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Retrospective tax imposed on contractors’ loans

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 (559)

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By Vaughan Blake1
04th Apr 2016 09:02

Come on chaps

This is an iffy tax avoidance scheme not the Roswell incident.

The promoters said is was a loan, HMRC now want to see the loan repaid, thus proving it was a loan and not 'disguised earnings'.

It certainly looks like earnings to me, as I sit here on the top deck of the Clapham omnibus.

 

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By jon_griffey
04th Apr 2016 10:01

Mortgage fraud

I wonder how many contractors declared these 'loans' as such when they made mortgage applications. Not many I guess.

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By The Black Knight
04th Apr 2016 10:08

Quite

jon_griffey wrote:

I wonder how many contractors declared these 'loans' as such when they made mortgage applications. Not many I guess.

and maxed the CTC as well

To be fair you can only get a mortgage these days if you commit fraud anyway

the SA302 may have shown only a P11D benefit anyway so it wouldn't have been much of a mortgage.

besides if you don't pay tax you have cash anyway.

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By ShirleyM
04th Apr 2016 10:22

Good point BK

I remember an introducer telling me (years ago) about a scheme which involved non-repayable loans and offshore trusts. Tax would be payable for the benefit of an interest free loan. This scheme encourages the punters to claim WTC and anything else they could get, so not only did they pay minimal tax, they took tax from other taxpayers. The 'outstanding loan' could also be used to reduce inheritance tax!

Not a bad result for avoiding tax while ripping off other taxpayers for tax credits because they are 'low earners'.

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By justsotax
04th Apr 2016 10:30

But ShirleyM

the QC says its perfectly ok...(as long as you bung him his £10k fee) and apparently they always tell the truth....

 

 

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By ShirleyM
04th Apr 2016 10:43

You mean ....

justsotax wrote:

the QC says its perfectly ok...(as long as you bung him his £10k fee) and apparently they always tell the truth....

... something similar to the promoters and their 10% fee? Of course, why should the promoters and the QC worry? They get plenty of wonga and the taxpayer is the one that pays the penalties (plus the late tax).

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By justsotax
04th Apr 2016 10:56

what you mean

that anybody successfully suggesting this to their client gets a commission worth 4-5 times what they would earn in normal fees doing actual work for the client. 

I hear apparently for the sake of carrying a small package of white stuff from Brazil to the UK you can earn small fortune...I believe the bloke giving you the package assures you everything will be fine....why would you be at all suspicious.

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By gordo
04th Apr 2016 14:14

To Heck with the Law

I am really surprised at some of the comments here.

The individuals acted within the law as they understood it at the time.

The Courts have confirmed that is the case, so safe to say many promoters genuinely understood that too.

HMRC are not acting within any Law at this moment in time in trying to get individuals to make payment towards a liability that does not exist on the individual.

Even if HMRC were right in their argument for PAYE. The PAYE would be due by the Employer, who may also be the Promoter.

Yet, rather than question HMRC’s motives, some people seem intent on attacking the QC’s, the Promoter and Individuals, even making some pretty wild allegations in the process.

 

HMRC would like everyone on PAYE

It is not so very far removed to realise that if they get their way with these tax strategies then what might be next on their radar is what they see as false Incorporations and/or Directors unusually low salaries for the work carried out. Why not?

However, rather than bring in a new law from this day forward, what they will do is bring in something that affects all planning you have done (quite legitimately at the time) over the last say 15 years.

Maybe they will re-state all profits on a client since incorporation and apply income tax rates rather than corporation tax.

Or maybe just tax the individual Directors on a notional salary decided upon by HMRC. We haven’t decided what that will be yet, we will tell you when you call up to settle.

We will bring in this law in three years time. It’s definitely going to happen. Your clients may get relief for tax already suffered if they settle now. Do you tell them to settle?

How does your clients now feel about the advice you gave them years ago? Hey, you should have foreseen this even though everyone thought it was within the law at the time.

Worse still, there are fellow professionals trying to encourage clients to sue

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By cfield
04th Apr 2016 15:23

You still don't get it

gordo wrote:

It is not so very far removed to realise that if they get their way with these tax strategies then what might be next on their radar is what they see as false Incorporations and/or Directors unusually low salaries for the work carried out. Why not?

However, rather than bring in a new law from this day forward, what they will do is bring in something that affects all planning you have done (quite legitimately at the time) over the last say 15 years.

Maybe they will re-state all profits on a client since incorporation and apply income tax rates rather than corporation tax.

You keep insisting that this is retrospective taxation and equating it with dividends v salary. Neither is correct.

It is the fact that the so-called loan is still outstanding that would make it taxable as disguised remuneration under these proposed rules. It was their choice to keep the "loan" in place to put off the evil day when the underlying cash would be taxed as income. They were always running the risk that the law would one day treat it as the disguised remuneration it really is. Now that day is due to arrive.

We could compare it with the seat belt rules. It's no worse an analogy that some I've been reading. It was not compulsory to fit all new cars with seat belts until 1968. It was not compulsory to actually wear them until 1983. If you could keep a pre-1968 car all that time, it was perfectly legal to drive it on the public road until 1983. From then on, you had no choice but to fit seat belts or get rid of the car. There was no exemption for pre-1968 cars just because they were legal at the time. Same goes for these "loans". It's time for anyone who still has one to "belt up" or get rid.

