Retrospective tax imposed on contractors’ loans

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A proposal to impose a retrospective tax on contractors’ loans has been branded deeply unfair.

Buried within the Budget documents released on 16 March was a technical note on tackling disguised remuneration avoidance schemes. The retrospective tax charge is hidden in chapter 5 paragraph 10 which is titled: “A new charge on outstanding disguised remuneration loans”.

This outlines how income tax and NIC will be imposed on employee loans which are outstanding on 5 April 2019, irrespective of when the loan was advanced to the employee or individual. This means the new tax charge could be imposed on loans which were advanced decades ago.

Disguised remuneration loans come in two common forms:

  • Employee benefit trust (EBTs) loans – used by company owners to extract large balances from their own companies without paying high levels of income tax;
  • Contractor loans - where an individual receives a loan and a small salary from an “employer” which was usually based offshore.

In both cases the loans were repayable but were usually never actually repaid. The employee is taxed on the benefit in kind of receiving an interest free loan, which amounts to 3% to 4% of the loan (depending on the official rate of interest in the tax year), for the duration of the employment.

Schemes involving EBT-type loans have been circulating since the 1980s, and contractor loans have been in common use since 2000. HMRC maintain that these arrangements do not work. However, there must be a considerable chance that they do. Very few of those schemes have been taken to the tax tribunal, and when HMRC have won a case they have generally done so on technicalities concerned with the implementation. New tax rules to stop disguised remuneration were introduced from 9 December 2010 and 6 April 2011 (ITEPA 2003, Part 7A).

Contractor loans have been subject to challenges in the tax tribunals, for example P Boyle v HMRC TC03103, where the contractor lost, although HMRC tend to only take cases to tribunal when they expect to win.

HMRC has offered settlement opportunities for those who took up EBT or contractor loan schemes, which required the individuals to who agreed to pay PAYE and NIC on all the loans they received. HMRC has also issued a spotlight on contractor loan schemes, so no-one can be in any doubt that HMRC doesn’t approve of contractor loans and it’s doing everything in its power to neutralise the schemes that used such loans to avoid tax.

Those who used contractor loans but who haven’t taken up a settlement opportunity are now receiving accelerated payment notices (APN) where their tax return is under enquiry. The APN is often based on estimated figures as HMRC don’t know exactly how much loan was advanced, so are guessing at six times the contractor’s salary.

The issue of an APN forces the taxpayer to pay the tax demanded as the APN can’t be appealed. If the tax is not actually due, the taxpayer has to force HMRC to conclude their enquiry by going to tribunal – which is clogging up the tax tribunal system.

The proposed tax charge will be imposed on an outstanding loan if income tax has not been paid on that loan (even where income tax wasn’t due under the tax law in place when the loan was advanced). The new charge won’t be imposed if the taxpayer has reached a settlement with HMRC, or otherwise paid tax on the loan as if it was salary. 

David Kirk, an expert on employment taxes, said: “HMRC have for a number of years made it plain that they will not tolerate tax avoidance in this area. However, they have often been very slow to act in practice, and this has left people with the feeling that they had dropped their cases. Whilst the Government has every right to change the rules, I do have concerns about four particular things with this proposed tax charge:

  1. “The tax can be raised on historical loans of any age, so it could relate to actions taken over 20 years ago.   
  2. The records relating to historical loans will often be lost and are difficult to reconstruct.
  3. Individuals were often sold the loan schemes by IFAs and accountants, in some cases quite aggressively. There is consumer protection law to assist victims of this sort of miss-selling when it comes to investments; however in this case HMRC seem to be going for the victims instead of the real culprits.
  4. The tax charge should fall on the employer, but it will be transferred to the employee/contractor."

Kirk concludes that many former contractors will be made bankrupt by this new tax charge, or if not made bankrupt will lose their homes.

He also says the charge is deeply unfair as in many cases the tax was not payable under the law that existed when the loan was advanced (pre December 2010), so the taxpayer should win their case if they could get a hearing at the tax tribunal. Under the proposals such taxpayers will have to pay the tax on the outstanding loan even if they do win their case at the tax tribunal.   

David Kirk's book: Employment Status - the Tax Rules is now in its third edition. 

