Contracting - annuity payment

rojito · 10-06-2022 10:32am #1

I am due to leave my permanent PAYE position soon and start a contracting role (contract for indefinite time period - hopefully I'll be in the new role for many years).

I have been trying to talk to a few accountants to find out what my best option is for paying tax etc, so typical options being a sole trader/limited company/umbrella director etc and I came across one agency that is basically offering to split the monthly invoice amount with one half being a "salary" so with full PRSI contributions etc and the other half coming back to me as a tax-free annuity payment. I understand this annuity payment is like a pension or insurance payout, but made on a monthly basis along with my "salary" payment.

The NET retention rate of other options typically seems to be in the range 55-65% but this agency is promising me a retention rate of about 74%, which in real terms would be up to an extra 2000 euro a month in my pocket.

Has anyone come across a set up like this before? They claim they have an inhouse solicitor and have sent me links to the legislation which they say backs up this kind of model.

raddo · 14-06-2022 9:14am

Hi, I have been contracting for the past 17 years and have been contacted by an agency offering the "Annuity Payment". It makes a significant difference to take home pay. Have you managed to find out anything more about it??

Furze99 · 14-06-2022 9:52am

If it's too good to be true, then there's something fishy going on!! So this company would be a middleman between your employer(s) and you and are claiming that even after they've taken their cut, that you'll be better off?? Ehh.. proceed with great caution!

If you're a normal person, offering services to various customers including some work by contract, then the simplest is sole trader. And simple is good, when you have to do the paperwork.

Just keep track of all monies coming in and going out and fill out your annual tax return. Consider whether you'll need to be registered for VAT. Again an annual return is handiest. Get some accounting/ book keeping software and invest a little time in setting it up and learning how to use it efficiently. There's plenty choice for small business - I use QuickBooks myself for many years. Enter all transactions either in real time like invoices and payments and once a month for minor stuff and bank reconciliation. Don't vary from this - a regular schedule is a must.

Tax efficiency, set up a PRSA or similar and put as much in as you can each year, once a year when you're doing your tax return. To minimise income tax and save for the future.

rojito · 14-06-2022 10:15am

https://www.boards.ie/discussion/comment/119199718#Comment_119199718

I've spoken to a few people and I have decided against it for now.

If it is legit, everyone will be doing it within a year anyway.

If it is not legit, it would most likely be me and not this agency that the taxman comes after.

So, I'll be keeping an eye on them for now and may make the switch later, but I'm not going to be the one they experiment on.

Castle15 · 28-07-2022 7:07pm

I literally just came to boards for the sole purpose of checking this scenario out. The same company (starting with a K) have been chasing me for weeks to try to get me to leave my current umbrella company provider and go to them via this salary plus annuity (tax free) monthly payment. I have been doing so much research and there is absolutely nothing online that explains how they are doing this? Today I asked them to send me all the official legal back up for this in writing, which they did, quoting all sorts of regulations but my gut feeling is this is too good to be true. If this was legal them why doesn't every other umbrella company provider offer this? I'm glad to see ppl here are having the same doubts. I too don't want to be a guinea pig, even though it would mean over 2k extra per month. Going to stick where I am but keep an eye on these. I also have a barrister contact so I'm going to get him to review this tax loophole. Will keep this thread posted!

MojoMaker · 29-07-2022 8:07am

There is no such thing as tax-free payments that you get to keep and do whatever you want with.

Jesus.

Dante · 31-07-2022 11:15am

A colleague of mine recently mentioned this payment scheme to me. I would be very careful with this, it sounds extremely dodgy to me. I am giving it a miss personally.

I know from my time contracting in the UK that many contractors got stung retrospectively for large tax bills (plus penalties) due to dubious tax avoidance schemes like this, despite the schemes being legal at the time.

This gives pretty good guidance, albeit it applies to the UK: https://www.gov.uk/guidance/disguised-remuneration-tax-avoidance-using-annuities-spotlight-35

Disguised remuneration: tax avoidance using annuities

We’re aware of a new disguised remuneration tax avoidance scheme that attempts to avoid Income Tax and National Insurance contributions (NICs). It involves using annuities as an alternative method of paying people for their services, in order to avoid paying tax and NICs on their income.

This scheme doesn’t work and we’ll investigate all users of the scheme.

Annuities

An annuity is a form of investment where a person pays a lump sum, usually to a pension company, in return for a guaranteed income - either for life or a fixed number of years. Private annuities, such as those used in this scheme, are very rare.

How the scheme works

This scheme is mainly aimed at contractors and involves the scheme user being paid in two parts. The first part is a salary, so small that there’s little or no Income Tax or NICs liability. The second part is claimed to be non-taxable, as it’s a capital payment for a deferred annuity.

The scheme is highly contrived and involves the user agreeing to pay the promoter an income under the annuity from a date of their choosing.

Why you shouldn’t use it

The view of HM Revenue and Customs (HMRC) is that this and other similar schemes don’t work.

Schemes involving annuities are within the scope of the proposed new loan charge, which will apply to all outstanding disguised remuneration loans on 5 April 2019.

What will happen if you use the scheme

HMRC will challenge all users of this scheme and investigate their tax affairs.

Unless the capital sum for a deferred annuity is paid back in full by 5 April 2019, or you settle with HMRC, the new loan charge will apply to the outstanding sum.

For transactions taking place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) may apply. After 14 September 2016, transactions where the GAAR applies will be subject to a 60% GAAR penalty.

rojito · 31-07-2022 12:16pm

Agree with all of the above. No one has come on here saying it is all above board but the offer is tempting on pure financial terms. As Castle15 mentioned, the agency (K......) provides a bunch of links to legislation which they claim backs up their model, so I have no doubt a lot of people will sign up for it.

Tellingly for me, they make no hints or claims whatsoever on their website or social media. Not even subtle ones about "superior income retention" or the like. So they clearly don't want to attract too much attention to what they are doing.