contractors using offshore schemes may become liable for underpaid tax going back 6 years! This is quite simply NOT a realistic way of operating in the UK and you run the risk of getting into trouble with the Inland Revenue and being landed with a huge tax bill.
Good choice if:
- You live and operate outside the UK
- You want to avoid taxes and can live with the consequences when you’re found out
Not so good if:
- You live or operate in the UK
- You’d rather operate openly and have no worries if the taxman decided to scrutinise your accounts
- You’re not a risk taker
