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Retrospective tax imposed on contractors’ loans

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29th Mar 2016
Tax Writer Taxwriter Ltd
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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. 

Replies (550)

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Replying to Tax Dragon:
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By Vaughan Blake1
20th Apr 2016 09:34

Was that who should pay?

Andy Davis wrote:

Vaughan Blake1 wrote:

Answering questions with questions won't work in court!

I asked you one back on page 8 (a long time ago now). Care to offer a response?

Sorry page 8 seems a long way back.  If it was the point on who should pay, then the reg 80/81 point covers it.  If it was something else please remind me.

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Replying to Tax Dragon:
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By Vaughan Blake1
21st Apr 2016 09:47

Absolutely right

Andy Davis wrote:

Vaughan Blake1 wrote:

Sorry page 8 seems a long way back.  If it was the point on who should pay, then the reg 80/81 point covers it.  If it was something else please remind me.

Yes, that's the one. You agree it's the employers liability as well then. Thanks.

Failure to correctly operate PAYE is primarily the employer's responsibility.  However, if the reg 80 determination remains unpaid after 30 days a reg 81 determination can be issued on the employee if they are complicit in the scam, which seems to cover the contractor loans scheme.  This would have been the correct way to deal with this. 

I agree that HMRC don't come out of this smelling of roses, their actions have the usual hallmark of being too slow and then countering this by being too heavy handed.

BUT, and this is an enormous BUT, these loan schemes stink to high heaven. I will reserve my sympathy for the pensioners whose tax has got into a hideous muddle due to a fundamental flaw in the tax system.

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Replying to Duggimon:
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By Andy Davis
21st Apr 2016 14:03

Sympathy

Vaughan Blake1 wrote:

Failure to correctly operate PAYE is primarily the employer's responsibility.  However, if the reg 80 determination remains unpaid after 30 days a reg 81 determination can be issued on the employee if they are complicit in the scam, which seems to cover the contractor loans scheme.  This would have been the correct way to deal with this. 

I agree that HMRC don't come out of this smelling of roses, their actions have the usual hallmark of being too slow and then countering this by being too heavy handed.

BUT, and this is an enormous BUT, these loan schemes stink to high heaven. I will reserve my sympathy for the pensioners whose tax has got into a hideous muddle due to a fundamental flaw in the tax system.

[/quote]

Don't get me wrong. I, and the other posters in this thread who defending the position are not asking for any sympathy. Merely that those who entered into such arrangements are allowed a fair hearing in a court of law.

If the 'scheme stinks', fine, demonstrate that in Court and chase the offenders for the tax. I have no problem with that.

The majority of people posting seem to have accepted that the liability to the tax lies (if it exists) with the employer, and it is the employer therefore who should be persued for the tax in the first instance in any event.

For HMRC to raise demands on the employees (via APN's or any other mechanism) they need to demonstrate that it is appropriate to do so in Court, not just because they feel like it.

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Replying to carnmores:
By DotasScandalDotOrg
21st Apr 2016 16:23

You'd think that 500 posts in...

Andy Davis wrote:

Don't get me wrong. I, and the other posters in this thread who defending the position are not asking for any sympathy. Merely that those who entered into such arrangements are allowed a fair hearing in a court of law.

....we'd have managed to get the point across!!

But maybe it's gonna take another 500...

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Replying to atleastisoundknowledgable...:
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By thehaggis
21st Apr 2016 20:55

500 posts too many

DotasScandalDotOrg wrote:

Andy Davis wrote:

Don't get me wrong. I, and the other posters in this thread who defending the position are not asking for any sympathy. Merely that those who entered into such arrangements are allowed a fair hearing in a court of law.

....we'd have managed to get the point across!!

But maybe it's gonna take another 500...

Among those 500 posts you have been banging on about wanting a day in court to defend your "this is a loan" position. I agree, but the article has nothing to do with whether these are loans or not. The article tells us about a new tax, let's call it a "loan tax", that will apply from 2019.

If you are correct and you have not received remuneration but loans, you will need to pay this new loan tax.

If you are wrong and you have received remuneration, you will pay income tax, and the loan tax will not apply.

 

 

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By gordo
19th Apr 2016 16:26

Rangers

Vaughan you did already look at the Rangers case and established that the judges found that the loans were repayable.

The reason that the HMRC took Rangers (rather than a different football team?) was precisely because of the question of side letters which everybody else was astonished to learn might exist.

Having been unable to win that one HMRC must have panicked realising that they were spectacularly unlikely to win other cases.