As for salary v dividends, they have already been taxed as income. You can't interfere with previous tax years. That really would be retrospective. You have to understand the difference between income and liabilities. Income in past years doesn't exist any more as income. An asset or liability continues to be an asset or liability and is thus subject to changes in the law. That's the difference.

 

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By justsotax
04th Apr 2016 14:34

not sure what your issue is gordo

don't you just repay the loan...its just the revenue have decided that if that's not done by 2019 there will be tax consequences.  You were intending to repay the loan...oh...I see...

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By ShirleyM
04th Apr 2016 14:50

@Justsotax

It's not remuneration, it's a loan .... but only when it's tax free. It isn't a loan when tax has to be paid on it. It isn't remuneration either. I wonder what it is??????

I'm getting dizzy trying to work out when a loan is a loan!

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By justsotax
04th Apr 2016 15:04

I would have a little more respect for the argument if

you used even a slightly more relevant analogy.  Maybe suggesting that this is like the Revenue saying that from 2019 any 'retained' profits will be taxed as dividends if not distributed.  That at least would be comparable....

 

Apparently this planning doesn't work if the loan has to be repaid - bet that has come as a shock...

 

 

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By The Black Knight
04th Apr 2016 15:09

in what way

In what way did you think these were within the Law.

Substance over form has been around a long time

This dictates the accounting treatment.

My position on tax schemes that I believe do not work has not changed over the last 10 years and others on here have been vocal in their warnings too.

We can but wait for the outcome of the K2 enquiry and tribunal. It's going to be an interesting read.

 

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By The Black Knight
04th Apr 2016 15:22

be serious

Would an employee enter into a contract for a loan instead of salary knowing that loan was repayable?

I expect the client really doesn't understand what's happened.

Just stating it's repayable is a bit like having a substitution clause that will never be enacted.

Unless you can demonstrate that these clauses are real then surely they are not worth the paper they are written on.

Perhaps the client would be better of submitting error claims for the previous 4 years? I am still learning new ways of getting these things wrong. :-)

 

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By gordo
04th Apr 2016 20:34

Opens the floodgates

I do understand that you would like for loans not to have worked.

However, it is not for HMRC to decide when one should repay a Loan any more than it is for HMRC to tell a Company when it should distribute its Reserves.

HMRC (currently) cannot tax a loan directly, it is neither income nor gain. They can tax the benefit-in-kind and have done so.

So right here, right now, HMRC seem to be trying to circumvent the law by encouraging people to settle when there is no liability.

The Courts have told HMRC that they are incorrect in their view that PAYE applies.

Further there are scant grounds under the law for trying to apply that tax charge to the individual, even if HMRC were correct on the PAYE argument.

So HMRC know they are not correct in law as things stand here today, but they don’t seem to care about acting within the law and they press ahead regardless, trying to influence our behaviour.

Are you really proposing that we support their actions?

 

HMRC do not like the loans because they see it as Disguised Remuneration (despite the Court decisions).

So I do think it does compare to the analogy of a wish to tax dividends as Disguised Remuneration plus back-date the impact. There are numerous example on this website of exactly that sort of planning (small salary plus dividend) and one earlier commentator on this thread made that Freudian slip in describing dividends as (disguised) remuneration.

 

I am trying to explain that whatever you think of the planning, it was perfectly legal at the time it was done. It's now a past event. For HMRC to change the law is retrospective in its impact. As citizens we are quite entitled to know what the law is at the time we carry out the action and if there is a dispute, then the Judiciary will rule. It would be retrospective in its impact to manufacture a tax charge based upon a loan outstanding as opposed to carrying out a future action.

 

I am trying to make the point that to allow HMRC to change the tax position on something that has happened, and thereby giving rise to a different tax liability, is exactly the same as them changing the tax position on anything else that has already happened. It opens the floodgates. Heaven help us if HMRC think they can get away with retrospective impact changes if they can only influence our behaviour.

 

That could be a dark day indeed for any tax planning in the UK.

Allowing HMRC to proceed with this would be a slippery slope indeed.

 

What happens if HMRC do not get their wish list and no such law is passed in 2019, they can’t get it through Parliament or passed the Lords….but you told your clients to settle? Would that make you negligent? Would you be upset to find fellow professionals encouraging clients to sue you as a result?

Don’t get me wrong I hope that never happens to you, I’m only asking you to consider that hypothetical scenario.

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By ShirleyM
05th Apr 2016 07:03

So wrong

"Allowing HMRC to proceed with this would be a slippery slope indeed."

HMRC failing to win. That would be the real slippery slope.

Telling us that you willingly worked for minimum wage instead of your normal earnings just doesn't cut it. Tax dodgers are not altruistic people who would work for low/no pay.  If you really worked for low/no pay, why bother with a complicated tax arrangement and a hefty promoters fee?

Let's face it, it wouldn't be worth your while paying the promoters fee for a few £K of earnings. Why do you think it is legal to disguise your hefty remuneration as a loan (which isn't a real loan as it isn't intended to be repaid) so you pay virtually no tax? Maybe you claimed tax credits too, and actually took tax from those who earn much less than yourself. That would be adding insult to injury.

I assume you also think it's ok for low earners to pay the tax that keeps the hospitals running, pays the police, pays for education, etc. and from which everyone in the country benefits, including yourself?

If the wealthy choose not to pay tax, why should anyone else? That's another slippery slope.

It's theft and is just as bad as benefit fraud. It's selfish and greedy to rip off the country, and it's citizens, for personal gain. That's another slippery slope that will see the downfall of our country and put us in the same terrible situation as Greece. The sooner we get rid of the selfish self serving tax dodgers the better our country will become.

