Tax Writer Taxwriter Ltd
Share this content

Retrospective tax imposed on contractors’ loans

29th Mar 2016
Tax Writer Taxwriter Ltd
Share this content
Signing a contract
iStock_contract_Shigapov

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)

Please login or register to join the discussion.

avatar
By Andy Davis
11th Apr 2016 14:42

Wrong?

You keep going there. Like it or not providers and QC's have done nothing legally wrong. These arrangements are based on the law in force at the time.

Beat them with the moral stick if you like. That seems to be the one that's most popular at the moment......................

Thanks (1)
avatar
By justsotax
11th Apr 2016 14:56

as pointed out

tax law changes - any decent advisor will caveat any planning with this...I am only suggesting that if this hasn't been pointed out to the respective individuals this will give them a course for redress.  No moral stick required

 

 

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 15:03

Tax law changes

Yes it does, but it should not change to the extent that it could have a tax consequence on a transaction entered into 20 years ago.

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 15:04

Tax law changes

Oh, and that the court has already ruled is not taxable

Thanks (1)
avatar
By justsotax
11th Apr 2016 15:07

what you mean like buying a house and

then changing the PPR rules...

 

 

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 15:20

PPR rule changes

My PPR was my PPR 20 years ago and it still is today. The length of time it remains my PPR if I vacate may have changed from 3 years to 18 months from April 2014, but it had no effecvt on a property I might have sold in 1996

Thanks (1)
avatar
By justsotax
11th Apr 2016 15:28

quite...but you still have the

'loan'....like I still own my house....

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 16:08

but if you still have your house

there is no retrospective tax effect on you?

Thanks (0)
avatar
By justsotax
11th Apr 2016 16:15

what you mean like

incurring tax because you had originally planned for the last 3 years to be exempt and now it is not...?

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 16:22

OMG!!!!!!!!!!!!!!!!!!!!!!

If you sell today you know the rules today - not even close to the same thing.

If you sold in 1996, the rules changed last week, and HMRC come to you for the money as a result of that change........... a little closer maybe

Thanks (0)
avatar
By justsotax
11th Apr 2016 16:25

but if you didn't have the loan

anymore then there would be no charge...?  Did I not pick the right analogy for your argument?

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 16:50

Missing the point

No, not a bad effort, but you are still missing the point.

I think this has been done to death now, and I have a job to do.

We will just have to agree to disagree and see how things play out.

Thanks (0)
avatar
By justsotax
11th Apr 2016 17:04

my 3 1/2 year old son

also changes the subject when he can see he is running up a blind alley...LOL

Thanks (1)
avatar
By Andy Davis
11th Apr 2016 17:43

Blind Alley

 

No, just bored now of seeing the same arguments repeated over and over.

Nothing new coming out of the comments so I really can't be bothered any more

Thanks (0)
avatar
By gordo
11th Apr 2016 20:05

justsotax

How would you feel if you were now told that your loan was taxable as income? Or even un-exempted all the years of PPR you thought it had up to that point (sorry about the grammar).

Incidentally, can't believe that you would be so crazy as want to pick a fight with  a QC.

C'mon folks, Accountants, since when have loans been taxable? Income yes, capital gains yes, loans.....really.

Vaughan
As indicated I don't have an immediate answer because I'm not a Contractor either (sorry folks I know you were disappointed that I wasn't a Promoter, this must come as a double-whammy). Vaughan, the answer could be in the original FTT or Appeal Court summaries (both of which HMRC lost because loans aren't taxable!). (Apologies - just realised that you now thought of same thing).

Other than Andy the only ones that seem to understand that loans are not taxable are difficulttimes and dotasscandal.org, neither of which have held themselves out to be Accountants,....oh and the Courts of course, almost forgot about them.

Since when was justice dished out by mob rule. Andy thank goodness you are here, I thought I was going crazy. 

Apparently the courts will put me right, but if the Courts don't decide to treat as income as we desire, then we will tax the loans at 5th April 2019 anyway...and that's fair! Oh and HMRC will be held in check by the Courts apparently. Just as well its not heard in front of a jury. Glad that propoganda doesn't work.

Apologies for the delay I'm now on holiday,....probably Panama,...rubbish wifi on the fast boat over.