HMRC have done all their research and mystery shopping. They have had full details disclosed under DOTAS and their subsequent enquiries stretched out over a number of years.

They have raised Reg 80 assessments and these have been appealed meaning that this should them go to Tribunal if a dispute still remains.

It is HMRC that are trying to avoid going to Court for fear they will lose.

Hence they have decided to dispense with the legal process and seek to make up their own.

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Replying to Jason Croke:
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By Vaughan Blake1
19th Apr 2016 17:20

But Rangers lost!

gordo wrote:
Rangers Vaughan you did already look at the Rangers case and established that the judges found that the loans were repayable. The reason that the HMRC took Rangers (rather than a different football team?) was precisely because of the question of side letters which everybody else was astonished to learn might exist. Having been unable to win that one HMRC must have panicked realising that they were spectacularly unlikely to win other cases. HMRC have done all their research and mystery shopping. They have had full details disclosed under DOTAS and their subsequent enquiries stretched out over a number of years. They have raised Reg 80 assessments and these have been appealed meaning that this should them go to Tribunal if a dispute still remains. It is HMRC that are trying to avoid going to Court for fear they will lose. Hence they have decided to dispense with the legal process and seek to make up their own.

Due to the 'nod and a wink' agreements.

The Court also criticised the Tribunals for missing the B obvious.

 

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Replying to susanreed:
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By The Black Knight
19th Apr 2016 17:26

that's what i thought too

Vaughan Blake1 wrote:

gordo wrote:
Rangers Vaughan you did already look at the Rangers case and established that the judges found that the loans were repayable. The reason that the HMRC took Rangers (rather than a different football team?) was precisely because of the question of side letters which everybody else was astonished to learn might exist. Having been unable to win that one HMRC must have panicked realising that they were spectacularly unlikely to win other cases. HMRC have done all their research and mystery shopping. They have had full details disclosed under DOTAS and their subsequent enquiries stretched out over a number of years. They have raised Reg 80 assessments and these have been appealed meaning that this should them go to Tribunal if a dispute still remains. It is HMRC that are trying to avoid going to Court for fear they will lose. Hence they have decided to dispense with the legal process and seek to make up their own.

Due to the 'nod and a wink' agreements.

The Court also criticised the Tribunals for missing the B obvious.

 

 

that's what I thought too

it is being appealed to the supreme court but these schemes fight on to the bitter end. Like some monty python sketch, Tis only a scratch !

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Replying to kenny achampong:
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By Andy Davis
19th Apr 2016 17:30

Tis only a scratch

The Black Knight wrote:

Vaughan Blake1 wrote:

gordo wrote:
Rangers Vaughan you did already look at the Rangers case and established that the judges found that the loans were repayable. The reason that the HMRC took Rangers (rather than a different football team?) was precisely because of the question of side letters which everybody else was astonished to learn might exist. Having been unable to win that one HMRC must have panicked realising that they were spectacularly unlikely to win other cases. HMRC have done all their research and mystery shopping. They have had full details disclosed under DOTAS and their subsequent enquiries stretched out over a number of years. They have raised Reg 80 assessments and these have been appealed meaning that this should them go to Tribunal if a dispute still remains. It is HMRC that are trying to avoid going to Court for fear they will lose. Hence they have decided to dispense with the legal process and seek to make up their own.

Due to the 'nod and a wink' agreements.

The Court also criticised the Tribunals for missing the B obvious.

that's what I thought too

it is being appealed to the supreme court but these schemes fight on to the bitter end. Like some monty python sketch, Tis only a scratch !

Now. In the current Rangers decision who have the court found liable for the tax? Was it Rangers or the employees?

You see, even in the decisions that go in HMRC's favour it's not the employees on the hook for the tax - and in the Rangers case they even had side letters!!!!!!

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By Vaughan Blake1
19th Apr 2016 17:34

No relevance!

Without a 'nod and a wink' side agreement anybody would be mad to sign an agreement agreeing to repay 90% their earnings on demand or as some agreements said, on the contractor's death. Rangers certainly had such a side agreement and I would be astonished if other schemes didn't have them too.  In fact I would be astonished if any scheme didn't have one in some form or another.

Who would do that to their family?  "Sorry dear, didn't I mention that you will be saddled with a £1m debt at some random point in the future or when I die".

I would also wager that the schemes still available have a QC's learned opinion attached confirming that all is OK.

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By DotasScandalDotOrg
19th Apr 2016 17:36

Precisely

That HMRC did not serve us their usual over-the-top triumphalism following the Rangers "win" was quite telling. 