Using lies and deceit to gain a tax advantage is never legal, not in the true sense of the word. It's defended by liars and cheats, who gain from the lies and dishonesty. IT IS NOT A LOAN. It is disguised remuneration ... but I'll believe it's a loan when the loan is repaid. HMRC seem to have come to the same conclusion and are giving you the opportunity to prove it is a loan. If the loans are what they claim to be, ie. loans, then there isn't a problem, is there?

Maybe all these slippery slopes can be avoided ... if HMRC win, and I think they will :)

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By gordo
05th Apr 2016 07:59

Wow ShirleyM. Have you never advised a Director to take a lower Salary? Perhaps even less than the minimum wage? Are they a "tax dodger"? Your suggesting that nobody would work for minimum wage unless it's a tax dodge remember.

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By ShirleyM
05th Apr 2016 08:41

Yes

... but there is no deceit involved! Tax planning based on honesty is a very different animal to tax planning based on dishonesty.

They pay tax on the profits on the company (no deceit there) and they pay tax on the extracted profits (no deceit there either). We don't pretend that any of it is non-taxable. We report it as what it is. Remember, you need profits to pay dividends. Those profits are taxed within the company and taxed again as dividends, unlike 'loans'.

If we had disguised the remunerations and dividends as something else (a non-taxable something else) then it may have been comparable, but we didn't. Your argument is meaningless.

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By justsotax
05th Apr 2016 09:43

of course

you are right the revenue should not decide when a loan should be repaid...but as the scheme does not work if it is then there is no intention to repay the loan.

 

As for salary/dividend - if you have company you can do this (the revenue will not challenge)....so why not....oh still too much tax....

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By justsotax
05th Apr 2016 10:07

gordo..just thought

there is a firm of lawyers who are based in panama who could probably assist you.  

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By ShirleyM
05th Apr 2016 10:13

Or ....

justsotax wrote:

there is a firm of lawyers who are based in panama who could probably assist you.  

... we could put all the tax dodgers and the promoters in the slammer. :)

Anyone committing benefit fraud or insurance fraud takes that risk. Why not tax fraud?

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By Old Greying Accountant
05th Apr 2016 10:15

But for the smoke and mirrors ....

... the loans should have had s455 (or prior incarnations) tax paid on them at the time, repayable when the loan was repaid, and there would be no problem.

It is only the contrived schemes that have avoided s455 that are the problem, and as I see it from my Clapham Omnibus, a contrived arrangement purely to avoid tax is actually evasion.

Deciding how to split a companies earnings between salary to director and dividend to owner is not contrived, as Shirley says repeatedly (I am 200% with her on this) they are all taxed as income on the director. NI may be avoided, but as we all know NI is NOT a tax ,so it cannot be tax avoidance or evasion to mitigate it!

What if the company were selling tax mitigation schemes for large commissions, surely the actual work of the director is minimal and £10k per year probably reflects the actual work put in, and the balance quite correctly unearned income.

As an aside, why are not these loans regulated by the FSA and should there not be stringent affordability checks before they can be made? 

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By Vaughan Blake1
05th Apr 2016 10:51

Sometime ago, seems a very long time ago

On this thread I asked the question, "'under what circumstances and when are the loans to be repaid, per the agreement?". Oddly, no response.

Gordo, perhaps you can answer this, please?

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By Anonymous68
05th Apr 2016 10:59

It seems that many of the comments above are viewing this situation through the prism of the educated. Unfortunately, those of us who are not accountants were taken for a ride without the knowledge to make a reasoned judgement.

In my own situation I was introduced to the scheme provider. I asked if this was a legitimate tax model. They said talk to our accountants, who confirmed it was.They said talk o this QC we know, who confirmed it was. I even phoned the HMRC helpline and spoke to an incredibly unhelpful gentleman who asked pretty much ignored my questions and asked had I taken professional advice - I assumed an accountant and QC qualified as such. The HMRC helpline chap simply said I should make my decision based on the advice I had been given. He clearly wanted to get off the phone and do something more interesting.

My take home was around 79% of my gross, so I certainly didn't see myself as a 'tax dodger'.

Then for five years I completed my tax return detailing each of the loans taken. And HMRC said nothing. Finally I received discovery assessment after the last year, at which I point I retreated back into a permanent employment. Had I received a 'Tempted by Tax Avoidance' pamphlet in my first year I would have pulled out there and then.

My issue is that I can't see that I have done anything wittingly wrong - contrary to many of the comments above I was not actively seeking to dodge tax - I was looking for an efficient way to manage my tax affairs, and I assumed (wrongly it seems) that the experts would ensure that this was possible (as they do for Google, Starbucks et al).

My overarching frustration is that the provider, the accountant, the QC and HMRC are complicit in this mess and will pay nothing. I will probably end up paying twice.

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By The Black Knight
05th Apr 2016 11:36

Your redress

Anonymous68 wrote:

It seems that many of the comments above are viewing this situation through the prism of the educated. Unfortunately, those of us who are not accountants were taken for a ride without the knowledge to make a reasoned judgement.

In my own situation I was introduced to the scheme provider. I asked if this was a legitimate tax model. They said talk to our accountants, who confirmed it was.They said talk o this QC we know, who confirmed it was. I even phoned the HMRC helpline and spoke to an incredibly unhelpful gentleman who asked pretty much ignored my questions and asked had I taken professional advice - I assumed an accountant and QC qualified as such. The HMRC helpline chap simply said I should make my decision based on the advice I had been given. He clearly wanted to get off the phone and do something more interesting.