Thanks (2)
avatar
By Old Greying Accountant
11th Apr 2016 17:25

But will probably be a mortgage outstanding ...

... unlike your house which is probably paid for outright with no mortgage from the tax you didn't pay because you were working for free!

You could always downsize to the house you would have been able to afford had you been paying a proportionate amount of tax on your income.

Thanks (1)
avatar
By gordo
11th Apr 2016 19:39

HMRC want people to settle now based upon something that may or may not be  law 3 years in the future, but isn't law right now. Then if you don't capitulate, they issue you a demand which you have 90 days to pay with no right of appeal. That's extortion in my book.

If they wanted to stop this right now why did they not bring in a law as at 16th March or 5th April that outlawed immediately any new loans and gave those with outstanding loans, their very kind 3 years to repay?

I'll tell you what I think. I think that they know if they brought in a law now then it would be subject to legal challenge and people might not capitulate until they at least knew the outcome of the legal challenge. So HMRC thought it better to create a vacuum of uncertainty, hoping that people will crumble and pay a tax that doesn't actually exist and may never exist. That's extortion in my book. However, in this paragraph I am giving an opinion rather than fact. I think the 3 years grace to repay the loans is a sales pitch devised by Behavioural Psychologists (I am one of them).

I have never said in this thread that I was in favour of the loans, yet when some concluded that I must be a Promoter (because I didn't agree to what I saw as mob rule),that did make me amoral apparently. I have however, asked you to question HMRC's behaviour and what is being done to the rule of law. If I anticipate the reward is a knighthood and £2 million pension top up, then one could influence behaviour. It's important that checks are held in place and that we continue to be wary of where influence is being applied.

Thanks (4)
avatar
By Old Greying Accountant
11th Apr 2016 20:58

It's not just HMRC ...

... all the regular tax payers who think these "borrowers" have been taking the piss[***] want them to settle too.

Thanks (3)
By DotasScandalDotOrg
12th Apr 2016 01:50

Regular taxpayers want due process

Old Greying Accountant wrote:

... all the regular tax payers who think these "borrowers" have been taking the piss[***] want them to settle too.

Incorrect.
Regular taxpayers want the reassurance that due process still exists in this country. Regular taxpayers understand that retrospection (once a taboo, nowadays a casual thing apparently for the Government - cf. article on the front page about ER) is deeply unjust and breaks trust in the legal system.
It is interesting that many (most) contractors in receipt of APNs were, until the "Osborne ultimatum", determined to play by the Government's rules (as they always did, please remember) - that means pay the APNs, with the understanding that the legality of the arrangements would be examined by a court (several FTT cases are lined up) and that the APN would be repaid if the arrangements are found to be valid. 
Not so anymore since the "Osborne ultimatum", as even the thicker of those "idiots who fell for it" can see right through it and understands it's about robbing them of their day in court (or more precisely, rendering the outcome of said day in court completely irrelevant).
Most contractors would settle TODAY, if only HMRC offered sensible terms and FINALITY (which they don't).

PS: Many of the contractors affected have been "regular taxpayers" (I assume that means PAYE) for years now. Appreciate that many did temporary contract work for lack of permanent employment, sometimes 5 or 10 years ago (again, I invite all to read the testimonials)

Thanks (1)
avatar
By gordo
12th Apr 2016 08:47

Agreed

I understand the sentiment Old Greying Accountant, but we have laws in this Country.

There may be more to come on who is taking the [***].

Thanks (1)
By cfield
12th Apr 2016 12:17

Diary of a retrospective law breaker

Monday

Had a visit from a health and safety inspector today. He said it was illegal to sell my stock of polyurethane furniture under the 1988 Fire Regulations and that I should dispose of it safely. This is utterly outrageous. That stock was perfectly legal when I bought it. I even got a QC to sign it off. It's only a fire hazard if you put an ashtray too close or hold a magnifying glass over it on a hot day, but so what if it is dangerous. It was legal at the time, so it should still be legal now. Old furniture should be exempt under the new regulations. It's so unfair. I paid good money for that stock. They're making the law retrospective and that's wrong.