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By gordo
19th Apr 2016 18:10

Prepare to be astonished Vaughan
(if HMRC ever let them come to Court and don't manage to circumvent the rule of law).

Did I not say in my post that everybody else was astonished to find that Rangers (players) did indeed have side letters. Why do you think HMRC pursued Rangers and not AN Other.

The score is 2-1. Next goal is the winner.

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By gordo
20th Apr 2016 07:13

Are HMRC trying to pull the wool over our eyes?
I've been consistent all the way through this thread in saying that HMRC are trying to pull the wool over our eyes.

- They must know that there is a good chance they will lose in the Courts against DOTAS registered schemes that are currently in the Tribunal system, pushing for a hearing. 

- They must know that there is a high likelihood that they will lose the Rangers case in the Supreme Court, meaning that they then have zero grounds for ANY APN's.

Most importantly:
- They surely know that as things stand there is absolutely NO GROUNDS for their action of issuing APN's to individual contractors. Think about that.

What they are doing to thousands of Contractors is potentialy a scandal of enormous proportions. Charging citizens to a tax that doesn't exist! And then trying to mislead you into getting clients to throw in the towel.

I Am amazed that some Accountants on here don't seem to care about what HMRC might be doing.

Divide and conquer. The Employer would fight back, so let's go after the individual Contractors who as individuals will not have the funds to fight HMRC. (If they don't form support groups)

So their plan is, before you notice that they lost in Court, let's change the law and back date the impact. 

Meantime let's confuse the line between Evasion and Avoidance and send letters written by Behavioural Psychologists to mess with your mind and influence you to make "better choices" (for whom).

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By ShirleyM
21st Apr 2016 08:33

I understand the desperation

If I had dodged tax (sorry, I meant borrowed most of my income - tax free) for many years, spent the money, and then HMRC came a calling for some tax on that income, I would try to get someone else to pay the consequences.

I don't mind who pays and I would be VERY happy if the promoters and abetters (the so called employers) paid the consequences, so long as it isn't the taxpayer. We have to get the tax. The UK really needs the money.

 

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By Justin Bryant
21st Apr 2016 10:03

Putting emotion to one side

Our job as accountants/lawyers is to impassionately advise clients about solutions to their problem(s) and there will be solutions for people who would otherwise be facing bankruptcy etc. here, but it would obviously be inappropriate to post these potential solutions on this forum, but any good tax lawyer will be aware of such potential solutions (some of which are pretty simple and inexpensive), which should obviously be considered by anyone concerned about this in due course.

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By gordo
21st Apr 2016 14:14

In debt
We are probably at least £4,800bn in debt.
(Published figure is £1,600bn but they don't include state or public pension liabilities)

Despite government claims and news headlines that borrowing has gone down, it actually goes up each month.
(They compare how much they borrowed this month as compared to same month last year and then give misleading statement that borrowing has gone down.)

Increase in borrowing last year £74bn

Apparently £2.7bn was ''lost' to avoidance last year. (6 times more was lost to fraud including £4.4bn to evasion and £6.2bn to hidden economy).

The total tax gap claimed to be 6.4% of the £533.4bn in total taxes collected last year.

Tax avoidance at £2.7bn.
Annual increase in debt £74bn
Debt at £4,800bn
Tax collected £533.4bn

Even if we increased taxes by 100% it would hardly make a dent.
I think we are in big trouble, but not convinced that the Contractors are to blame.

Government spending, now that's another matter.

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By Andy Davis
21st Apr 2016 14:05

Oops

Screwed up the quote thing in the last post - sure you can all work it out!

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By DotasScandalDotOrg
21st Apr 2016 21:13

Not a "loan tax"

A "disguised remuneration loan tax"

Who will determine whether a loan is "disguised remuneration" and how? 

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Replying to Tax Dragon:
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By thehaggis
22nd Apr 2016 08:13

Easy

DotasScandalDotOrg wrote:

A "disguised remuneration loan tax"

Who will determine whether a loan is "disguised remuneration" and how? 

It is the role of Parliament to make legislation.  In a situation where a loan is taken instead of remuneration, the remuneration is disguised as a loan and will be caught,

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By ShirleyM
22nd Apr 2016 07:51

Maybe ...

... the 'disguised remuneration loans' could be identified as 'non-commercial' loans, ie. no credit checks, interest free and no repayment plan, and all by reason of employment and (to prevent honest people being caught up) the money loaned hadn't been taxed at source and tax relief not claimed upon it.