My take home was around 79% of my gross, so I certainly didn't see myself as a 'tax dodger'.

Then for five years I completed my tax return detailing each of the loans taken. And HMRC said nothing. Finally I received discovery assessment after the last year, at which I point I retreated back into a permanent employment. Had I received a 'Tempted by Tax Avoidance' pamphlet in my first year I would have pulled out there and then.

My issue is that I can't see that I have done anything wittingly wrong - contrary to many of the comments above I was not actively seeking to dodge tax - I was looking for an efficient way to manage my tax affairs, and I assumed (wrongly it seems) that the experts would ensure that this was possible (as they do for Google, Starbucks et al).

My overarching frustration is that the provider, the accountant, the QC and HMRC are complicit in this mess and will pay nothing. I will probably end up paying twice.

 

We had to watch this, if you said the truth to a client that believes he has had top advice from special accountants that are better then there is little you can do to convince them otherwise.

Penalties - your behaviour will be taken into account when assessing the level of penalties payable - maintain you took advice and took reasonable care in your tax affairs

Tax - that will be payable anyway

Insurance - was the advice you received negligent? dig out all the correspondence you had on the matter including any glossy marketing.

Professional body - if your accountant belongs to a professional body - complain- most require commissions to be disclosed and paid to the client. We are required to be independent this means if you think we recomended a scheme because of the massive commission we recieved then that is just plain wrong and not allowed. Not many people read the rule books they are online for you to read too.

Misrepresentation to a contract - was information provided to you that induced you to enter into the arrangement that turned out to be false (Misrep act 1967)

Fraudulent trading s.213 of the insolvency act 1986 have a look at that ( these companies have gone pop I expect) you need to kick up a fuss.

I am sure if you disclose the name of the scheme and accountant online you will be a magnet for an action group and then the costs can be shared and influence bought to bear on the liquidator to do his job properly or even appoint another liquidator.

At the end of the day you have to take some responsibility for your own actions too as with out the punters behaviour these schemes would not have existed.

FYI - The man at HMRC did the right thing they are not supposed to give advice and the chap you spoke to would not have had a working knowledge of these secret schemes - even the specialists at HMrc dealing with this are feeling their way through all this muddle one scheme at a time.

I hope that helps in some way

 

If you go and see a reputable honest accountant then I am sure they can help you.

 

 

 

 

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By Old Greying Accountant
05th Apr 2016 12:59

Young man ...

... that's a fine looking cow, would you care to trade it for a handful of magical beans?

No, I am off to see the emperor, I hear his new clothes are absolutely divine.

What you have had is just that, advice, the decision is yours, caveat emptor as was drummed in to me. If you do not fully understand what is being offered do not buy it, and if you do, make sure you get the advice in writing.

An honest sensible accountant will say on their engagement letter that tax law is subject to change, and whilst what is being proposed works today, that may change tomorrow.

I have more sympathy for those in modest houses they they struggled to buy 30 - 40 years ago, which through the vagaries of fashion are now worth hundreds of thousands of pounds, and are constantly fearing the imposition of a property tax based on the value of their house that has no reference to the income they have available.

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By Difficulttimes
05th Apr 2016 14:08

To all you morally superior people-  there are people out there who have sold up their houses, declared themselves bankrupt, divorced, moved their children from their schools, unable to work due to stress all to pay for an APN which is derived from declaring their loan on their SATR. They were given a DOTAS number so there is nothing to hide. There are thousands of people out there who never had to 'declare' it so there is no DOTAS number.

I know that this change will lead to a 'human' cost never seen before in the history of this country when it comes to taxation law changes. Not hundreds, or thousands but we are talking about tens of thousands of people will be made BANKRUPT so HMRC get nothing but it leaves people in financial ruin for the rest of their lives. This could be your neighbour, brother, parents of your child's best friend. Just everyday people who participated in schemes that were legal at the time and now being told otherwise.

Regardless of your opinion of the legality of loans which I am now finding boring on this forum this is a FACT that is not disputable and if you want that to happen then maybe you aren't as morally superior as you think you are.

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By The Black Knight
05th Apr 2016 17:25

Morals?

Difficulttimes wrote:

To all you morally superior people-  there are people out there who have sold up their houses, declared themselves bankrupt, divorced, moved their children from their schools, unable to work due to stress all to pay for an APN which is derived from declaring their loan on their SATR. They were given a DOTAS number so there is nothing to hide. There are thousands of people out there who never had to 'declare' it so there is no DOTAS number.

I know that this change will lead to a 'human' cost never seen before in the history of this country when it comes to taxation law changes. Not hundreds, or thousands but we are talking about tens of thousands of people will be made BANKRUPT so HMRC get nothing but it leaves people in financial ruin for the rest of their lives. This could be your neighbour, brother, parents of your child's best friend. Just everyday people who participated in schemes that were legal at the time and now being told otherwise.

Regardless of your opinion of the legality of loans which I am now finding boring on this forum this is a FACT that is not disputable and if you want that to happen then maybe you aren't as morally superior as you think you are.

What have morals got to do with anything?

Whose fault is it that these people are in this situation?

It is amazing how no body can accept responsibility for their own actions.

Instead you seek to divert the issue to those stating the law and the bleeding obvious claiming it's not fair to the victims.