Tuesday

Got raided by armed police at 4am this morning. One of my neighbours had reported me for having an unlicensed shotgun, but it's totally unfair as I got it as a birthday present from my Uncle Jack in 1967 when I was 4 years old, before the 1968 Firearms Act came in. It was perfectly legal then as the barrel was longer than 24 inches. He even got a QC to confirm this. Apparently, my parents should have got a license or handed it in under the amnesty, but surely they're making the law retrospective and that's wrong. I only use it to keep the squirrels off the bird feeder anyway, and don't try to tell me it's wrong to kill a grey squirrel.

Wednesday

More bad news, this time from UK Anti Doping. Apparently Meldonium is a banned drug now and as a tennis coach I shouldn't have been giving it to my my new starlet Maria. But I bought this stuff over 2 years ago before it was banned. It was perfectly legal then and I even got a QC to confirm that in writing. They should have made existing stocks exempt. It's making the law retrospective otherwise and that's wrong.

Thursday

Can't believe what a bummer this week is turning out to be. Had a letter in the post from the council today saying that my Leylanddi hedge is too high. My neighbour complained about it blocking his light and the council say I have to cut it back under Section 8 of the Ant-Social Behaviour Act 2003. But it's the same height now as it was before this new law came in. It was perfectly legal at the time. I even got a QC to confirm that in writing. They should have made existing hedges exempt. It's just another example of laws being made retrospective. Disgusting.

Friday

It gets worse! Today I had an APN in the post from HMRC telling me I have to pay £50,000 within 90 days for that dodgy tax avoidance scheme I got into over 10 years ago. I'm told it's because I haven't re-paid any part of the loan since then. News to me. My QC told me I didn't have to. Apparently it's not retrospective as the loan still exists and they're just re-categorising it as disguised income or something. I'm told they have the right to do this as it's already under enquiry. How unfair! To my way of thinking, if a dodgy scheme already exists and the courts have said it's legal it should be allowed to continue, even if they change the law.

To rub salt in the wound, even my own family have turned against me. They say all these laws are perfectly right and proper. Idiots! Just wait until it's their turn.

 

Thanks (4)
avatar
By gordo
12th Apr 2016 12:57

He's back.

That's a long email cfield, must have taken you a while to write it. I'll have a read.

Did you manage to find time to get around to reading that pony I sent you earlier with the (not) important case law stuff?

Thanks (0)
By DotasScandalDotOrg
12th Apr 2016 13:08

cfield..stick to accounting
Not everyone has talent for satire.

Thanks (0)
avatar
By gordo
12th Apr 2016 13:22

Sorry to hear
Monday
Sorry to hear of your troubles. Glad you're only been asked to dispose of it and not being fined for having bought it and still owning it.

Tuesday
Sorry to hear of your troubles. I'm just glad you didn't get fined today for shooting it in 1967.

Wednesday
Sorry to hear of your troubles.
I'm glad they are not labelling you a drug peddler today for something that you did years ago that was perfectly legal when you did it. Next there will be a mob after you because that sort of thing is out of favour now you know. Who sold you the drugs? Maybe we could sue them.

Thursday
Heck it's been a long week, but hey you should have known when you planted that hedge that it would keep growing and that the law might change. Did the person that sold you it not explain that caveat to you? Dreadful.

Friday
Goodness I think you are buggered. HMRC can do what they like with impunity you know. No wonder your friends have disowned you.

Thanks (3)
avatar
By The Black Knight
12th Apr 2016 14:09

just the way it works

This is just the way it works now.

HMRC ought to follow due process but they don't.

like I said determinations have had no right of appeal for ages. HMRC seem to have stopped using them.

It ought to go to court in a timely fashion but the system has been overloaded with penalties and tax schemes.

HMRC need to protect the public purse and are therefore raising protective assesments sometimes where there is no tax due at all.

If your case has failed then it is wise to make a payment on account.

We are talking the tax on this remuneration/loan

If HMRC lose in court the law will change - ? They just changed it in advance hedging their bets I expect?

Would it be better for the scheme to fail and the correct tax be assesed in the correct year at the correct rate rather than all at once at even higher rates I presume.

Warning signal should have gone up when Jimmy Carr decided to withdraw?

I still don't think this is anymore retrospective than say removing indexation from personal capital gains.

You can now have bought an asset in 1983 That cost £10,000 that you now sell for £200,000 and pay tax on a gain that is not even real.

It just has a tax charge you didn't expect at the time you made the investment.

