Share this content
32

While we await the Loan Charge Review I note this

https://webarchive.nationalarchives.gov.uk/20081024034406/http://www.hmrc.gov.uk/practitioners/macdo

Didn't find your answer?

"A loan to a beneficiary is not an emolument. It is simply an investment made by the EBT. At some point the loan will have to be repaid and the money will then be available to the trustee to disburse in line with the terms of the trust (which is likely to be in the form of emoluments)."

Not my words, but HMRC's. Thus it shows HMRC's view that such loans were always taxable as nonsense.

https://webarchive.nationalarchives.gov.uk/20090328044125/http://www.hmr...

Replies (32)

Please login or register to join the discussion.

Lone Wolf
By Lone_Wolf
05th Dec 2019 15:12

How big is your tax bill for this Justin?

We could see if we can arrange an AWeb whip round to help you.

Thanks (3)
Replying to Lone_Wolf:
avatar
By Justin Bryant
05th Dec 2019 15:33

.

Thanks (0)
Replying to Lone_Wolf:
avatar
By Justin Bryant
05th Dec 2019 15:32

Ho, ho! And the fact you have nothing sensible to say about my above comment (and more importantly HMRC's above comment) speaks volumes about all this.

Thanks (0)
Replying to Justin Bryant:
Lone Wolf
By Lone_Wolf
05th Dec 2019 15:41

I rarely have anything sensible to say about anything, so I doubt it speaks volumes about anything.

Thanks (0)
Replying to Lone_Wolf:
avatar
By Justin Bryant
05th Dec 2019 15:58

Well, OK. The absence of any sensible comments to the contrary from anyone (excluding the usual resident trolling muppets of course) speaks volumes.

Thanks (0)
Replying to Justin Bryant:
Lone Wolf
By Lone_Wolf
05th Dec 2019 16:10

Maybe all the sensible commentators see that YOU started the thread, and realise it won't be a sensible discussion. Just one thought...

Thanks (5)
avatar
By Trethi Teg
05th Dec 2019 16:22

Justin is absolutely correct. Anyone with any knowledge of these matters will have seen this archive previously. What i cannot work out is how HMRC and Government have been able to get away with turning things on their heads and say "HMRC always said these arrangments didn't work". I assume that this evidence has been submitted to the review being carried out but things do get missed.

I assume that Ann Accountant and other like minded trollers will no doubt have something sarcastic to say here, but if anyone who seriously wants to join does so then we can have a sensible adult conversation.

Thanks (1)
avatar
By justsotax
05th Dec 2019 16:30

'repaid'...oh I laughed......which of course we also know to be nonsense but would love to see just how many of these EBT loans have been repaid....above 1% anybody?....I doubt it....

Thanks (4)
Replying to justsotax:
By ireallyshouldknowthisbut
05th Dec 2019 18:06

Now now, they are loans when made, but magically despite never having been repaid, no loans are o/s when it comes to the loan charge.

Its a really special sort of loan only really smart tax people know about, and plebs like me don't understand because we are thick.

See also tailors making invisible cloth.

Thanks (3)
Replying to ireallyshouldknowthisbut:
avatar
By SWAccountant
06th Dec 2019 09:05

Actually, although the loan charge is pretty well drafted there are holes in it.

It taxes, for example, loans made from X but not Y. Most EBT loans etc I've seen (admittedly not many) come from Y.

Thanks (0)
avatar
By SWAccountant
05th Dec 2019 16:39

The whole thing is nonsense. HMRC just doing what they like. If they want something taxable, they just try and tax it.

We've a client being told that the "income" is taxable as salary as it isn't really a loan, but at the same time they're trying to charge IHT on it on the basis that it is a loan.

Make your mind up.

Thanks (0)
Replying to SWAccountant:
Lone Wolf
By Lone_Wolf
05th Dec 2019 19:35

See the problem is that it's taxable on the employee on the way into the trust.

What the trust then does with it is then subject to trust tax rules. If it is loaned to a beneficiary and then written off, it is subject to the rules applicable to trusts. Thems the breaks.

Poor planning all in all. Justin and his ilk are just bitter they weren't as clever as they thought they were.

That's not to say the way HMRC have handled this is right by the way. That's appalling in it's own way.

Thanks (2)
Replying to Lone_Wolf:
avatar
By SWAccountant
06th Dec 2019 09:07

So is it a loan or is it not a loan?

its only taxable on the way into the trust following Rangers (and even then only when certain circumstances apply).

I get that the tax treatment can differ, but make your mind up what you're calling it.

Thanks (0)
Replying to SWAccountant:
Lone Wolf
By Lone_Wolf
06th Dec 2019 09:44

It's both, at different points.

Those that deliberately try and force the line that the issue is about whether it is a loan or not are at best being disingenuous.

On the way into the trust, it is a payment made by the employer for the benefit of the employee, into a trust they are the beneficiary of. Therefore, it is taxable on the employee as employment income. No loan exists between trust and employer. The tax charge arises as funds meant to reward the employee have been diverted to a 3rd party. This seems to be the bit that most scheme providers slipped up on, and are now shouting about how unfair it all is.