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29th Mar 2016 11:35

The problem

Here is that none of the professional bodies, except the Law Society, have kicked up a fuss about the recent cavalier use by HMRC of retrospective tax legislation. Even the Treasury Committee has complained about it, but there has been total silence from ICAEW etc. as far as  I can tell. The Tax Professionals Forum who should be overseeing this sort of thing do not kick up enough fuss either. Members need to write to their respective professional bodies about this in order to properly lobby the Government. If that doesn't work, the only realistic way to win in court is to go all the way to ECtHR and that of course cannot be guaranteed to work

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This may be unprofessional but

unless it was their "professional" advisor that got them involved, and assured them they could have their cake & eat it, I find it hard to have any sympathy for people who got themselves involved in these schemes.

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Paul, If you really have to be judgemental....

At least try to make an informed judgement. A vast majority of contractors caught in this charade were sold on these structures as a protection against the IR35 legislation, which caused a major panic in the contractor space in the early 2000's. Many of these people were happily operating their own companies prior to the introduction  of IR35 and got the "schemes" recommended to them by their own accountants, sometimes of many years. By and large it was never about "having one's cake and eating it too" for these guys, merely trying to buy some certainty into one's tax affairs.
"Tax avoiders", real or supposed, are the scapegoat of the day, and HMRC is not telling you the whole story.
You are very welcome to visit our website, which features dozens of testimonies from everyday people at the receiving end of the scapegoating in question.

 

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By nkwayne
30th Mar 2016 12:00

Oh really?

DotasScandalDotOrg wrote:

At least try to make an informed judgement. A vast majority of contractors caught in this charade were sold on these structures as a protection against the IR35 legislation, which caused a major panic in the contractor space in the early 2000's. Many of these people were happily operating their own companies prior to the introduction  of IR35 and got the "schemes" recommended to them by their own accountants, sometimes of many years. By and large it was never about "having one's cake and eating it too" for these guys, merely trying to buy some certainty into one's tax affairs.
"Tax avoiders", real or supposed, are the scapegoat of the day, and HMRC is not telling you the whole story.

 

Good theory but not accurate.  I've got contractor clients still reeling from the aftershocks of the HMRC collection processes levied against them.  But to a man, they went in for the increase in net spendable income that it was sold to them on.  IE for the tax&NI savings.  IR35 was brought in to try and put a stop to another avoidance method.  All those contractor companies sprang up to take out the employer NI liabilities for the engaging company and by the contractors company paying dividends.  And lets face it IR35 has been an unmitigated disaster that has always been easy to run rings round except in the most blatant circumstances.

And in those circumstances then the contractor could have all the certainty he wants by paying himself all his profit as salary and the deemed charges then did not apply.  Oh hang on, thats more expensive than dividends, and even more expensive than EBT and offshore loans isn't it?  Which brings us back to avoiding tax and NI to increase your take home pay, and I think any contractor who denies that was the case is looking back through a haze of mis-remembered self-excuses.  

So your view seems to be that taking steps to avoid tax should not be viewed as harshly as tax avoidance.  Isn't that somewhat contradictory?

 

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By Old Greying Accountant
30th Mar 2016 16:47

I'm sorry ....

DotasScandalDotOrg wrote:

At least try to make an informed judgement. A vast majority of contractors caught in this charade were sold on these structures as a protection against the IR35 legislation, which caused a major panic in the contractor space in the early 2000's. Many of these people were happily operating their own companies prior to the introduction  of IR35 and got the "schemes" recommended to them by their own accountants, sometimes of many years. By and large it was never about "having one's cake and eating it too" for these guys, merely trying to buy some certainty into one's tax affairs.
"Tax avoiders", real or supposed, are the scapegoat of the day, and HMRC is not telling you the whole story.
You are very welcome to visit our website, which features dozens of testimonies from everyday people at the receiving end of the scapegoating in question.

... but if you have borrowed money from the company and have enjoyed the use of it, why should you avoid tax on it.

If these schemes didn't exist then tax rates could be lower or allowances could be higher - all these people do is shift the burden onf tax on to a smaller percentage of society and they are no better than the benefit scroungers they moan about at the other end of the spectrum.

I see no difference in these loans to a overdrawn directors loan on which s455 tax would be payable, and the peddlers of these schemes are akin to the Emperors tailors!

I have no problem with using tax efficient means to extract profit, I do have a problem with contrived schemes though.

If it looks like a rose and smells like a rose it is likely to be one even if you call it a tulip.

 

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By djn24
30th Mar 2016 10:28

I agree

Paul Scholes wrote:

unless it was their "professional" advisor that got them involved, and assured them they could have their cake & eat it, I find it hard to have any sympathy for people who got themselves involved in these schemes.

I have to agree with this too.