Thanks (2)
By DotasScandalDotOrg
12th Apr 2016 15:11

"This is just the way it works now"
"HMRC ought to follow due process but they don't.
This is just the way it works now."

Just like that?
Wow!
Sounds like "the end justifies the means", 2016 version.
If "this is just the way it works now", as I wrote earlier why even bother with a judicial system.

Thanks (2)
avatar
By gordo
12th Apr 2016 15:03

I wish I'd never bothered
I wish i had never bothered with my Chartered Tax Advisor exams. Could have saved myself a lot of time reading things.

I'm sorry The Black Night but I have no idea what you just tried to communicate.

Thanks (2)
avatar
By The Black Knight
12th Apr 2016 16:07

You do seem to have a struggle

gordo wrote:
I wish i had never bothered with my Chartered Tax Advisor exams. Could have saved myself a lot of time reading things. I'm sorry The Black Night but I have no idea what you just tried to communicate.

 

You do seem to have a struggle

It's Adviser

You seem to be just kicking off because HMRC have been unfair and now you need the support of the people you need to slag off because we don't agree with your advice.

All quite simple to me.

You got your clients into this mess and cannot accept responsibility.

Thanks (0)
avatar
By Andy Davis
12th Apr 2016 16:25

Spelling mistakes

Petty, do you have nothing better to do?

And yes, it's only right we kick off. To say HMRC are being 'unfair' is like saying Ghengis Khan was responsible for killing a few people!

There are laws in this country, and HMRC should play by them

Thanks (1)
avatar
By The Black Knight
12th Apr 2016 16:56

he started it!

Andy Davis wrote:

Petty, do you have nothing better to do?

And yes, it's only right we kick off. To say HMRC are being 'unfair' is like saying Ghengis Khan was responsible for killing a few people!

There are laws in this country, and HMRC should play by them

he started it.

and you came on here calling people "idiots" unless I'm mistaken (and it's eejit )

HMRC are playing by their rules!!!  If they were not you would be able to stop them. Well perhaps not you.

You just don't like it when you get some back.

Ghengis Khan was also a great father of children and lover of many women.

Thanks (1)
avatar
By Andy Davis
12th Apr 2016 17:07

We could do this all day

Have you read the stuff in earlier posts? HMRC are clearly not playing by the rules. The rules do not belong to HMRC - they are not their rules. They are the rules, laid down in legislation.

If HMRC are allowed to have their rules, can I have mine? I fancy making spelling mistakes a capital crime.

Good point about Ghengis though. I always thought he got a bad press. Maybe I should have used Pol Pot instead.

Thanks (1)
avatar
By Andy Davis
12th Apr 2016 17:11

Idiots

The Black Knight wrote:

and you came on here calling people "idiots" unless I'm mistaken

And I waited to read a few posts before using that term. I wouldn't say it unless I was sure....................

Thanks (0)
avatar
By gordo
12th Apr 2016 19:13

What happens if you pay an Accelrated Payment Notice
Thank you for correcting my spelling. I was certain that CIOT had told me I was  to call the Firm, Chartered Tax Advisors, back in 2004, however I could be wrong. Spelling is perhaps not my strength. 
http://m.accountingweb.co.uk/anyanswers/adviser-or-advisor

I could not make head nor tail of most of your post. I'm unsure what determinations you are unable to appeal on behalf of clients and why HMRC would be raising said determinations on your clients.

I'm sorry but the rest of the post made no sense in light of what had already been written. I might be getting a little frustrated at having to repeat myself on the rule of law in this Country.

What happens if HMRC lose, are they going to pay back all APN money collected. Note the foot of earlier links for a hint from HMRC that you will have trouble ever seeing your money again, even if proved innocent. HMRC hinted that they would not repay until they had fought every case to the bitter end. The first of these cases could take a decade through the Courts. If they get their way with this, where would it end? I was sort of hoping the Accountants on here might understand that. 

Government have obtained £2bn by demand of something that isn't income. It's an advance, an 'accelerated payment' to account of a possible liability and therefore my accounting training says that there should be an equal and opposite debtor and creditor. However government don't do accrual accounting and have already called this money, "income". They've probably spent it whilst we've been chatting.

It is entirely possible that you are never going to see this money again even if you are proved innocent, in Court, of any wrong doing.