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By Difficulttimes
22nd Apr 2016 08:14

Seems like we are still going around circles just with different people in the circles now.. 

I read this quote yesterday from a senior director at Stephenson Harwood (legal practice in the city) who was interviewed and asked Name a recent development in tax that caught your eye.

His response was..

I’m concerned about the Murray case, which involved the now infamous EBT, as I feel that the court has gone too far in stretching the law to accommodate the wishes of HMRC. It is difficult to see how, according to the legislation in force at that time, the payment to the EBT could be seen as earnings of the employees. Otherwise, why would it have been necessary to introduce the ‘disguised remuneration’ rules in 2011? 

He is far more qualified than myself on this matter and no disrepect but probably many of us. Anyway, I thought it was somewhat reassuring that it wasn't just the few of us on this forum who are beating this drum. 

I know I will get comments now like 'of course he will say that', 'he has a vested interest' etc. etc. But all of us have a vested interest from Joe Public who thinks we were avoiding tax, to the accountant who thinks these were dodgy schemes, the contractor who is now dealing with the consquences or the HMRC officer who thinks contractors have been getting away with this for too long.  

But I don't really care but this goes to show the concern that many people outside of us contractors have with the current plans with the Government. 

 

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Replying to SXGuy:
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By thehaggis
22nd Apr 2016 08:19

CoS was Wrong

Difficulttimes wrote:

Seems like we are still going around circles just with different people in the circles now.. 

Sorry for coming in so late.

I agree that the Court of Session got it wrong. I hope that will be corrected in the Supreme Court.

The new proposed law is being made to redress the balance. Whether or not the loans are legally loans in the eyes of the law, they are in reality a form of remuneration.  The proposal is to tax that form of remuneration, and most people who have contributed to this discussion see nothing wrong with that

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By Vaughan Blake1
22nd Apr 2016 09:38

Was amused to read...

on a contractor's website, a post from a contractor who had signed up with a large promoter running an EBT.  The promoter is now asking for a 10% loan repayment, the contractor was most affronted, and posted that this was despite having an email confirming that the loan would never have to be repaid!

Whilst he sensibly didn't name the scheme in the post, it didn't take Hercule Poirot to work out which one it was, from his earlier posts.

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By gordo
22nd Apr 2016 09:40

Extraordinary and scary
Most people on this forum seem to think nothing wrong with the Courts having ruled that the citizens acted within the law at the time, but we will now bring in a new law to defeat the rule of Court and backdate the impact so that the transaction is taxed as if caught by rules brought in during 2011, even though they weren't caught!

Extraordinary and scary

I thought that Accountants would understand that we have laws not emotions to decide how someone is taxed and you can't/shouldn't backdate the law based upon the weight of public opinion.

http://www.ft.com/cms/s/0/44626a5e-ffd1-11e5-ac98-3c15a1aa2e62.html?site...

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Replying to geoffmw1:
By DotasScandalDotOrg
22nd Apr 2016 10:16

Good read from the FT

gordo wrote:
http://www.ft.com/cms/s/0/44626a5e-ffd1-11e5-ac98-3c15a1aa2e62.html?site...

Thanks for the link, gordo. Good read. The comments section also worth a visit.

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By gordo
22nd Apr 2016 09:43

Vaughan

If said Contractor has an email saying loan will not have to be repaid, then it's not a loan or is no longer a loan.

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Replying to Not Anonymous:
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By Vaughan Blake1
22nd Apr 2016 11:53

Quite!

gordo wrote:
Vaughan If said Contractor has an email saying loan will not have to be repaid, then it's not a loan or is no longer a loan.

So, if now it is seeping out of the woodwork that all the large schemes all had this aspect, then HMRC are not being retrospective as, QED, it isn't (and probably never was) a loan!

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Replying to rmillaree:
By DotasScandalDotOrg
22nd Apr 2016 12:32

Quite a stretch!

Stating that "all the large schemes all had this aspect" is....quite a stretch.

(Then again we've only seen a few dozen of large schemes, so what do we know)

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Replying to Clive Greenway:
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By Vaughan Blake1
22nd Apr 2016 12:48

I did say "If"....

DotasScandalDotOrg wrote:

Stating that "all the large schemes all had this aspect" is....quite a stretch.

(Then again we've only seen a few dozen of large schemes, so what do we know)

But I'd bet that the one referred to isn't alone.