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30th Mar 2016 10:57

taking the proverbial

Paul Scholes wrote:

unless it was their "professional" advisor that got them involved, and assured them they could have their cake & eat it, I find it hard to have any sympathy for people who got themselves involved in these schemes.

 

Yes would agree with that.

Substance over form?

Repayable but never repaid and instead of remuneration? really?

any news on the K2 enquiry yet or is that it?

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13th Apr 2016 19:57

Sympathy
Not really looking for sympathy. Fair access to courts would be nice. Recognition that retrospective tax is pure evil would help. But sympathy no. Unfortunately the success of this exercise will spur the government onto greater outrages

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29th Mar 2016 13:55

HMRC webinar on this issue: 30 March at 1pm

HMRC will be holding a webinar for accountants to discuss the Budget announcement on disguised remuneration and its impact on individual contractors.

HMRC say "We want to use this Talking Points session to summarise what this announcement means for individuals that might be involved in disguised remuneration avoidance schemes such as contractors."

To register for that webinar click here

Questions can be submitted prior to the  webinar to [email protected]

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How nice of HMRC....

to give one day's notice and schedule the webinar for the Easter week, when many agents are on holidays.

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29th Mar 2016 14:02

Good!

Tax on non-repayable loans is good news for taxpayers. Genuine loans that are being (or have been) repaid won't be affected.

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30th Mar 2016 08:56

Genuine loans

ShirleyM wrote:

Genuine loans that are being (or have been) repaid won't be affected.

 

Won't they?

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30th Mar 2016 11:52

I am pretty sure that ....

AndyC555 wrote:

ShirleyM wrote:

Genuine loans that are being (or have been) repaid won't be affected.

 

Won't they?

... genuine loans will not involve putting your 'salary' into an offshore trust before 'borrowing' it back!

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29th Mar 2016 14:59

I agree

That there should be no sympathy for people like that in the link below:

http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j8960/TC04989.pdf

But HMRC are not distinguishing people like that and also there is a very slippery slope here.

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29th Mar 2016 16:49

Retrospective Law

Yes, it is being applied retrospectively, but according to the article it is not being applied until 5 April 2019. This gives everybody 3 years to cough up their dues. I for one am sick and tired of these artificial schemes whereby the rest of us are paying the taxes avoided by the minority.

 

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29th Mar 2016 22:28

Retrospective leg and other solutions

I don't like the idea of retrospective leg but I'm surprised they need it.

Fake loans, artificial structures...you're telling there isn't already a way to tackle this in my shelf full of leg?

 

Retrospective leg.  urgh.  We have always been at war with Eurasia!

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A bit of perspective

AnnAcountant,
There is nothing "fake" about the loans in question, nor artificial about the structures that are mentioned in the article.
Do you really think that tens of thousands of serious, generally risk-averse professionals have signed up for such arrangements with the objective of indulging in "tax avoidance"? if so, you have swallowed the HMRC propaganda hook, line, and sinker, and I invite you to visit our website for a taste of the real world. 
You will find that these structures existed for a very simple reason: enable contractors to offer their contracting services, while protecting themselves from the uncertainty of IR35 (do you think it is a coincidence that this whole industry flourished right after IR35 was introduced?). Clients won't deal with sole traders, only Ltd Co's. The "contractor structures" offered a suitable trading vehicle offering protection from IR35 and reduced admin burden compared to directing a Ltd.Co. for a very similar return. "Tax avoidance"? Please believe me when I say that most had never heard that word until the past couple years.
Again, please read the testimonies on our site, then make up your own mind.

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30th Mar 2016 00:01

.

Yeah, sure, I'll read your completely impartial opinions on your website.

I'm not sure I agree with your premise.  How do you conflate IR35 with schemes to avoid income tax on distributions from the company?  They are separate and distinct.

Also, how many loans have since been repaid to "IoM co"?  You know, the money they got because Mr IT Geek granted them the rights to most of his pay, free of charge. 

If all that is a commercial arrangement then I'm missing something big.  I'm not though.  You are just talking up your game. 

Try it on greedy contractors and people blinded by your odd arguments.  You won't get away with it on me. 

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30th Mar 2016 12:49

Agreed

AnnAccountant wrote:

Yeah, sure, I'll read your completely impartial opinions on your website.

I'm not sure I agree with your premise.  How do you conflate IR35 with schemes to avoid income tax on distributions from the company?  They are separate and distinct.

Also, how many loans have since been repaid to "IoM co"?  You know, the money they got because Mr IT Geek granted them the rights to most of his pay, free of charge. 