And I don't think it's fair to say that it's only taxable following Rangers. The rule about diverting income to 3rd parties is a lot older than the Rangers case, the Rangers case simply applied this principle to show why it is taxable - a point that seemed to have been missed in the earlier court hearings if I'm not wrong.

It seems that the scheme providers, and HMRC, missed this point, and perhaps that's why so many people get caught up in the "is it a loan or not" argument. But it was always the law (at least it was the law whilst EBTs were on the go). The court simply applied that law to the transaction.

The employee has then decided to take a loan from that trust, rather than drawing the money out definitively. Granted, this choice has been made as they thought it was side stepping an income tax charge, but that point has already been passed by the first step. And therefore, the employee has a loan with their trust. That is a loan. The fact that it is a loan, does not override the fact that the tax charge arises on the way int the trust.

Those loans will now be deemed taxable by the April 2019 loan charge, unless they are repaid. That element of the story is scandalous in my opinion. These schemes fail as detailed above, and so they should be pursued through the courts. The introduction of the loan charge is an unfair move to side step due process in my opinion by levying a charge on the loans. It stinks of HMRC realising they have messed up in parts, and looking for a "get out". You might think that's fair enough that these people pay the tax that was due. I agree, and that should be done through the courts. Imposing the loan charge is not the answer.

Thanks (0)
Psycho
By Wilson Philips
05th Dec 2019 20:51

One way of looking at this is to consider that at one point many years ago HMRC naively thought that the loans were genuine and would actually be repaid. However, with the benefit of hindsight, HMRC now realise that they were a sham and that if they had known that at the time they would have considered the loans (sic) taxable then.

In other words, there is a difference between saying that one’s current view is that they should always have been taxable and saying that one’s view has always been that they should have been taxable.

It is also worth bearing in mind that HMRC are responsible for implementing tax legislation - they do not write it.

But that is not to say that I condone HMRC’s handling of the charge, and I echo Lone Wolf’s sentiment in that regard.

Thanks (4)
Replying to Wilson Philips:
avatar
By unearned luck
05th Dec 2019 23:14

"Sham" is a strong word to use. It is tantamount to fraud. The SC said that HMRC did not allege that the arrangements were shams in their defence of the appeal. The SC (and lower courts and tribunals) did not hold that the arrangements were shams. You are eliding the difference between avoidance and evasion. They are not quite equally reprehensible. Not only were HMRC too slow to tackle ETB avoidance they also did so in the wrong way until the Court of Session hearing.

Thanks (0)
Replying to unearned luck:
Psycho
By Wilson Philips
06th Dec 2019 06:50

I am not implying or eliding anything - that is your inference. I was simply using the word in the sense of purporting to be something while being something else. These ‘loans’ were described as such whereas, with the benefit of hindsight, they are in substance something else. (That being only a suggestion as to how one might view the issue.)

But you missed my main point- which was to draw a distinction between thinking that something has always been taxable and always thinking that something has been taxable.

Thanks (0)
avatar
By whitevanman
05th Dec 2019 21:16

I think the subject is too complex to be dealt with by Justin's one-liners (sorry Justin, I am not having a go).
HMRC's view of things (generally, not just EBT's) changes over time as a result of many factors. This is no different to the rest of us.
Dextra was decided around 2005 (ish) and was, I understand, taken because it was a "clean" case. That is to say, the loans were made by a large employer for the benefit of what I might call "ordinary" employees. It was not the more typical case where the arrangements are made by and for the benefit of directors who are also controlling shareholders. It was hoped that in taking such a case, the decision would be widely applicable and would not be easily challenged as being attributable to it's own, peculiar, facts (how naive!).
The comment about loans not being emoluments was the opinion, at that time, for cases like Dextra.
As far as I am aware, HMRC have always taken the view that these types of scheme do not work. The actual challenges have, however, varied over time (as have the steps taken by the users and the arguments they have presented).
You also need to have regard to what was, apparently, being avoided.
If the company was denied relief at say 30% for CT and the director faced possible IHT charges at 20 / 40% it was perhaps bearable that the director escaped tax at 20% /40% and NIC. That situation has changed markedly over the intervening years and not surprisingly, so too has the attitude of government to the apparent tax leakage.
As I say, it is inappropriate to treat these things as capable of one line answers or as being static. As with all other such matters, it is necessary to have regard to all the relevant facts (not just the ones you like!).

Thanks (4)
Replying to whitevanman:
Psycho
By Wilson Philips
05th Dec 2019 21:25

Well said

Thanks (0)
avatar
By Tax Dragon
06th Dec 2019 11:29

Justin Bryant wrote:

HMRC's view [is] that such loans were always taxable.

There's so much been said I've forgotten who said what when.

Please remind me, where did HMRC publish this nonsense view?

Thanks (0)
Replying to Tax Dragon:
Lone Wolf
By Lone_Wolf
06th Dec 2019 12:48

Come now. You have been here long enough to know that Justin doesn't substantiate his claims. The very fact you have asked proves in his mind that you are only one of the "trolling muppets" to which he refers.