Why don't you do the honourable thing and fall on your own sword and admit this was all a con if you are so concerned. The only reason you are getting upset is that you don't like people mentioning that we feel from a professional point of view that this was unacceptable behaviour.

Did you make it clear that Laws are occasionally changed by parliament and deferring tax to some future period would leave the position very uncertain and that the Revenue had a history of this sort of behaviour ?

It is absolutely bloody disgraceful what these scheme providers and hawkers have done.

Spare a thought for those with no water, those in need of an operation for cancer, those with mental health issues (some of them your clients now) that do not have access to help because of lack of funds. All because the magic tooth fairy did not pay his taxes.

Of course one could argue that less people were killed by drones but there is always funds for missiles and speed cameras.

designed by Mickey Mouse, sold by Donald Duck and bought by Goofey

and divorce is a bonus being a positive!

 

 

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By Difficulttimes
05th Apr 2016 14:33

Testimony of the 'human cost'

As above this is an account of someone of a forum who is dealing with the enormity of their situation. 

This situation can completely change how you think about life. When I got my first letter I thought it was the end of my life and two days later I was seconds away from taking my life at the local train station. Thankfully I didnt and slowly but surely I have been able to move on with my life. But you need help from your family, friends (if you can confide in them) and also counselling in order to get to grips with the situation, understand the reality and devise a plan of action in order to move on. Easy to say and harder to do I know but getting support from others helps so much.

The fact is as X has stated the government need money and look for easy targets which means us. Therefore we all need to try and accept the reality of this and whereever possible devise a plan which I know is easier said than done. Bu there are avenues such as X who can help with a clear strategy to minimise the impact but also state a reality of your situation. Only then can you start to come to terms and try and get some form of piece of mind. On a personal level the situation highlights the unfair treatment from HMRC on the basis of 1 mistake/misjudgement based on advice given by people who we trusted. As aa result it makes you think how undemocratic this country is (I know lots of you will say 'it never was democratic'!) and how absolutely useless our politcians are. Everyone impacted by this are decent people who are only asked to be treated fairly in order to rid themselves of this appalling and stressful situation. As a result of 1 mistake many people have had their lives changes forever. That cannot be fair. Most if not all people that i know impacted by this or who have posted are just looking for an element of reasonable behaviour from HMRC.

Good luck to everyone who is going through their own situation - I'm sure all of us will eventually get through this - scarred from it maybe but one day it will end.

 

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By Difficulttimes
05th Apr 2016 16:09

'My clients'???? I am just a freelancer caught in this horrific situation.

'Professional point of view' - And you are who exactly??

P.S It's disgraceful not discraceful

Have a nice day

 

 

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By The Black Knight
05th Apr 2016 17:41

then

Difficulttimes wrote:

'My clients'???? I am just a freelancer caught in this horrific situation.

'Professional point of view' - And you are who exactly??

P.S It's disgraceful not discraceful

Have a nice day

 

 

Then I have tried to help you. please see above.

I have corrected the spelling error (lost my spell checky thing on accounting web) thank you.

I am sorry you walked into this trap had I told you at the time you would have had the same reaction that I didn't know what I was talking about.

It's the scheme providers you should be getting angry with not me.

 

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By DotasScandalDotOrg
05th Apr 2016 19:33

A trap, yes.Set by HMRC

He walked into a trap, yes.... one set by HMRC, who are by the way completely subverting normal legal processes, not once but twice (first by defiling the purpose of DOTAS and introducing APNs, then by imposing the dreamed-up "2019 one off charge" - outside of any legal safeguards normally available to the taxpayer.
What the holier-than-thou type commenters above still do not get, is that none of the contractors arrangements discussed have been found to "not work". Again, can you explain why HMRC is exempted from following normal legal processes in place for centuries? Last I checked, what is legal or not is determined by courts of Law, not courts of public opinion (aka mobs).
HMRC are complicit in this fiasco as they failed to go after any of these "providers" (too much work?), alert taxpayers, or regulate this "industry" in any way. They are fully aware of it, and what we are seeing here is nothing more than a huge cover-up / scapegoating operation.

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By gordo
05th Apr 2016 20:20

How should we expect HMRC to behave

I don't think much of Black Knight's idea of advice. I think he has shown his true colours. Please be wary of that advice because HMRC will agree a settlement for tax and yet still leave you with the loan outstanding! Double trouble!

What if HMRC don't get their wishlist? Would Black Knight be culpable for encouraging you to settle? .

 

I am quite certain that HMRC know they have been defeated, in the Courts, on the same argument that they continue to raise.