If all that is a commercial arrangement then I'm missing something big.  I'm not though.  You are just talking up your game. 

Try it on greedy contractors and people blinded by your odd arguments.  You won't get away with it on me. 

Looks like you've touched a raw nerve there Ann. As you've rightly said, what the ***k has IR35 got to do with Isle of Man loans? 

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Not "trying on" anything on you,as I said: make up your own mind

Ann,
My opinions don't matter. It's not "my opinions" that you'll find on the website I pointed you to, but a few dozens testimonials published as we received them (few "IT Geeks" among them - sorry not to fit your cliche.). If you had bothered to even go there, you would have known.

The "avoided tax" was never seen by your fictitious "greedy contractors" for a simple reason: it was swallowed by the scheme operator's (you know, the guys who peddled this cr*p to people by the truckload and who HMRC never seems to take any interest in) fees. The net for the contractor was largely equivalent to what a Ltd company (say, with pension contributions) would yield, and that's exactly how these schemes were mass-marketed to clients. So what's the advantage, then? Certainty vis-a-vis IR35, precisely.
To your "how many loans..." question, there is not one answer, as the arrangements existed in many variants.
 

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By cfield
30th Mar 2016 10:30

IR35 is a red herring

There was never any need to go for these convoluted schemes just to avoid IR35. All you had to do was put an unfettered substitution clause in your contract, and if it was truly unfettered IR35 disappeared as a serious threat. Most agency contracts now include this as standard.

The type of people investing in these schemes usually carry enough clout to negotiate their own contracts, so that was their simple solution. But of course, there was never any money in recommending something as simple as that!

I believe the idea of these schemes was to wait for inflation to weave its "magic" and then pay the loan back when it was worth a lot less in real terms.

A bit disingenuous I think to describe these new rules as retrospective just because the loans were taken out years ago. The benefit-in-kind will only be assessed from 2019 onwards.

Best advice for anyone caught up in these schemes is to recognise the game is up, be grateful they got away with it for so long, pay the loan back and then play by the same rules as everyone else from now on.

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By djn24
30th Mar 2016 10:41

Not really loans

cfield wrote:

There was never any need to go for these convoluted schemes just to avoid IR35. All you had to do was put an unfettered substitution clause in your contract, and if it was truly unfettered IR35 disappeared as a serious threat. Most agency contracts now include this as standard.

The type of people investing in these schemes usually carry enough clout to negotiate their own contracts, so that was their simple solution. But of course, there was never any money in recommending something as simple as that!

I believe the idea of these schemes was to wait for inflation to weave its "magic" and then pay the loan back when it was worth a lot less in real terms.

A bit disingenuous I think to describe these new rules as retrospective just because the loans were taken out years ago. The benefit-in-kind will only be assessed from 2019 onwards.

Best advice for anyone caught up in these schemes is to recognise the game is up, be grateful they got away with it for so long, pay the loan back and then play by the same rules as everyone else from now on.

From speaking to the promoters of these schemes a few years ago it was clear that these 'loans' would never really be repaid. In theory they could be asked to repay them but never would be.

This was just an artificial arrangement in my opinion which made some accountants a lot of money - For introducing a subcontractor and simply doing the tax return we were offered £1,500 per year!! We didn't touch it.

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30th Mar 2016 10:34

Hold on I'm confused!

So, I am a high earning professional who works for £7k a year and am lent extra money to live on, which I have to repay.  Doesn't sound very commercial to me, why would I do this?

I've not seen the HMRC 'propaganda', so I am not corrupted by it. I am just looking at the scheme impartially and objectively.

 

 

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By jimeth
30th Mar 2016 10:56

No sympathy

I have no sympathy with anyone who tries to exploit the tax system with such schemes.  The average employee cannot get their employer to "lend" them their pay indefinitely to avoid tax on it.  So why should anyone be allowed to do it - whether by their own initiative or by paying someone else to set up such an arrangement?  The idea that this is a genuine commercial arrangement rather than blatant abuse of the tax system just does not hold water.

And as to it being retrospective - they now have three years to pay back the loan!!  After all that is the commercial reality of the scheme - the loan is repayable!

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By jonsa
30th Mar 2016 11:46

@ Jimeth

jimeth wrote:

I have no sympathy with anyone who tries to exploit the tax system with such schemes.  The average employee cannot get their employer to "lend" them their pay indefinitely to avoid tax on it.  So why should anyone be allowed to do it - whether by their own initiative or by paying someone else to set up such an arrangement?  The idea that this is a genuine commercial arrangement rather than blatant abuse of the tax system just does not hold water.