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Replying to lionofludesch:
By DotasScandalDotOrg
22nd Apr 2016 12:56

Quite a different thing to say

"All the large schemes" is not quite the same as "the one referred to + a few others". Certainly some schemes were properly implemented, some not.
Let the courts judge them on their merits, and everything will be clarified.
Why not?

 

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By gordo
22nd Apr 2016 12:42

Vaughan

IF an employer has sent all employees a letter or email saying that loan is not repayable then it would no longer be a loan, I agree with you on that specific fact. Your assumption about it thereby applying to all, I cannot currently agree with.

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By Ben Lauritson
22nd Apr 2016 12:42

537 comments which mostly boil down to people trying to convince complete strangers that their views are correct, getting wound up that said strangers disagree with them and investing further energy and emotion into arguing their corner, when hardly anyone appears interested in changing their opinion and most likely never was to begin with.

To all contributors on this thread, you have my genuine thanks. As a long-time lurker on AccountingWEB, this has been one of the most entertaining comment threads I've had the pleasure of reading. Please, continue the good work.

*goes back to sitting in the shadows and eating popcorn*

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Replying to coinnut:
By DotasScandalDotOrg
22nd Apr 2016 13:07

I guess you are easily entertained, Ben!

I'm not saying this as if it's a bad thing. Venom and people wishing ill on complete strangers is not exactly my idea of entertainment, but to each their own!

Repeated use of retrospective measures and subversion of due process by the Government are important subjects. Maybe, just maybe, in between the smiles elicited by our little exchanges, some people will actually reflect on them. Then it won't have been entirely for nothing.

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Replying to andrew1211:
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By Ben Lauritson
22nd Apr 2016 13:14

I am indeed easily entertained! I once burst out laughing at the sight of a car reversing up a one-way street (I'm not even joking!).

In all seriousness though, if there is a chance that stating your case on here does actually go some way to influence the powers that be, then I wish you the best of luck. It's not an area I have any personal involvement in, but bitterness aside I do find it interesting to see both sides of the arguments and understand more about the whole situation. One doesn't exactly get a fair and balanced view of these things from the media after all!

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By gordo
22nd Apr 2016 13:22

Another interesting read;

https://www.dotas-scandal.org/duplicity/

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By NJ replies
23rd Apr 2016 16:01

When is a loan not a loan

The argument against the concept of enacting legislation to tax the outstanding loans appears to go as follows:

Lender/Contractor argues that money received is a loan and hence not taxable under current legislation.

If new legislation enacted then the lender/contractor will argue that the money received was remuneration and so not a loan and so will not be caught by new legislation.

Whichever is correct will decide whether there was evasion or avoidance.  I'm sure that the lender/contractor will prefer to avoid the consequences of arguing that it was evasion.

 

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By gordo
24th Apr 2016 14:27

No

NJ

The fact is it is a repayable loan. This is a fact. The Courts have examined the documentation that supports this and found it to be a properly constituted loan.

HMRC's argument has always been that it was remuneration at the time it was granted. Despite losing on the same argument in Dextra and Sempra, they spent taxpayers money taking the same argument to Court again (why not just change the law and backdate the effect!). They argued the same point in Rangers, which they thought they would win due to there being side letters (that's why Rangers FC and not say a high profile English Football Club). Somewhat surprisingly they still lost in the lower Courts, but had success in Court of Appeal on specific points. This may yet be overturned and HMRC clearly realise that the specific points in Rangers (side letters) cannot be applied across the board. That football club went under because of HMRC's alleged debt which HMRC refused to negotiate. What if HMRC finally lose in the Supreme Court? They can't undo the fact that they forced the football club into Administration.

So The Courts have ruled and agreed it is a loan.
However, HMRC are in the huff and now want to create a rule 3 years in the future that taxes an event that might have happened say 3, 5 or even 15 years ago, as if it were income in 3 years time, even though it's not income!

There is no law that taxes a loan in the individuals hands. S455 keeps getting a mention, but that does not tax a loan in an individual's hands. Whoever heard of such a thing. The Contractors will not change their stance. Your assumption is incorrect. 

Many of the commentators on here make the assumption that because HMRC have said this will happen, that it will. I'm not convinced. That is why I am suspicious about their alleged reasons for making it 3 years hence, and not now. Is this the biggest 'nudge' ever. If so, are HMRC asking people to pay/settle a 'tax' that they know does not exist and may never exist. If so, maybe there is a stronger word than 'nudge' for demanding money with menaces despite knowing the debt is not due. If you or I did that.....we would be in Court on charges of Extortion, would we not?