Thanks (0)
Replying to Lone_Wolf:
avatar
By Tax Dragon
06th Dec 2019 14:43

I know Justin thinks I'm a (prize!) muppet; I wasn't sure he thought I was a troll. Thank you for clarifying.

But I'm happy for anybody else to point me in the right direction (for HMRC's comment).

Tangentially, I know Justin also thinks I am overly prone to allege mortgage fraud - I think he thinks it's my nervous twitch, or Tourette's. Without making any allegations about anybody, I am curious about what someone who has borrowed from EBTs etc did (and indeed does) tell mortgage providers about their finances. First off, when I took out a mortgage, the provider was curious about my earnings. Obviously, loans aren't earnings. Second off, they were curious about my debts.

I repeat, I am not alleging fraud. Unless you want me to talk about the loan scheme promoters themselves, who (IMHO) are as guilty as sin.

Thanks (1)
Replying to Tax Dragon:
avatar
By Tax Dragon
06th Dec 2019 16:11

Tax Dragon wrote:

But I'm happy for anybody else to point me in the right direction (for HMRC's comment).

Applying a bit of Justin logic here (

Justin Bryant wrote:

Well, OK. The absence of any sensible comments to the contrary from anyone (excluding the usual resident trolling muppets of course) speaks volumes.

) I guess the absence of anyone pointing me to HMRC's alleged quote means it doesn't exist.
Thanks (1)
Replying to Tax Dragon:
avatar
By Tax Dragon
07th Dec 2019 09:56

Tax Dragon wrote:

I am curious about what someone who has borrowed from EBTs etc did (and indeed does) tell mortgage providers about their finances....

The loan scheme promoters... are as guilty as sin.

Is see that Adam12345 made both these points in the recently-resurrected "Interesting EBT case" thread - possibly answering one of my queries in so doing.

Thanks Adam. I wasn't (consciously) plagiarising - like I said when I came in above, there's so much been said I've forgotten who said what when.

Thanks (1)
Replying to Tax Dragon:
avatar
By unearned luck
07th Dec 2019 17:18

It seems that St Elizabeth of Hungary is the patron saint of EBT scheme users who applied for a mortgage. She was forbidden by her husband from feeding the poor. One day when leaving the house with a basket of bread, he stopped her asking what was in the basket. "Flowers" she answered. "Show me" he said. She lifted the cover and in side the basket were roses.

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
20th Dec 2019 19:30

From page 17 of link below:

"HMRC has opened thousands of enquiries into the use of these schemes as
our view is that the arrangements under which the loans are made are, and have always been, taxable"

https://www.tax.org.uk/sites/default/files/Loan%20charge%20briefing%20pa...

See also this from link below:

"In a letter to all MPs prior to the amendment Stride claimed that the legislation itself was not retrospective.

“The schemes never worked under the law that existed at the time they were used,” said the letter. “A number of court successes, including in the Supreme Court, support the view that the payments to the individuals were always taxable as income. Even without the loan charge, HMRC would be legally obliged to pursue the tax due.”"

https://www.accountingweb.co.uk/tax/hmrc-policy/mps-force-loan-charge-re...

Thanks (1)
Replying to Justin Bryant:
avatar
By whitevanman
20th Dec 2019 20:20

I do not understand the point you are trying to make in re-visiting, yet again, this matter.
It would probably be better if you actually read the cases and articles you have linked to and focussed on what they actually say, rather than what you would like them to have said.
In the quote above, HMRC say "...view IS, that the ARRANGEMENTS...have always been taxable".
What exactly is wrong with that? It merely sets out the current understanding.
Also, the letter from Stride says "The schemes never worked under the law that existed at the time they were used".
Again what is wrong with that?
In broad terms, the Rangers case shows that payments to Trusts are taxable remuneration. That is a statement as to the correct interpretation of the law as given by the SC. The law has always applied in that way. It is just that the various parties did not properly understand the law until it was explained in the Rangers case.
Which bit of this do you not understand?

Thanks (1)
Replying to whitevanman:
Psycho
By Wilson Philips
20th Dec 2019 22:40

whitevanman wrote:

Which bit of this do you not understand?


Apparently, all of it.
Thanks (1)
Replying to whitevanman:
avatar
By Tax Dragon
21st Dec 2019 00:30

whitevanman wrote:

I do not understand the point you are trying to make in re-visiting, yet again, this matter.

Justin was providing a direct answer to a direct question. (Mine.)

I thank him for so doing.

Thanks (0)
Replying to Tax Dragon:
avatar
By johnhemming
21st Dec 2019 17:40
Thanks (0)
Replying to whitevanman:
avatar
By Justin Bryant
23rd Dec 2019 12:53

Your comment is not even wrong/worthy of my scorn.

Thanks (0)
avatar
By Jdopus
09th Dec 2019 11:54

Isn't the key bit of this text that the loan will have to be repaid? That was what these were all defeated on in the first case, that the organizers got greedy and decided that when they were pretending a transaction was a loan that they didn't need to bother making any arrangements for the loan to be repaid.

You could still avoid the assessment simply by repaying the loan.

Thanks (0)
Share this content

Related posts