Freelancers' Questions: Offshore loan scheme
Question from Rufus in Oxford
I was invited to save tax by having some of my contractor's fees paid as offshore loans.
This was a scheme set up professionally and I was assured it was a legitimate and legal way of reducing my tax bill and that it was beyond challenge by the Inland Revenue.
I am now being asked by the Special Compliance Office to provide details of all the payments I received through this scheme as the Inland Revenue are challenging the validity of the scheme and the legality of the tax I have saved. A top firm of accountants is taking the case to the Special Commissioners. What should I be doing?
Answer from Angela at Tax Relief
First of all, don't panic. You thought that what you were doing was ok, but in reality, the Inland Revenue will always challenge tax loopholes which allow large amounts of tax to slip through the net.
If you had asked me in the first place whether to take part in this - or any other - tax 'reduction' scheme, I would have advised you not to do it. The stress and sleepless nights of being involved in a long-running battle with the Special Compliance Office can be exhausting and not necessarily worth the amount of tax saved in the first place. I would have asked you whether the amount of tax potentially saved might not equal the amount of money you could save if you gave up smoking, drinking and driving a thirsty car.
Now that you are involved with the Special Compliance Office, give them all the information they have asked you for, promptly and completely, and bend over backwards to assist them. You will be asked to volunteer to repay the amount of tax saved in return for avoiding penalties. If the Special Commissioners uphold the legality of the scheme you may get the money back, but I wouldn't hold your breath!
Article by Angela Brooks Wong, Tax Relief.