TaxCorporate TaxComposite rush poses threat

Composite rush poses threat

Taxpayers rushing to set up companies to avoid a tax hit when new composite company rules come into effect could have been poorly advised, according to experts

Workers operating within composite companies have rushed to incorporate into
their own businesses in an attempt to sidestep chancellor Gordon Brown’s £1bn
crackdown.

An extra 25,000 company registrations were filed between December 2006 and
the first three weeks of February, compared with the previous year. But many of
the new incorporations are operating in structures that could be similar to
previous composite companies.

‘[Composite companies] are clearly in the Treasury’s sights, so moving from
one arrangement to another may be the next thing on their radar screen,’ said
PricewaterhouseCoopers partner John Whiting.

The tax arrangements work by allowing contractors to be paid for their
services in a company structure, and then paying themselves a dividend, avoiding
National Insurance contributions in particular.

Whiting warned that the draft legislation suggests those responsible for
helping set up the composite companies could be liable for the tax bill of
workers that operate within them. Also it was unclear whether tax advisers could
find themselves within that bracket if they set up schemes.

‘Advisers could still get involved around unpaid liabilities. There’s an
element of “watch this space”,’ Whiting said.

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