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EBTs and the April 2019 Loan Charge

EBTs and the April 2019 Loan Charge

Working with a couple of clients looking to settle with HMRC.

Usual scenario - employer company paid a sum to a trust, which then set up sub trusts which loaned money to the individuals. April 2019 charge will apply.

Tax enquiries have been open for a number of years (4 years’ worth of returns) and there doesn't seem to be any impending "day in court" so to speak. APNs have been issued but are currently subject to judicial review. Long story short, there's next to no chance that the tax case will be settled by 5 April 2019.

Which brings me to the April 2019 loan charge. From what I can gather, assuming this is not repaid, this is going to apply regardless of the success of the underlying tax cases.

Assume for a minute we have an extra efficient court system which managed to hear the case at the FTT all through to the supreme court and it decides that my client's scheme was fine (no laughing at the back), i.e. not a disguised remuneration scheme. Is the tax paid under the loan charge then lost?

Or does the fact that it is deemed not to be a disguised remuneration scheme mean the loan charge doesn’t apply?

I hate EBTs…

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25th Sep 2018 18:14

For this not to be a 2019 loan charge problem a court would have to decide that the loan (or purported loan or other credit etc. arrangement) is outwith the relevant P7A 2019 loan charge legislation and any competent tax adviser who examines the client's scheme will know if that's the case or not and whether the scheme works otherwise or not is irrelevant.

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26th Sep 2018 07:58

The loan charge will apply if you don't settle with HMRC. I would contact HMRC by 30 September.

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01st Oct 2018 10:15

You are correct that a Tribunal hearing to make some sort of sense of the situation will not happen before the 5th April 2019. Partly this is because of a lack of tribunal time and partly (mostly) because HMRC has been working hard to delay those cases in the system that have been waiting for a couple of years or more.
HMRC defend the retrospective nature of the loan charge by arguing that it's "a new tax on a new source". Nonsense.
It's a tax on money paid from 1999 to 2019, which fits a description that was in the statute book in 2010 and which has moved around ever since.
However, to maintain the fiction, HMRC says that tax paid under the loan charge can be used to frank liability for the years in which the loans were made - plus interest -but any excess paid, is not recoverable.
I've never seen a tax that is in effect a non refundable penalty for not accepting an HMRC that has no Judicial or legal sanction.
As to whether what you have is a disguised remuneration scheme, you need to do your research and analyse the scheme because in our experience of perhaps 100+ schemes, surprisingly few (and certainly not as many as HMRC consider) do.

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