And as to it being retrospective - they now have three years to pay back the loan!!  After all that is the commercial reality of the scheme - the loan is repayable!

Exactly my thoughts.  These clients are intelligent people.  So when told you will draw loans and never repay them, they did not think it odd plus the fact this was costing them a huge amount in fees. 

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30th Mar 2016 11:05

Peddlars

HMRC should target those that benefitted most from these schemes- the scheme promoters.  Sadly most of them have taken their ill gotten gains and fled these shores for sunnier climes.

Here's how to spot a scheme: is the fee 25% or 50% of the tax 'saved'?  Does it sound too good to be true?  Then it's probably a scheme designed to line the pockets of the promoters who will be long gone by the time HMRC catch up with you and demand tax, interest, penalties to rub salt in your wounds.

Luckily I avoid such schemes like the plague they are.

I have some sympathy for those caught up in this one as they will have been sold it by people they thought had their best interests at heart, but in reality were just pocketing large kickbacks for pushing people in to the scheme.

I do wonder how anyone pushing this scheme could keep a straight face when describing the payments as 'loans'.

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30th Mar 2016 11:31

they knew

Ian McTernan CTA wrote:

HMRC should target those that benefitted most from these schemes- the scheme promoters.  Sadly most of them have taken their ill gotten gains and fled these shores for sunnier climes.

Here's how to spot a scheme: is the fee 25% or 50% of the tax 'saved'?  Does it sound too good to be true?  Then it's probably a scheme designed to line the pockets of the promoters who will be long gone by the time HMRC catch up with you and demand tax, interest, penalties to rub salt in your wounds.

Luckily I avoid such schemes like the plague they are.

I have some sympathy for those caught up in this one as they will have been sold it by people they thought had their best interests at heart, but in reality were just pocketing large kickbacks for pushing people in to the scheme.

I do wonder how anyone pushing this scheme could keep a straight face when describing the payments as 'loans'.

How could any reasonably competent adviser not have known these schemes would not work?

how about s.213 IA 1986

or

s.993 Cos act 2006

These poor people were mis-sold

And where are their commissions that should have been accounted to them under professional rules.

Where was independence?

If you were sold these schemes your accountant let you down I'm afraid.

Professionals are meant to protect you that's what we have our rules for.

 

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30th Mar 2016 12:09

Repaid loans...

If the loan term on the scheme was, for example, 20 years, it doesn't make much sense to take the position that "the loan was always repayable so just repay it early if you want to avoid the upcoming charge"?

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30th Mar 2016 12:05

Pardon?

jonnieboy wrote:

So, if you had a mortgage over a 20 year period and the Government introduced new legislation to charge for any unpaid mortgage in three years time, that'd be OK...  just pay the loan back, right?  Idiot.

Pardon what?

PMSL

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30th Mar 2016 12:11

So do you...

[deleted]

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30th Mar 2016 12:12

Sorry jonnieboy

but not all loans are the same!

A mortgage generally means a loan with an interest charge so anyone taking out a mortgage would be paying an interest charge for the privilege along with a repayment of capital at some point!

The "loans" in question were effectively sold as being interest free, tax free and non repayable!

Unfortunately, greed overcame common sense - but that is how all good cons work - the con artists rely on the greed of the punter!

The old maxim of "if it seems too good to be true then it generally is" should always be borne in mind.

These schemes "worked" for a few years but now, in 3 years time, its payback time.

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By derek44
30th Mar 2016 12:29

Tax Avoidance or Evasion? Retrospective law

I think everyone has the right to arrange their affairs to pay the correct amount of tax. This is tax avoidance, to be done within the law.

I recall David Cameron talking about 'clever accountants' as if they are a problem. The real problem is 'stupid politicians' and an inept civil service not creating watertight tax law.

I hate retrospective law and regulation. Recognising a problem and correcting it is one thing. Applying law retrospectively is awful. For example, lets assume you always stick to a particular 40mph speed limit. Then the council decides to change to a 30mph speed limit. Then issues you with penalty notice, points and a fine because you previously exceeded the new lower speed limit. Unfair? Definitely.

As a society we need laws. But if you then retrospectively change those laws, which laws do you now obey? It brings the laws into doubt and loses respect. I think the government and HMRC are entirely wrong to try to pursue people who basically were following the letter of the law (even if you do feel they were being immoral). Just correct it for the future, and move on.