As a result, as a Chartered Accountant, I'm not sure that I can advise any client to "settle" right now unless the mind games and pressure being brought to bear by HMRC are starting to affect his or her mind, health and/or marriage. 

There may well be some that this applies to, but because we don't know what "settlement" might be offered, we cannot possibly make a professional judgement as to what would be best for the client. It's almost like a deliberate vacuum has been created. Who would do that? 

What if I advised my client to "settle" then HMRC lost the case. Would the client be entitled to sue me? I suspect so.

I say again that HMRC have never brought any evidence to Court or Tribunal to substantiate any grounds for why they are now raising a charge on an individual. And they know it! And you are condoning blackmail by an agency of the government. I cannot support that regardless of how I feel about the Contractors original actions.

Thanks (2)
avatar
By NJ replies
12th Apr 2016 19:55

Seriously

The Government are not proposing to tax loans taken out 10 years ago.  That is not what they have proposed.

They are proposing is taxing loans which are still outstanding.

Many of the arguments seems to suggest that the money, which still belongs to the company (it is a loan after all), should now be deemed as remuneration which has already passed to the contractor so no tax.  This is despite the courts defending the loan as not being remuneration.

Which way do you want it

1.   not remuneration so that it is a loan and is still owed to the company hence still subject to changes in legislation

2.  as remuneration so should have been taxed and subject to penalties for late/non-payment

The first option is not retrospective (as the money is still due to the company).  The second option would be retrospective (and has not been proposed by Government/HMRC).

 

Thanks (2)
avatar
By gordo
12th Apr 2016 23:16

Hello NJ

Although you are closer it is still not correct i'm afraid.
The loan is due back to the lender/employer, therefore it is neither income nor gain in the hands of the individual. Therefore it is not taxable on the individual.

Closer though.

Your definition of remuneration may not be the technically correct one though, under ITEPA 2003.

Plus a loan is still not taxable on the individual. And HMRC know this! Accountants should also know this.

However HMRC cannot apply the same pressure to the employer who knows what the law is and is probably represented,so HMRC create a trumphed up charge on the individuals.

Every Accountant on here knows that HMRC would be happy to pick upon the unrepresented individuals. They are easier to push around.

I cannot reconcile your opening two paragraphs and I believe they are wrong.

Thanks (2)
avatar
By NJ replies
12th Apr 2016 22:12

Current position

I accept that the courts have deemed the loans not to be taxable.

The loans have been put in place to extract cash from the business without paying tax.  Leaving the loans outstanding has left them open to changes in legislation as the cash still belongs to the company.

The Government have recognised that this is an avoidance scheme and have proposed to remove this strategy by changing legislation.  If the change is made then HMRC will have every right to pursue the tax due.

Government should be tackling artificial avoidance schemes such as these.  As the Courts have agreed that these are loans under current legislation and not remuneration, they are still outstanding and available to tax on a 'current' basis.  Repay or be taxed.

 

 

 

Thanks (1)
avatar
By gordo
12th Apr 2016 23:18

Confused
So the Courts, the Law of the land, are asked to adjudicate and they have deemed loans not to be taxable.
But, having lost in Court, you subsequently want to change the law to now make those same loans taxable.
And that's not retrospective.

A loan is not 'available' to (income) tax nor (capital gains) tax. So what tax is this exactly....oh a new one because these burgers deserve it. Mob rules.

Thanks (1)
By DotasScandalDotOrg
12th Apr 2016 23:46

A little quiz..

One for you old-timers.

Q: Who said the following in Parliament? (On the topic of retrospective anti-avoidance legislation)

“How long have the Government, whether through HMRC or the Treasury, been aware of the arrangements? There is certainly evidence that HMRC has been aware of the arrangements for some years. That raises the question that I asked earlier. It is incumbent on the Government to act reasonably quickly. If they become aware of a scheme that they do not like but they sit on their hands and do nothing about it, and then some years later say, “Okay, we will introduce retrospective legislation,” that raises real concerns, because again there is a continued period of uncertainty. I would press the Government to move quickly if they saw something wrong, rather than sit on it for a long time and then seek to introduce retrospective legislation.

(...)

It comes back to legitimate expectation. If the Government do not act on something, perhaps they have taken the view that they will not pursue it. That argument has become stronger in recent years, as the Government now benefit from a disclosure regime (DOTAS). Schemes that result in people making tax savings are disclosed to HMRC, which has the opportunity to review the situation and introduce legislation.