I am quite certain that HMRC have had Council opinion that there is a good chance they will lose Rangers (Murray Group) in the Supreme Court (otherwise they would be shouting it from the rooftops).I am quite certain that HMRC know there is no law at this moment that substantiates their position (Black Knight please note). Their current arguement for raising APN's on individuals is sketchy at best and completely unrelated to what they have argued in Court and further still it is completetly unrelated to the grounds on which they propose their new law.I am quite certain HMRC are aware that much of the current planning on loans does work under the law as the time the transactions took place, otherwise they would be racing to litigation.I am quite certain that HMRC are well aware that all the delays in taking this to litigation, are on their part and that they misled Parliament in seeking power for Follower Notices and APN's on the grounds of taxpayer delays. Ms Lin Homer told Parliament that HMRC would only issue APN's where there had been a clear decided case in HMRC's favour. I am quite certain that HMRC are aware that their proposed plan will face legal challenge in due course.I am quite certain that HMRC are well aware that their proposed plan will cause bankruptcies, they said as much in their Webinar last week. That webinar was recorded by HMRC. I wonder if they will release the recording?I am certain that HMRC know that any liability, if one could be established would rest first and foremost with the Employer (a la Rangers).I'm quite certain that HMRC know that their attempts to attach any liability to the individual is on shaky grounds to say the least. Therefore HMRC need to resort to underhand nudge tactics to influence your behaviour and they need to convince Accountants to encourage clients to just throw in the towel.That way...they won't need any actual laws.  HMRC have not offered any middle ground settlement. I'm sure if they did then there would be a reasonable uptake and they could collect in a substantial amount of funds, without the need for the same pain, stress, long drawn out individual enquiries and without the need for bankruptcies.  If I am correct then people have acted within the law (regardless of how you feel about their individual motives).If I am correct then the current behaviour by HMRC is outwith the law and is tantamount to extortion. Demanding money with menaces.  If we allow HMRC to behave in this manner, then why not just abandon all laws and let HMRC decide after the event.  Regardless of how you feel about the behaviour of the individual taxpayers, and I understand you don't like it, but...two wrongs do not make a right.Regardless of how one feels about the way the law worked, it was the law. What HMRC are doing, isn't.Regardless of how angry you feel about the motives of the individual taxpayers, we need to ask our Institutes to resist this type of behaviour by HMRC. We need to insist that HMRC continue to respect the Courts and act within the law. and retrospection is not acceptable. We don't have to sit back and say that HMRC have behavioural issues as if we can't don't have any control or any say in the matter.

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By The Black Knight
06th Apr 2016 10:47

Misdirection again?

gordo wrote:

I don't think much of Black Knight's idea of advice. I think he has shown his true colours. Please be wary of that advice because HMRC will agree a settlement for tax and yet still leave you with the loan outstanding! Double trouble!

What if HMRC don't get their wishlist? Would Black Knight be culpable for encouraging you to settle? .

 

I am quite certain that HMRC know they have been defeated, in the Courts, on the same argument that they continue to raise.

I am quite certain that HMRC have had Council opinion that there is a good chance they will lose Rangers (Murray Group) in the Supreme Court (otherwise they would be shouting it from the rooftops).I am quite certain that HMRC know there is no law at this moment that substantiates their position (Black Knight please note). Their current arguement for raising APN's on individuals is sketchy at best and completely unrelated to what they have argued in Court and further still it is completetly unrelated to the grounds on which they propose their new law.I am quite certain HMRC are aware that much of the current planning on loans does work under the law as the time the transactions took place, otherwise they would be racing to litigation.I am quite certain that HMRC are well aware that all the delays in taking this to litigation, are on their part and that they misled Parliament in seeking power for Follower Notices and APN's on the grounds of taxpayer delays. Ms Lin Homer told Parliament that HMRC would only issue APN's where there had been a clear decided case in HMRC's favour. I am quite certain that HMRC are aware that their proposed plan will face legal challenge in due course.I am quite certain that HMRC are well aware that their proposed plan will cause bankruptcies, they said as much in their Webinar last week. That webinar was recorded by HMRC. I wonder if they will release the recording?I am certain that HMRC know that any liability, if one could be established would rest first and foremost with the Employer (a la Rangers).I'm quite certain that HMRC know that their attempts to attach any liability to the individual is on shaky grounds to say the least. Therefore HMRC need to resort to underhand nudge tactics to influence your behaviour and they need to convince Accountants to encourage clients to just throw in the towel.That way...they won't need any actual laws.  HMRC have not offered any middle ground settlement. I'm sure if they did then there would be a reasonable uptake and they could collect in a substantial amount of funds, without the need for the same pain, stress, long drawn out individual enquiries and without the need for bankruptcies.  If I am correct then people have acted within the law (regardless of how you feel about their individual motives).If I am correct then the current behaviour by HMRC is outwith the law and is tantamount to extortion. Demanding money with menaces.  If we allow HMRC to behave in this manner, then why not just abandon all laws and let HMRC decide after the event.  Regardless of how you feel about the behaviour of the individual taxpayers, and I understand you don't like it, but...two wrongs do not make a right.Regardless of how one feels about the way the law worked, it was the law. What HMRC are doing, isn't.Regardless of how angry you feel about the motives of the individual taxpayers, we need to ask our Institutes to resist this type of behaviour by HMRC. We need to insist that HMRC continue to respect the Courts and act within the law. and retrospection is not acceptable. We don't have to sit back and say that HMRC have behavioural issues as if we can't don't have any control or any say in the matter.

WHERE did I say settle before the the last court says no?

YES there are conditions for an APN to be issued correctly. IF these are not met then challenge HMRC - make a payment on account by all means.

Litigation - they are raising assessments - it's up to the taxpayer to appeal and take it to tribunal

My point is not about HMRC's behaviour which I agree is not always savoury and they are getting bits of this horribly wrong as well.

These promotors are losing in the courts and the schemes seem to be unraveling on quite simple points, yet hope is still being peddled along with some more fees of course.

I do get the feeling these cases are only continueing to the bitter end,at the victims expense, to demonstrate that the promoters believed they worked really.

The strategy is simple:

Accept you have created a muddle and that you are also partly responsible

Defend yourself against HMRC

Persue redress from the promotors and accountants that sold these schemes.

get your commissions back that might help with tax payments on account.

Complain to the accountants professional body. Their advice to you has been influenced by some massive commission payments in my opinion.

IF you do not use your methods of redress then it is your CHOICE to lie down and take this.