 

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By djn24
30th Mar 2016 13:15

?

derek44 wrote:

I think everyone has the right to arrange their affairs to pay the correct amount of tax. This is tax avoidance, to be done within the law.

I recall David Cameron talking about 'clever accountants' as if they are a problem. The real problem is 'stupid politicians' and an inept civil service not creating watertight tax law.

I hate retrospective law and regulation. Recognising a problem and correcting it is one thing. Applying law retrospectively is awful. For example, lets assume you always stick to a particular 40mph speed limit. Then the council decides to change to a 30mph speed limit. Then issues you with penalty notice, points and a fine because you previously exceeded the new lower speed limit. Unfair? Definitely.

As a society we need laws. But if you then retrospectively change those laws, which laws do you now obey? It brings the laws into doubt and loses respect. I think the government and HMRC are entirely wrong to try to pursue people who basically were following the letter of the law (even if you do feel they were being immoral). Just correct it for the future, and move on.

 

I see your point to a degree. However, we are talking about artificial arrangements set up with no commercial basis to avoid tax. I can't see how that can be correct.

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By cfield
30th Mar 2016 13:17

Wrong end of stick

derek44 wrote:

I hate retrospective law and regulation. Recognising a problem and correcting it is one thing. Applying law retrospectively is awful. For example, lets assume you always stick to a particular 40mph speed limit. Then the council decides to change to a 30mph speed limit. Then issues you with penalty notice, points and a fine because you previously exceeded the new lower speed limit. Unfair? Definitely.

As a society we need laws. But if you then retrospectively change those laws, which laws do you now obey? It brings the laws into doubt and loses respect. I think the government and HMRC are entirely wrong to try to pursue people who basically were following the letter of the law (even if you do feel they were being immoral). Just correct it for the future, and move on.

All they're doing is re-classifying these arrangements as benefits in kind where they are effectively disguised remuneration (and giving 3 years notice to boot). They haven't altered their tax status in previous years, so I don't see how you can call it retrospective.

To use your speed limit example as a comparison, if a council reduces the normal speed limit of 30mph to 20mph outside schools and hospitals, they are making something that used to be legal illegal, but they are not back-dating it so that you are fined for driving at 30mph before the new law came in. If it were otherwise, then all new laws would be retrospective.

If the Government were to tax people on these loans with effect from the date they were created, so that all of a sudden you've got a huge tax bill for previous years, then yes, I would agree with you, but they're not, are they, so I don't see how your analogy is relevant.

 

 

 

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30th Mar 2016 13:31

Wrong end of the stick

 

I think you do have the wrong end of the stick.

If I were a contractor earning £60,000 per annum who had been using an IR35 protection scheme for the last 15 years I could be looking at a tax bill on £900,000.

If that's not retrospective I don't know what is.

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30th Mar 2016 13:42

you chose

Andy Davis wrote:

 

I think you do have the wrong end of the stick.

If I were a contractor earning £60,000 per annum who had been using an IR35 protection scheme for the last 15 years I could be looking at a tax bill on £900,000.

If that's not retrospective I don't know what is.

You chose to arrange your affairs in that way?

this is no more retrospective than a change in dividend taxation

IR 35 protection scheme marvelous LOL

Lets try alter a question of fact did it alter the deemed salary calculation then? or didn't that bit work either.

someone about to lose their house and someones going to get sued for that?

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30th Mar 2016 14:52

you choose

 

1. No I don't - the givaway was the word 'if'.

2. Yes it is - the changes in dividend taxation mean I will (if I choose to pay myself in that way) have an additional tax liabilirty on FUTURE dividends. If I relied upon historical case law and made a legal (although now frowned upon) loan arrangement in 2009 which did not generate a tax liability, it would now. That's most people's definition of retrospective.

3. I thought you'd like that phrase. A bit more pc than 'tax avoidance scheme', or as you would probably like to call it 'dodgy tax dodging for the rich few who don't want to make their fair contribution to society scheme'.

4. What? And who said it didn't work - still a long way to go and the courts will decide eventually

5. No

Love the way this topicstirs emotions at both ends of the spectrum. Back to work now, things to do. There must be a way to get around this new dividend tax malarky. Let me think........................................

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By cfield
30th Mar 2016 13:46

So-called protection schemes

Andy Davis wrote:

I think you do have the wrong end of the stick.

If I were a contractor earning £60,000 per annum who had been using an IR35 protection scheme for the last 15 years I could be looking at a tax bill on £900,000.

If that's not retrospective I don't know what is.