(...)

It is not acceptable that the Government permit something that they consider unacceptable to exist for some years, and then seek to introduce retrospective legislation to address it. That is what we see here. The comments from the professional bodies are universally critical. The Chartered Institute of Taxation described the retrospective nature as “extreme” and “unjustified”, the Law Society described it as “wrong in principle”, and the Institute of Chartered Accountants in England and Wales said that “it sends out a very damaging signal about the stability of the UK tax system”

Thanks (2)
avatar
By Difficulttimes
13th Apr 2016 08:20

Comments

I now see that this article is the highest for the amount of comments for any article on Accounting Web and by the looks of it will soon have the most amount of views. 

This shows you the gravitas of this legislation that is proposed and the massive impact it will have on tens of thousands of people across the country. 

I understand that some of you have a different Oxford dictionary to myself in terms of the meaning of 'retrospective', 'avoidance' and 'evasion' but all I ask is that the law makers really think long and hard about what they are proposing to do. 

I can see this being swept under the carpet as it's not mainstream news and Joe Public will probably think we are bunch of tax dodgers who deserve nothing less but the issue is far more complex than this and the ramifications of what is proposed should not be understated. 

Regardless of your reason for getting involved in one of these schemes, we deserve to have our case be heard in a court of law to decide if it is disguised remuneration.

I have read previously, that some of you think this is not a good use of public funds so we don't deserve this right to a hearing or any form of legality on this issue. What gives you or anyone else out there to deny us our basic human of right? Wouldn't you with being faced with losing your family home and changing your children's school as you will all need to move into a council home (if you are lucky) or back in with your parents or anyone that would take you - wouldn't you want to fight to the bitter end and have your day in court? 

This proposal makes this purely academic and will only lead to many more years of uncertainty and Judicial Reviews that drains already depleted court resources.

If you are involved with this proposal and reading this then PLEASE think long and hard. 

 

Thanks (3)
By ShirleyM
13th Apr 2016 08:49

It is disguised remuneration

A fairy story (based on my 'incorrect' knowledge of the avoidance scheme)

Punter: I can earn £100,000 per year in my profession

Promoter: I can make sure you only pay minimal tax on say, £10K salary, and some BIK.

Punter: Great. How?

Promoter: We pay you £10K salary, and loan you £80K. The rest goes to my fee.

Punter: Whoah! That doesn’t sound like a good deal to me. I am only guaranteed £10K, and I could end up owing back most of my salary. I usually get £100,000. Why should I work for £10,000?

Promoter: You ARE guaranteed £90K, virtually tax free, because you won’t have to repay the loan.

Punter: Will there be something in the contract to guarantee that?

Promoter: No. If we put the fact that it is non-repayable into the contract then it wouldn’t work. However, our position as trustees means we can NEVER recall the loan, as we would be failing in our duty to the beneficiary, and that would be illegal.

Punter: So what do I do if HMRC come calling and say this is disguised remuneration, and ask when the loan will be repaid.

Promoter: You lie!

Punter: I don't mind telling porkies if it saves me loads of tax.

Thanks (1)
avatar
By justsotax
13th Apr 2016 09:18

to be fair

it took 250+ posts to establish that tax on capital items are retrospective (whether you wish to agree or not that is a fact based upon the 'pro' scheme argument).

 

We just need to establish if the loan under the new definition is indeed disguised remuneraton - side step that and you have no tax to pay.

 

But lets have that day in court...what next....perhaps do a collection on here for the 'fighting fund'

Thanks (1)
avatar
By gordo
13th Apr 2016 09:24

HMRC did not argue in Court that loans are taxable.
They would not have done so because they would have been laughed out of Court.
Under what part of the Taxes Acts are loans taxable?

What they did argue was that the event that gave rise to the loans was taxable under PAYE provisions, on the Employer.

That's what they argued in Dextra, Sempa and Murray Group (Rangers).

Not on the individual.

There may be a BIK charge if the individual has a loan at a beneficial rate, but the loan itself is not chargeable to tax.

However some on this thread seem to think it is suddenly acceptable to tax loans, They seem to be happy for HMRC to unilaterally make up its own rules...but only for those that they subjectively see as 'tax dodgers', not for their own clients who only 'dodge' national insurance.