I don't understand why Gordo would leave the loan outstanding after writing it off, but these tax planning guru's have some weird ideas. If the loan wasn't a loan but in fact payroll then it's not a loan is it? Just a matter of amending your accounts with a prior year adjustment possibly.

I do wonder why the client needs to be confused and told this is rocket science.

Your behaviour is more influenced by FEAR the Promotors and HMRC are well aware of this.

 

 

 

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By ShirleyM
06th Apr 2016 08:47

Dream on!

Let's compare 'Loans to participators' for a change as these are more comparable.

BIK tax on interest free loans.

Tax is paid on loans still outstanding. No tax on loans repaid within the year. When you pay the loan back (from taxed income), you get your (loan) tax back (eventually).

Tax avoidance via artificial methods HAS to be stamped out for the sake of our country, and in fairness to those who pay the correct tax. In any case, 'avoidance' based on deception is actually evasion, and is illegal. Pay the loan back or admit the 'loan' is based on deception. Allowing the better off to avoid or evade tax is very serious indeed as it creates civil unrest and would bankrupt the country eventually. (See Greece's example).

Everyone had the choice to pay the tax on the income.  You wanted to not pay tax, so you were selfish and were happy for everyone else (including those with less income than yourself) to pay your share. Don't complain now that others are not sympathetic that you will have to actually contribute tax. The country, the NHS, etc. needs people to pay tax. Challenging the tax avoidance schemes adds extra cost to the country, along with the loss of tax. This extra cost to the country doesn't seem to bother you as you don't (or would choose not to) contribute to the country, but it's a cost the country has to pay to stamp out the belief that the better paid among us can choose to avoid paying their share while the lower paid make up the shortfall. The only alternative to HMRC inaction is widespread tax avoidance/evasion, and I'm sure you know what the results of that would be, or maybe not. Not until you need a major operation from the NHS, or suffer some other hardship. Think of tax as insurance against losing all the benefits of living in the UK (as we know it).

Some avoiders have questioned the morals of those who criticise the methods used by avoidance schemes. Did you question your own ethics and morals when you chose not to pay tax? If you didn't worry about the complicated arrangement, or question the deception and dishonesty of 'non repayable loans' then you were lambs to the slaughter. It's simple. Repay the loan, or pay the tax.

 

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By justsotax
06th Apr 2016 09:42

next stop

panama...if you don't like paying UK taxes go live somewhere else.

 

But please stop bleating about a scheme you entered to avoid tax.  What next...did you by any chance send money over to Africa having received an email regarding a long lost relatives estate...or maybe met someone on the internet and 'wired' them a few grand because they had family issues.  Stupidity is not an excuse....if that is what you are claiming  

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By Old Greying Accountant
06th Apr 2016 09:53

Chicken and egg really ....

... too many people avoided tax, not enough resources to chase the real culprits.

Try reading Matthew 7, v24-27 - wise words indeed.

Better to have a small house on solid foundations ...

Any ethical professional accountant would put their clients best interests at heart and advise caution or abstinence when presented with these contrived schemes.

Unfortunately they 80's sowed the greed is good seeds that we are harvesting today.

 

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By jonsa
06th Apr 2016 10:42

Is this a record?

Just been catching up after a few days.  Wow - This is by far the longest thread I have seen on here.  This is a forum for accountants, but the reason it has lengthened are new joiners who registered a week or so ago.   Some of these have been caught themselves by these "loans".

They wonder why they receive little sympathy from most here and make statements that no accountant would (e.g. VAT).  They use this modern thinking (yes I am older) that "it must be the fault of someone else, even though I made the decision".   Then add - but I was being advised by specialists and QCs - who received large sums from you joining the scheme - but they were happy to pay all those fees and commission.

So those who joined were all higher earners.  They would all know what the word loan means - a  thing that is borrowed, especially a sum of money, that has to be paid back.  The last 2 words are the giveaway.

Think I will stop looking at this thread now and to all those who joined in the past week - please deregister.

Jonathan

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By Vaughan Blake1
06th Apr 2016 11:28

So let's be clear Gordo

For the last 16 years these folks worked hard at a well paid job, but did their tax returns showing a salary of only £7,000.  Presumably they claimed WFTC if their earnings were so low.

At the same time they watched an ever increasing loan build up that they had no intention or ability to repay.

Basic common sense rather than tax law suggests that this was a bad idea.

I ask again, when was the loan supposed to have been repaid?

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By gordo
06th Apr 2016 12:22

It used to be that tax was collected under legislation. Not on the basis of what doesn't agree with your values and not on the whim of HMRC.
I'm surprised that aome Accountants don't seem to much care about the law, they seem more intent on the fact that people broke the Accountants values.

There is no appeal process against APN's.
Assessments have not been raised on individuals. If they were they could have appealed. I believe that assessments have been raised on promoters and these have been appealed. It is for HMRC to list the matter for hearing. All the promotors can do is seek closure notices.

I understand you don't like it, I really do....but to throw the law out with the bath water!

I did chuckle Vaughan at the mention of the £7,000 salary. Isn't that approximately in line with the advice people might give to Directirs who run their own Company?

Contractors did not start out looking for tax dodges. Their end user told them that they would not take them in under PAYE because that weird mean employers NI plus employment rights!. If they tried Ltd Co then IR35 may well apply which means they get lumbered with the Employers NI for the privilege. To try and argue not IR35 didn't end well for Dragonfly and others and if you think you've solved it with substitution clauses, then maybe you are next on the radar.