If the "protection" scheme doesn't work than it doesn't protect, does it? It's not the law that's faulty but the scheme itself.

With regard to changing the law, did it not use to be the case that you could beat your wife with a stick so longer as it was no thicker than your finger? All the stick-makers who said their sticks were compliant as they measured your finger when you purchased their goods no doubt argued that new laws forbidding wife-beating were retrospective as it criminalised the use of their sticks for the purpose they were intended.

Everyone else would have just breathed a huge collective sigh of relief that at last the law had caught up with the evaders.

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31st Mar 2016 11:14

Earnings of £60k per annum? I thought it was a loan

Andy Davis wrote:

 

I think you do have the wrong end of the stick.

If I were a contractor earning £60,000 per annum who had been using an IR35 protection scheme for the last 15 years I could be looking at a tax bill on £900k.

If that's not retrospective I don't know what is.

So the contractor avoided paying any tax on £60k a year for 15 years.  Wonder what they put on their WFTC applications?

Either it's a loan or it's earnings, the phrase 'cake and eat it' springs to mind!

All HMRC seem to be saying is that the loan should now be repaid (it was a loan after all wasn't it?).  What's the problem, it isn't retrospective taxation? Oh, I see, so they don't have £900k, mmm.

There is a phrase which covers the scenario where you borrow money with neither the intention or the ability to ever repay it!

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31st Mar 2016 13:50

Avoidance?

Vaughan Blake1 wrote:

Andy Davis wrote:

 

 

So the contractor avoided paying any tax on £60k a year for 15 years. 

 

Avoided is the right word, and probably completely legal at the time (if he used the right structure).

Most agents have been helping their clients avoid NI for years by paying dividends instead of a market rate salary for their employment. I suppose this sort of avoidance is OK then?..............................

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31st Mar 2016 14:10

A matter of opinion

Andy Davis wrote:

Vaughan Blake1 wrote:

So the contractor avoided paying any tax on £60k a year for 15 years. 

Avoided is the right word, and probably completely legal at the time (if he used the right structure).

Most agents have been helping their clients avoid NI for years by paying dividends instead of a market rate salary for their employment. I suppose this sort of avoidance is OK then?..............................

Avoiding NI via low directors remuneration is completely open and truthfully reported. Use of artificial (non-business) transactions and pretending someone has given up real money and real wages in exchange for a 'real' loan isn't honest, isn't believable, and is closer to evasion than avoidance, likewise with the 'Working wheels' avoidance scheme. It is sheer fiction. The 'loan' was never going to be repayable, was it! It wouldn't achieve the objective otherwise. That makes it dishonest and artificial. Schemes based on dishonesty have never been 'legal'.

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31st Mar 2016 15:02

A matter of opinion

 

This forum has been discussing contractor arrangements. The Working Wheels Structure was set up for a different purpose (And I agree, was never going to work).With regard to your comments:

1. Most contractor loan arrangements are properly and truthfully reported via P11d's and self assessment returns. No information is withheld or concealed from HMRC.

2. Evasion, not even close. Paying your decorator in cash however.....................................

3. A Director deliberately reducing his salary to £10,000 for a job with a market rate salary of £100,000, in the knowledge that he will receive an investment return of £90,000 to cover the difference. Avoidance. It is an artificial arrangement that is, without doubt avoidance. Clear use of the legislation to gain a tax advantage that Parliament never intended. Just because you help your clients do it does not make it any less so. Need a new moral compass maybe?

I'm by no means a promoter of these schemes. (I have a couple of clients who have done things in this arena over the years) but I do keep myself well informed on the subject from people who fully understand this marketplace.

I can't just read the misinformed, prejudiced comments being made in the 'it's just not right camp' without playing a little 'Devil's Advocate'.

 

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By cfield
31st Mar 2016 14:39

Yes, that sort of avoidance is OK

Andy Davis wrote:

Most agents have been helping their clients avoid NI for years by paying dividends instead of a market rate salary for their employment. I suppose this sort of avoidance is OK then?..............................

Sadly it's not just the charlatans who can't tell the difference between proper tax planning using tried and trusted techniques and dishonest schemes based on fictitious arrangements. Politicians can't either. Neither can the public who are too easily brainwashed into thinking all tax avoidance is bad.

What these disreputable schemes have done is tar everyone with the same brush. We've been caught in the crossfire, resulting in a lot of good tax planning that anyone could use (not just the rich and famous) being torpedoed with little regard for fairness or principles of taxation.

