IT Contractor, self-employment, trusts and the Isle of Man

Hi,

I am an IT contractor who works on an hourly rate. To avoid PAYE, I have been looking at a company that uses a business model where I declare myself self-employed to the U.K. IR, while setting up a trust in the Isle of Man and paying self-employed tax there. According to a double tax treaty between the U.K. and the Isle of Man - I will not have to pay tax in the U.K. because I have paid it in the Isle of Man.

Is this legitimate? Could the Inland Revenue determine me not to be self employed, and make me pay additional tax in the U.K?

Cheers

Aidy

I hope so.

Aidy, as far as I know, it isn't a matter of whether you *declare* yourself self-employed or not. It is a matter of fact whther the terms under which you work make you self-employed or employed. Any declaration is useless. It is the facts and terms that determine your employed or self-employed status. Furthermore I don't see how an Isle of Man Trust can itself be self-employed either in the UK or there in the Isle of Man. The fact is that you are UK resident, you are doing the work and earning the money in the UK, you have to pay the tax to the UK HMRC whether you are self-employed or employed. It sounds far from legitimate to me. It probably doesn't work.

agreed

The only way to avoid IR35 legitimately is to have contract(s) and actual working practices that keep you outside it. I'd advise joining the PCG and getting an IR35-friendly contract rather than trying some "scam" to get around it. Almost everyone I know that has gone in for the various off-shore and currency/loan type deals has been subsequently done by the IR. I'm sure the few who haven't are living on borrowed time too. The best you can hope for is to pay all the back-tax, at worst substantial penalties too. Neil Pike

I understand there are quite a few 'contractors' using this or something similar.

It seems to work (possibly using the not getting found out method of tax avoidance).

tim

Yes, Tim, its probably that method of 'avoidance', which is actually called evasion, that makes it work. A risky business!