I gues we are just going to have to agree to disagree. These cases will come to Court once HMRC stops it's delaying tactics, but then it will all become irrelevant anyway and a waste of taxpayers money come 5th April 2019 IF HMRC get their wish.

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By Vaughan Blake1
07th Apr 2016 10:36

But....

gordo wrote:
I did chuckle Vaughan at the mention of the £7,000 salary. Isn't that approximately in line with the advice people might give to Directirs who run their own Company?.

The dividends went on the tax return as income and didn't 'magically' disappear!

Gordo, I ask again (fourth time) what were the repayment terms per the loan agreement?

PS If these schemes go back 16+ years, my guess is that the QC will either be retired or a judge by now!

 

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By Old Greying Accountant
06th Apr 2016 13:02

Yes but ...

... the other 63k gets taxed as dividends, with a large proportion being taxed at higher rates, these artificial contrivances pay zero tax at all.

There is a big difference in choosing  what proportion of you income should be taxed as an employee and which as an investor. Both of which our clients legitimately are.

These schemes turn the employee/investor in to a creditor, which is dubious at best.

If you were caught under IR35 you will have been paid at a rate in excess of the salaried rate to compensate for the fact ER's NI would need to be paid, no paid holiday, sick pay etc..

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By The Black Knight
06th Apr 2016 13:08

Accountants values

I think out professional rules are quite important.

They are there so we act in the best interests of the client not ourselves.

So we follow the law and advise accordingly.

So we stay educated in the subject and don't think we can change reality with our pen.

So our clients trust us.

So HMRC trust us

etc etc etc

On a practical level the commissions should have been disclosed to the client and also paid to the client. However these have been hidden and not paid to the clients. It is the professional body that has jurisdiction with this ---- Complain----- would you like £25K or not?

the perveyors of these wild and wonderful schemes have attempted to drive a bus through the legislation paying no attention to the law and the intended use. This has in turn prompted a massive crackdown in all areas of tax and a change in revenue behaviour to accountants and taxpayers.

The ramifications of your actions are massive

 

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By Difficulttimes
06th Apr 2016 14:21

the perveyors of these wild and wonderful schemes have attempted to drive a bus through the legislation paying no attention to the law and the intended use.

Therein lies the problem Black Knight, they did pay attention to the law and the law clearly stated that this type of activity was within the law and nothing said on this forum will change it unless we go back and retrospectively change it? Oh wait.... Trust me every single day since I've been caught in this horrific situation I wish I could wind back the clock and not be involved but I was and now I've been made to be punished for it retrospectively and that will live for me and my family forever. Actually, I wish I was an MP as I would have impunity against these changes.

I understand the frustrations from accountants and tax advisors, as I imagine your clients are running for the hills and not wanting to risk being involved in anything that may litigate their tax liability. People involved with these 'loans' have ruined it for everyone you are thinking, well in my eyes if it wasn't loans it would have been something else that they would have cracked down on.

If you bring in retrospective legislation, why would anyone in their right mind ever listen to a tax advisor or an accountant on tax matters - you wouldn't.

If this legislation goes through then tax advisors and people involved in tax litigation will either be down at their local JCP or needing to change in careers as these roles would be made redundant as HMRC become the judge, jury and executioner. So my view is for the betterment of 'your' industry I would get behind these nasty contractors and stand with us in this fight for the sake of your own careers.

 

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By gordo
09th Apr 2016 23:51

Black Night
I agree completely that the professional rules are important.

I should have been clearer, I had meant the Accountants personal values on where the invisible line is between acceptable and not and the consequences of such (which would open up another huge debate).

I don't know where you get the impression that commissions have not been disclosed, so I haven't responded on that.

I'm clearly concerned by the implications of what HMRC are really up to. However, let's agree to disagree and shake hands at that.

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By DotasScandalDotOrg
06th Apr 2016 15:36

Here's an idea

Hey, here's an idea...how about we let Tax Tribunals decide what "works" or doesn't ? You know, inside the usual legal framework.There'd be no need for silly retrospection, etc.
Crazy, I know

But since these structures "obviously" "don't work"...shouldn't be a problem?

 

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By justsotax
06th Apr 2016 16:07

still getting my head around

retrospective....they haven't changed the tax rate on your beneficial loan for previous years...they are not chasing you for tax from previous years.  They are just saying you will need to repay the loan...because that was what you were intending to do...wasn't it.

 

And perhaps rather than moaning to those accountants on here who would have given you a balanced view with the biggest caveat being 'this is based upon current tax legislation' you should have ago at the QC....or have they suddenly disappeared....just like the tax scheme provides no doubt, oh and has your tax advisor/accountant gone quiet too - it is those individuals you should be corralling for support - they are the reason you have ended up here.

 

  

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By gordo
06th Apr 2016 16:59

justsotax
I'm afraid that not one single part of what you wrote is accurate and as such I wouldn't know where to start in answering it.

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By ShirleyM
06th Apr 2016 17:29

Why is justsotax wrong?

Justsotax says the tax isn't retrospective, it's a new tax on untaxed outstanding loans that won't take effect until 2019, which gives people plenty of time to get their affairs in order.

I know the article heading says it is retrospective, but it also says  “A new charge on outstanding disguised remuneration loans”.

 

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By Old Greying Accountant
06th Apr 2016 17:42

Exactly Shirley ...

... as people have borrowed large sums of money they must have made provision to repay it, so either repay it or use the set aside sums to pay the tax.

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