I don't know how Canada does it, but a lot of those smiles would change at least a little bit in the US when they get a 1099-C in February and realize the IRS counts debt forgiveness as taxable lump-sum income.
It sure feels like your government is shitting on you during an already tough situation.
* Granted, you can usually arrange to pay a large tax bill over time, but that is basically debt which you'll be annoyed/surprised to find yourself back in...
And if you were a business that couldn't pay your 27.99% credit card for 16+ months, you have losses to count it against.
[1]
profit = revenue - cost
= 0 - $100
= -$100Normally, you'd sell that on for more than the original 100 dollars.
For those unaware, an umbrella company acts as the "employer" of contractors for places like the NHS. It's often required (or perhaps phrased strongly enough as such by the recruiters that it's difficult for a layperson to know whether it's true) to have one, and they charge a fee + withhold income tax and national insurance contributions + pay the salary of the contractor.
The sketchy ones have determined that they can pay the contractor minimum wage + a small "loan" each month of the remainder which is promised (verbally only, of course) to be forgiven entirely, and this way charge a higher fee and remain competitive because the contractor is paying minimal tax.
IR 35 is what a lot of these companies claim to shield you from ... but it’s notoriously complex.
The astounding thing about this is that as I understand it, the nurses and doctors who're being screwed over aren't generally the ones who benefited financially from this scheme - it was the NHS (effectively the government) which did. The companies running it witheld the tax the employees should've paid but kept it and used it to fund the cost of running payroll plus their profita, meaning the NHS didn't have to pay those costs. A bunch of existing employees were forced onto the scheme in order to keep their jobs too. (There were similar schemes for wealthy individuals in other industries which did cut them in on most of the tax savings though.)
On your second point, from my personal experience (we investigated the scam when it was offered to us before avoiding it based on the bad smell it gave off), my instinct would be to disagree.
When we did the calculations, we would have been hundreds of pounds per week better off under the conditions of the scam than if we had paid tax directly as a contractor or under an umbrella company who reported the full salary as a salary. I don't have much doubt that these nurses and doctors didn't benefit financially by only paying [tax and NI on minimum wage + the slightly higher umbrella fee] rather than [tax and NI on their full salary + a smaller umbrella fee]. Although that's not to say that they thought what they were doing was shady, or even that they actively chose that particular umbrella company.
I dont see the benefit to the NHS either. If the NHS pays the contractor's salary of £1000/month (under subcontract conditions) to:
- Umbrella company A, who then subtracts a fee + withholds (for HMRC) NI and tax for minimum wage before paying the contractor minimum wage + a loan of whatever remains from the £1000
and
- Umbrella company B, who subtracts a fee + withholds NI and tax for the full salary before paying the contractor the remainder
My understanding is that to the NHS both scenarios look the same (a cost to them of £1000/month), but in scenario A the contractor and umbrella company (through their ability to charge a higher fee than their competitors and still attract clientele) benefit from money which otherwise would have gone to HMRC.
For most/many of the people going through a financial crisis that caused them to default that negates the tax effect.
If they could simply "loan" their child $100k (with no intention to ever get paid back), then forgive the debt tax-free, they'd have successfully gotten around the gift tax.
The same thing could be potentially be used by an employer: instead of paying wages, they could just "loan" (again, not intending to be paid back) their employee money, then forgive the debt tax-free.