The propoganda does work. Much as we like to see ourselves as made of sterner stuff, we are all of us highly open to influence when it's done cleverly. 

There is no legal grounds that have been demonstrated for taxing the individual contractors as things stand. It's never been tested in court so people are being deprived of a basic human right. HMRC once again get a power, under a promise to apply it reasonably, and then run amok. Now if we could just influence public opinion to support us we might just get away with this before people realise. We might even be able to hoodwink Accountants because after all we are the all powerful Wizard or Big Brother called HMRC and nobody can stop us. 

Still HMRC asks individuals to pay an APN. Accelerated payment of what exactly? Under the knowledge that they will probably never see the money again and there is no tax due by the individual. This is borderline criminal. Meantime they try to influence you, the Accountant, to encourage your clients to throw in the towel, with letters written by Behavioural Psychologists that are meant to scare you into submission. It's appalling.

George Orwells 1984 and the "thought police" has maybe arrived.

Oh, I never yet told you about how they manoeuvre the figures to substantiate their HMRC win 80% of cases. Maybe later.

We are being played people and I thought you had a right to know. I've being trying to say that all the way through.

ShirleyM, there is a fairy story being played based upon your technical misunderstanding of the difference between evasion and avoidance, but you are pointing the finger in the wrong direction. Your analysis is also incorrect, but it should not be for you, or I, to rule over when there is a dispute. That's what the Courts are for.

Thanks (1)
By ShirleyM
13th Apr 2016 09:40

Have you never heard of S419, or S455?

HMRC did not argue in Court that loans are taxable.
They would not have done so because they would have been laughed out of Court.
Under what part of the Taxes Acts are loans taxable.

You would be correct, if these were normal loans, but they are not. They are non-repayable loans.

In any case, as mentioned many times (but you choose to ignore as it doesn't suit your argument): some loans ARE taxable.

Gifts (non repayable loans) are also taxable.

I am sure you will enlighten me about my errors when you tell me the loans are not disguised remuneration, that the loans are not gifts even though there is zero intention (or requirement) to repay the loan.

EDIT: the facts are ... HMRC MUST win this battle, for the sake of the country and all the taxpayers within it. If the government have to bring in new tax laws in order to achieve the desired result, I suspect 99% of the taxpaying public will support them. It just means another loophole is closed.

Thanks (1)
avatar
By justsotax
13th Apr 2016 09:40

not only that shirlym

but they have also changed the tax charge in regard to s.455...and INCREASED it....I think this needs to go to court...another retrospective tax charge....

Thanks (0)
By DotasScandalDotOrg
13th Apr 2016 10:06

By the way...

That was good ole' David Gauke, in more sane days (his opposition days). The maestro of APNs, the architect of misery himself http://bit.ly/1XuKHvw  

Who, I understand, was in charge of Tax Simplification at the Treasury at the time.

Read in retrospect, every single sentence is a gold nugget of hypocrisy. 

Thanks (2)
By cfield
13th Apr 2016 10:25

Hyprocrisy

DotasScandalDotOrg wrote:

Read in retrospect, every single sentence is a gold nugget of hypocrisy. 

Isn't it a bit hypocritical to talk of hypocrisy when these very schemes were a master class in hypocrisy - setting up loans that would never be re-paid? Or maybe cynical would be a better word.

Thanks (1)
By DotasScandalDotOrg
13th Apr 2016 11:07

No no....

cfield wrote:

DotasScandalDotOrg wrote:

Read in retrospect, every single sentence is a gold nugget of hypocrisy. 

Isn't it a bit hypocritical to talk of hypocrisy when these very schemes were a master class in hypocrisy - setting up loans that would never be re-paid? Or maybe cynical would be a better word.

No no, hypocrisy 's the word.

Définition of Hypocrisy: "a ​situation in which someone ​pretends to ​believe something that they do not really ​believe, or that is the ​opposite of what they do or say at another ​time"

I did not invent or operate any of the "hypocritical" schemes you mention: I was merely misled to believe that they were a legitimate vehicle through which I could provide my punctual services without constant fear of IR35, and without the admin burden of operating a Ltd. Co. Thus freeing time to, you know... practice my profession!!!! (please remember not everyone is a trained legal or accountancy expert). 