Now I know people will continue to argue that these buggers deserved it. I understand the sentiment. But to support HMRC in demanding money with menaces that is not legally due, I can't do that. To give HMRC the authority to override the rule of law, and create laws with retrospective effect and also make themselves, judge, jury and executioner. For the future of tax in this Country, I sincerely hope not.

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Replying to SXGuy:
By cfield
24th Apr 2016 15:30

Achilles Heel

gordo wrote:
No NJ The fact is it is a repayable loan. This is a fact. The Courts have examined the documentation that supports this and found it to be a properly constituted loan.

I promised myself last week I wouldn't post on this thread any more as it's just going round and round in circles and the offended parties will keep arguing til' the cows come home, no matter what you say to them. However, a few points spring to mind, so here goes.

Gordo, you keep talking about these new rules (if they ever come in) as having retrospective effect, but that is not the same as them being made retrospective from an earlier date. As I said a couple of weeks ago, the fact that these abusive schemes were dressed up as loans is their Achilles Heel. So long as something continues to exist as an asset or liability, it is vulnerable to changes in the law, whether it is a house subject to higher capital gains tax or a loan that is on paper (and in law) repayable but which in practice never will be. It would be totally wrong for existing schemes to, in effect, be given an amnesty, as you seem to want.

If the loans ever are re-paid, then the taxpayer should be allowed to claim a refund of the tax paid on them, but with no uplift for inflation, unless they want the tax bill on any unpaid element to also get an uplift for inflation.

I would also like to say that I don't approve of HMRC dishing out APNs willy-nilly unless a scheme is formally going through the legal process, if that is indeed what is happening. Nor do I approve of them using bully-boy tactics to exhort payment of tax that has not yet been found to be payable in law. By all means offer people a chance to settle rather than drag their cases through the courts, the same as for any civil dispute, but there should be some some sort of legal process underway first.

Once these loans have finally been outlawed as the shams they really are, then by all means pursue the people who benefited from them with all means available, and if the legislation has already been passed by Parliament and is due to take effect at a future date, then it is quite right to offer people an incentive to settle up early before the new rules come in. However, if these new rules have not gone through Parliament yet, then they are jumping the gun and I can see why you are getting so upset about them.

My final point is that none of these draconian measures would have been necessary if the schemes hadn't been so blatantly abusive in the first place. They've given the whole tax industry a bad name and turned tax avoidance (and now tax mitigation) into a dirty word.

 

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By ShirleyM
24th Apr 2016 14:49

Better late than never

The government should be doing everything it can to stamp out artificial tax avoidance and evasion.

It may be difficult to prove the 'loan' isn't a genuine loan, and HMRC may have chosen to pursue the wrong argument, but we all know it is disguised remuneration, and anyone with one ounce of common sense knows that NOBODY (other than a complete idiot) would take a genuine repayable loan (of many multiples their declared 'income') in exchange for real pay.

If anyone was foolish enough ... then ... words fail me. They fell for a scam, and nobody gets tax relief because they lost money to a scam, whether it's tax avoidance schemes, holiday property shares, or Nigerian transfers of money.

A non-repayable loan is NOT a loan. It's a 'pretend' loan purely to evade tax, and therefore fails the honesty test. You try to argue that black is white, while also arguing the opposite.

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By gordo
24th Apr 2016 21:40

Liabilities are now taxable
Cfield

If you read the document issued by HMRC as linked in the original post:

"The disguised remuneration legislation was introduced in the Finance Act 2011 and came into effect from 9th December 2010 (when it was announced)"

HMRC now propose:
Chapter 5

"...introduction of a new tax charge on all outstanding ...loans".
"The charge will apply where:
a. The loan was made at any time prior to the amendments to Part 7a..." ( those referred to above that came into effect on 9 December 2010). 

How can you say this is not retrospective.

You keep talking about a loan being an Achillies Heel. How many of your clients currently get taxed on a liability!!!

cfield it is exactly the same as "them being made retrospective". If your clients are vulnerable to changes in the law making their liabilities chargeable to some sort of tax then I suggest we all chip in and help your clients because they are clearly being picked upon.

I'm not giving them amnesty if they are not currently taxable!

ShirleyM

I can only conclude that you are so convinced by your own arguments, that you just don't find it worth reading others posts fully.

The opening paragraph of my post said
"The fact is it is a repayable loan. This is a fact. The Courts have examined the documentation that supports this and found it to be a properly constituted loan." Cfield has even kindly quoted it for us, so it clearly isn't my bias that is seeing something that isn't there.