So don't expect me to feel sorry for the idiots who fell for these schemes or the crooks who still peddle them. I'm more concerned about my own clients who really have been shafted by recent changes in the tax code, thanks largely to the poisonous climate created by multi-nationals paying absurdly low levels of corporation tax, senior civil servants masquerading as personal service companies and celebrities piling into dodgy offshore schemes. They've ruined it for all of us.

I've just renewed my PI insurance and saw a clause saying I need to disclose any tax mitigation schemes I get involved in. It saddened me, as I'd always used that phrase to distinguish respectable tax planning from the dodgy schemes. Even the ACCA favoured that phrase (or at least they did last time I looked). It appears it has now been hijacked by the charlatans to dress up their schemes as being more wholesome and benign than they really are, having turned "tax avoidance" into a dirty word. I wonder what phrase they will use once "tax mitigation" goes the same way.

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30th Mar 2016 21:38

Now do you agree?

If the Government were to tax people on these loans with effect from the date they were created, so that all of a sudden you've got a huge tax bill for previous years, then yes, I would agree with you, but they're not, are they, so I don't see how your analogy is relevant. 

 

Actually you are wrong and need to read the technical note which is hidden in Chapter 6 in paragraphs 5 and 6 is a proposal that, when the proposed charge at 5 April 2019 would be less than the tax originally due plus interest, the new charge will be increased. So the tax charge in 2019 could be an effective rate way above the basic, higher or additional rate on absolutely no grounds at all. 

Now do you say its retrospective tax collection?

I suggest people have a read of this before throwing all contractors off the cliff and understand the gravity of what is proposed. 

http://www.taxation.co.uk/taxation/Articles/2016/03/29/334535/lifting-disguise

 

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By cfield
31st Mar 2016 00:00

No, I still don't agree

Difficulttimes wrote:

Actually you are wrong and need to read the technical note which is hidden in Chapter 6 in paragraphs 5 and 6 is a proposal that, when the proposed charge at 5 April 2019 would be less than the tax originally due plus interest, the new charge will be increased. So the tax charge in 2019 could be an effective rate way above the basic, higher or additional rate on absolutely no grounds at all. 

Now do you say its retrospective tax collection?

I've just had a look at those paragraphs and what they appear to relate to is investment returns which would previously have been eligible for transitional relief where Part 7A applies, as in Chapter 5 Example 3.

I wouldn't exactly describe this as retrospective taxation in the sense you choose to interpret it, even though the Technical Note uses the phrase "retrospective action" in Chapter 2 para 6 and Chapter 4 para 4. It certainly doesn't increase the effective rate of tax on the original liability as it is only taxing the growth in the funds invested.

You might as well say that every Budget is retrospective as the tax changes kick in before the Finance Bill receives the Royal Assent.

By the way, no need to PM me on any further revelations as I receive alerts on all new posts anyway.

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30th Mar 2016 13:08

Lord Tomlin

 

What he said in 1936 still holds true today. You might not like it, but that is exactly how it should be.

It has been a fundamental bedrock of our tax system for 80 years, and I see no reason why that should change.

Those in the profession congratulating HMRC on the use of retrospective legislation to undermine one of the core principals we have all been brought up with should be ashamed of themselves.

We all use the tax system to help our clients reduce their liabilities - income shifting to a spouse, dividends instead of salary to name just a couple of avoidance techniques widely used and accepted.

Did I say avoidance? Sorry, 'acceptable avoidance' is OK, obviously........................... It must be if we all do it.

 

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30th Mar 2016 13:33

retrospective ?

Is it?

I don't think so sir!

the duke of Westminster case does still hold

as does the Ramsay principle.

Unacceptable avoidance? I would say these schemes are closer to Evasion when the truth is bent that far?

The normal stuff that works is taxing the transactions correctly in accordance with the law

If you think its the same thing then I will bet you're doing that wrong as well.

These are not the only areas of poor advice we are noticing from firms that flogged these cracpot schemes.

 

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12th Apr 2016 16:32

Spelling mistakes

The Black Knight wrote:

These are not the only areas of poor advice we are noticing from firms that flogged these cracpot schemes.

 

 

You struggle too............. it's crackpot.

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12th Apr 2016 16:39

touche

Andy Davis wrote:

The Black Knight wrote:

These are not the only areas of poor advice we are noticing from firms that flogged these cracpot schemes.

 

 

You struggle too............. it's crackpot.

touche

You would expect to get your title correct though unless that was bullshit.

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12th Apr 2016 16:57

touche

Not sure on the title comment..........

Nice use of a bit of French though

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