Who was i misled by? Oh yeah - professional accountants. 

If you needed to employ my services (and these are of a nature VERY different from yours), would you not rely on my professional advice? That's the only thing I was guilty of.

Gauke, on the other hand, gave us APNs in 2014. In coming up with this genius idea, it's almost as if he took his old speech from and made it an exercise to implement to the letter that which he had so eloquently denounced when he was in charge of Tax Simplification at the Treasury. 

So, most definitely...Hypocrisy 's the word. 

 

Thanks (1)
By cfield
13th Apr 2016 11:25

But who is being hypocritical?

DotasScandalDotOrg wrote:

So, most definitely...Hypocrisy 's the word. 

But Difficulttimes just said a few minutes ago that the loans are repayable (albeit with the vital words "on demand"). Isn't that hypocrisy, knowing full well that the loans will probably never be repaid, or is it cynicism?

OK, ball in your court, when do you think your loan will actually be repaid? When will the lender "demand" repayment. We're all ears.

Thanks (1)
By cfield
13th Apr 2016 11:58

All lies and jests

DotasScandalDotOrg wrote:

I did not invent or operate any of the "hypocritical" schemes you mention: I was merely misled to believe that they were a legitimate vehicle through which I could provide my punctual services without constant fear of IR35, and without the admin burden of operating a Ltd. Co. Thus freeing time to, you know... practice my profession!!!! (please remember not everyone is a trained legal or accountancy expert). 

Who was i misled by? Oh yeah - professional accountants.

The only reason you were "misled" is because they uttered the words you wanted to hear; i.e, that there would be very little tax to pay, if indeed any at all. It reminds me of a verse in the Simon and Garfunkel song - The Boxer.

"All lies and jests, still a man hears what he wants to hear and disregards the rest"

This IR35 argument makes me laugh. It's been around for 16 years now and most contractors are fairly well-informed about it. You didn't have to go for one of these dodgy schemes just to avoid IR35.

Admin burden of running a company? What, you mean signing the Balance Sheet once a year? Most contractors pay an accountant to "run" the company. We do all the complex tax planning and advise them what to do. All they've got to do is send us the bank statements and invoices. There's not much other "running" to do. I wouldn't mind betting we charge a damn sight less than those scheme promoters too. We even compare well with some umbrella company fees.

As I said earlier, IR35 is not too difficult to avoid, and even borderline cases can justify non-compliance. The risks of being challenged were (and still are) very low and the risk of losing an enquiry even lower. You can also take out insurance to cover you against the professional fees or even the tax itself.

If you had done that, you could have still have saved yourself a respectable amount of tax, and I use that word in all its senses as taking dividends rather than salary is indeed respectable and totally transparent, not like the scheme you got involved in.

Thanks (1)
avatar
By Andy Davis
13th Apr 2016 12:45

All lies and jests

cfield wrote:

This IR35 argument makes me laugh. It's been around for 16 years now and most contractors are fairly well-informed about it. You didn't have to go for one of these dodgy schemes just to avoid IR35.

As I said earlier, IR35 is not too difficult to avoid, and even borderline cases can justify non-compliance. The risks of being challenged were (and still are) very low and the risk of losing an enquiry even lower. You can also take out insurance to cover you against the professional fees or even the tax itself.

If you had done that, you could have still have saved yourself a respectable amount of tax, and I use that word in all its senses as taking dividends rather than salary is indeed respectable and totally transparent, not like the scheme you got involved in.

Avoid IR35 - make an arrangement so a piece of legislation does not apply = that's tax avoidance - disgusting, and how dare a reputable man of the profession suggest such a thing!

Borderline cases can justify non-compliance = not sure so we will just take a bit of a fyler and hope you get away with it - fantastic advice from a reputable accountant.

taking dividends instead of salary = NIC avoidance; that'd just another tax to be avoided surely, but no; it's respectable and transparent (ie: it went on a tax return). Not like a contractor loan at all (ie:declared on a P11d and a self assessment return so HMRC have absoutely no idea what has happened!)

But dividends are OK tax planning? HMRC are completely happy with that....... but wait didn't we just get dividend tax to ensure less tax is avoided by those who choose to pay themselves by that route? But that's OK, it's on future divdends.

Get a grip

Thanks (1)

Pages