But apparently you know better than the Courts because you say "A non-repayable loan is NOT a loan". Well I would probably agree with that, if only it were a fact, but it is clearly not. It is something you made up despite the Courts findings.
Unperturbed, you go on to say that I'm trying to argue black is white!! 550 comments in, give me strength.

They didn't fall for a scam, because it wasn't a scam at the time it was done. It was a legal method of tax avoidance that HMRC now wish to make illegal and backdate the impact.

You want it to be taxable. I understand. Let's not allow the law to get in the way.

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Replying to CluelessGoon:
By cfield
24th Apr 2016 20:16

I didn't quote anything

gordo wrote:
Cfield has even kindly quoted it for us, so it clearly isn't my bias that is seeing something that isn't there.

Did I? All I did was say that if a loan is recognised as a loan by the courts, it is an ongoing liability subject to changes in the law. Please don't put words in my mouth. I never meant anything more than that.

Clearly these loans were constructed in such a cunning way that the courts had no choice but to accept them (if indeed they have - I'm just going by what you and other posters keep telling us). That doesn't mean we have to keep recognising them as loans for ever more though. All the Government is doing is closing an unintended loophole so that existing loans can be exposed as the shams they really are and taxed accordingly.

Quite different from mortgages or business loans. Thanks for your concern but I don't think our clients need lose any sleep over those being taxed. Participator loans are already taxed under s455 of course and you get the tax back when the loans are repaid. The same should apply to these loans too. As I said, if a contractor does eventually pay one of these loans back, he should get his tax back then, and if it is converted to income at the same time, he can pay tax on that instead.

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By ShirleyM
24th Apr 2016 20:46

Someone is being stupid

It may be me, because I didn't think anyone would be stupid enough to 'borrow' several times their 'declared earnings', UNLESS they were quite sure it wasn't repayable. If you are given money, and not expected to repay it, then it isn't a loan, it's a gift.

"The fact is it is a repayable loan. This is a fact." 

So give us the rest of the 'facts'. When is it repayable, and how can it be repaid when the borrower has very little 'income'?

Anyway, not my problem, thank goodness. I just hope the UK's taxpayers get justice.

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By gordo
24th Apr 2016 20:54

Agreed ShirleyM, I hope they get justice.

The Courts are the final arbitrators of Justice in this Country.

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By gordo
24th Apr 2016 21:44

"If indeed they have.."

Why don't you take the time to read the case law that I have offered rather than implying or indeed outright claiming that I am feeding you some sort of "pony" which I assume is rhyming slang for crap, rather than keep writing your opinion on something that you don't have the time to research? I am not trying to make up case law.

Dotasscandal.org pointed out to you that Lin Homer told Parliament that HMRC would only issue APN's where there has been a clear judgement in their favour, but HMRC then went on to issue 65,000 APN's including situations where there clearly had not been a judgement in favour of HMRC. But you imply that I and other posters might be misleading you. I know who is doing the misleading, but I do understand that it can be hard to accept that HMRC would act in such a way. We tend to assume that HMRC will act within the law.

I offer you the facts, but you don't have time to read them.

The Courts have ruled that these are loans. What do you mean "That doesn't mean we have to keep recognising them as loans for ever more though." 
Do you mean overrule the Courts?

By the way I think you did quote me, that would be the bit in the quotes box. I didn't mean to imply anything by it, simply that I wrote it in my post as evidenced by the fact that you referred to it.

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By NJ replies
26th Apr 2016 19:40

Reality check

Contractors have borrowed money.

If money has been borrowed on commercial terms then the contractor has a few years to source alternative source of finance.

If money has not been borrowed on commercial terms then contractors are receiving a benefit in kind (should this benefit be taxed?).

If commercial checks are not being made into the affordability of the loans then this would suggest disguised remuneration.

Why would a lender make additional loans to a contractor who is already in significantly in debt and whose assets (net of outstanding loans/borrowings) do not justify the lending.

If the loan is genuine then find an alternative source.

The abuse of the system by some has (potential) consequences for all.

The Government should introduce the legislation as soon as possible with an immediate effect for new loans and use the current proposed date for current loans.  It is unacceptable to create uncertainty and to bully contractors.

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By gordo
28th Apr 2016 06:58

Reality check
Are HMRC trying to collect a tax that doesn't exists right now, by trying to encourage Contractors to settle?

Is that unlawful?

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Replying to Hannahshah:
By DotasScandalDotOrg
28th Apr 2016 14:17

Well, not exactly...

gordo wrote:
Are HMRC trying to collect a tax that doesn't exists right now, by trying to encourage Contractors to settle?

To encourage contractors to settle, HMRC would first have to offer a settlement "opportunity".
As things stand, there is not even a settlement option (by settlement, we understand an arrangement that guarantees finality) for post-2011 arrangements. 

Everyone, please consider the following for a minute, which illustrates the irrationality and Kafkaesque nature of it all:

"I asked HMRC if I could settle my tax affairs and I was sent a letter six months later stating “I am unable to comment on whether a settlement opportunity is available for you, however, I would advise you that the terms may change on a daily basis and it is not guaranteed that we will agree to any settlement with you at this time”. (source here)

Surveys conducted by several contractor organisations indicate that a VERY large proportion of contractors would settle within 3 months if offered acceptable terms (i.e. taking into account the responsibilities of ALL parties involved) ensuring finality.

Such settlement offers have been put forward to HMRC by specialist law firms.

It is HMRC that is stubbornly rejecting settlement offers, despite a vast majority of contractors being desperate to put it all behind them.

The net result is that they are pushing people into a corner and forcing them to take possibly desperate measures. They better not come complaining about it at a later time.

 

 

 

 

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By The Black Knight
28th Apr 2016 14:39

The letters are confusing on all avoidance schemes and yes HMRC do appear to be offering setlement but then with the same breath say they can't just yet.

You have to remember that this is all new to HMRC too and they have a seperate dept for each scheme so if you have several it's difficult to get anywhere.

Why don't you make payments on account then wait for things to settle.

 

Coming back to the outrageous indignation the key matter relating to these schemes is that they were Artifcial in nature. Then we have gone into deep denial about this as we are unable to face the truth.

Trying to convince us that this is some great social injustice that affects us all and we should get powerless professional bodies to take action is total madness.

The professional bodies failed to police their by-laws and their errant members. Had they done so then many people would not be in this mess.

If you want their support perhaps you could sue them directly and then they would defend your position by default.

In anycase you should write a stiff complaint letter to your accountants professional body.

 

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By gordo
28th Apr 2016 20:35

I understand that one may want certainty
Dotasscandaldotorg

I understand that a Contractor may wish to settle in order to put all the hassle behind them. HMRC's intimidation and propoganda can affect ones health, business, marriage, life.

However, the point I was making is that no law or case history exists for HMRC to be asking people to settle. If legally there is no liability...then what exactly are people settling. This may explain HMRC's difficulty.

HMRC do not have any case law other than Boyle (which is very specific). HMRC would like to have a new law in 2019 to retrospectively tax the event which gave rise to a loan, as if it were income now, but currently no such law exists.

The Disguised Remuneration regulations give rise to an PAYE liability payable by the Employer, not the Contractor.

Therefore if HMRC ran a webinar right now, such as they plan to in May, or wrote to an individual, suggesting that individual should 'settle', then HMRC Officers would surely be acting outwith the law. i.e. illegally

Would I make a payment on account as has been suggested recently? Payment on account of what? 

If one has an APN that has not been held over then it is true that payment of the APN is legally due, but this is an Accelerated Payment, it is not payment of any liability and it is not tax, indeed it should be incumbent upon HMRC to hold it on account until such time as litigation is concluded (wishful thinking as the government have already spent it). If payment of the APN has been successfully held over then there is nothing to pay and anyone trying to pressurise an individual into 'settling', by any communication could be acting outwith the law. 

Any officer of HMRC encouraging someone to 'settle', whether that communication be by way of a Webinar, email, letter or other, that Officer of HMRC if acting outwith the law, could find themselves personally liable. I hope someone submits this question in advance of the Webinar.

HMRC can't hardly claim they didn't understand. They have specific teams set up to deal with these Enquiries. (According to the Prime Minister they have been investigating certain schemes since at least June 2012. The failure to bring the matter to litigation is wholly and completely down to HMRC). They know exactly what they are doing in terms of their communications. They have no expertise however in being able to settle loans with overseas trustees and resolve a Contractors outstanding loans. 

I hope you can understand what I am saying.

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Replying to gordo:
By DotasScandalDotOrg
04th May 2016 12:18

Hi Gordo,
Please be assured that I can understand. I know extortion and unlawfulness when I see it.
I was merely conveying the perspective of the (sizeable) faction out there who are ready to give in to the bullying in exchange for finality NOW. Even that is impossible.

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