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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 The Black Knight
13th Apr 2016 16:14

FFS

Andy Davis wrote:

The Black Knight wrote:

If these schemes or any avoidance rely on a falsehoods such as:

A loan that is repayable that is not.

How can a loan be repayable if there is no intention ever to repay it?

Because................... wait for it, because it has not been said before (at least not more than 50 times in this thread)

............................. the court has ruled they are loans. OMG

If you are going to quote at least keep the context not just cut and paste the bits that suit your argument. I expect that is what has gone worng with your schemes

If the courts have already decided that your loan is a loan then what are you making this almighty fuss about.

 

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By Andy Davis
13th Apr 2016 16:25

Fuss

Because the contributors on this thread keep keep saying it's income not a loan.

Sorry for the poor cut and paste. (Didn't want to quote the whole text as I was only commenting on a bit of it)

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By Difficulttimes
13th Apr 2016 15:24

Agree

The Black Knight wrote:

 

I do hope this goes to court so we get the answer.

I am interested to see if all avoidance firms were of the same ilk or whether there were some schemes that actually worked.

 

That makes two of us... 

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By DotasScandalDotOrg
13th Apr 2016 15:24

Why doesn't HMRC let the courts decide?

The Black Knight wrote:

I am interested to see if all avoidance firms were of the same ilk or whether there were some schemes that actually worked.

So are we and thousands of others. If only to know whether we have indeed been scammed by the promoters. The question is: why doesn't HMRC want the courts to decide? Both APNs and the "Osborne ultimatum" are de facto instruments to discourage litigation. The former, by depriving the taxpayer of the funds necessary to pursue his day in court, the latter, by rendering the outcome of any litigation largely irrelevant. 

Why are HMRC so insistant on subverting normal legal processes? 

You reflect on that. 

(hint: gordo dropped a few pointers in his early posts) 

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By gordo
13th Apr 2016 16:16

Hooray

Now we should work together to ensure that HMRC brings this to Court with all possible haste so that the judiciary can rule over the disagreement.

That may mean that we have to work together to lobby the government and possibly our respective Institutes to ensure that HMRC are not allowed to side-step this important matter.

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By Old Greying Accountant
13th Apr 2016 16:47

Thing is ...

... IR35 is a matter of fact, if you lie about those facts you are evading tax, in the same way lying about the fact a loan is actually remuneration because there is no intention to repay (other than on a piece of paper only HMRC ever see) it is also evasion. 

No comment yet on my point on the Companies Act 2006;

 

171      Duty to act within powers

A director of a company must—

(a)   act in accordance with the company's constitution, and

(b)   only exercise powers for the purposes for which they are conferred. 

 

172      Duty to promote the success of the company

(1) A director of a company must act in the way he considers, in good faith, would be
     most likely to promote the success of the company for the benefit of its members as a
     whole, and in doing so have regard (amongst other matters) to—

(a)   the likely consequences of any decision in the long term,

(b)   the interests of the company's employees,

(c)   the need to foster the company's business relationships with suppliers,
        customers and others,

(d)   the  impact  of  the  company's  operations  on  the  community  and  the
        environment,

(e)   the desirability of the company maintaining a reputation for high standards of
        business conduct, and

(f)   the need to act fairly as between members of the company.

(2) Where or to the extent that the purposes of the company consist of or include purposes
     other than the benefit of its members, subsection (1) has effect as if the reference to
     promoting the success of the company for the benefit of its members were to achieving
     those purposes.

(3) The duty imposed by this section has effect subject to any enactment or rule of law
     requiring directors, in certain circumstances, to consider or act in the interests of
     creditors of the company. 

174      Duty to exercise reasonable care, skill and diligence

(1) A director of a company must exercise reasonable care, skill and diligence.

(2) This means the care, skill and diligence that would be exercised by a reasonably
     diligent person with—

(a)   the general knowledge, skill and experience that may reasonably be expected
        of a person carrying out the functions carried out by the director in relation
        to the company, and

(b)   the general knowledge, skill and experience that the director has. 

175      Duty to avoid conflicts of interest

(1) A director of a company must avoid a situation in which he has, or can have, a direct
     or indirect interest that conflicts, or possibly may conflict, with the interests of the
     company.

(2) This applies in particular to the exploitation of any property, information or
     opportunity (and it is immaterial whether the company could take advantage of the
     property, information or opportunity).

(3) This duty does not apply to a conflict of interest arising in relation to a transaction or
     arrangement with the company.

(4) This duty is not infringed—

(a)   if the situation cannot reasonably be regarded as likely to give rise to a conflict
        of interest; or

(b)   if the matter has been authorised by the directors.

(5) Authorisation may be given by the directors—

(a)   where the company is a private company and nothing in the company's
        constitution invalidates such authorisation, by the matter being proposed to
        and authorised by the directors; or

(b)   where the company is a public company and its constitution includes provision
        enabling the directors to authorise the matter, by the matter being proposed to
        and authorised by them in accordance with the constitution.

(6) The authorisation is effective only if—

(a)   any requirement as to the quorum at the meeting at which the matter is
        considered is met without counting the director in question or any other
        interested director, and

(b)   the matter was agreed to without their voting or would have been agreed to
        if their votes had not been counted.

(7) Any reference in this section to a conflict of interest includes a conflict of interest and
     duty and a conflict of duties. 

 

In precie, they can be summed up as follow:

The principal fiduciary duties of a director 

Company directors are expected to act legally, honestly and in good faith at all times. Any business decisions they make should be for the benefit of the firm alone. They should not make decisions for personal gain, nor should they engage in illegal activity or unethical behaviour. 

I fail to see how granting an unsecured loan that is unable to be repaid is for the benefit of the company

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By Andy Davis
13th Apr 2016 16:45

The thing is

The Contractors who have received these loans are not Directors.

Don't see how this applies to them?

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By Old Greying Accountant
13th Apr 2016 17:41

But you don't actually have to be ...

... a director to be caught by the provisions, if the sham that is encasing the situation is removed then they are caught under shadow legislation.

Have you not heard the phrase "lifting the veil"?

But if what you say holds water, then who are the directors that granted these loans, surely action can be taken against them as they had made financial decisions that have no commercial benefit to the company.

A prudent person understands the concept "no such thing as a free lunch". If you are earning a large enough figure to make these schemes worthwhile, you should be intelligent enough to realise they were untenable, if you could not, then may be you weren't really worth your corn. 

Thing is, gambling on these schemes is like gambling on the stock market, you could make a packet, but you could lose your shirt - all on factors entirely outside your control - if you can't afford to lose, don't bet - simples. It is not even the fact that the tax being avoided was punitive, on the highish side perhaps, but nothing like the rates around when I started out, especially when looked at in the light of borrowing costs back then too.

But don't feel you are being picked on, the salary/dividend situation is under attack too, and shortly I reckon there will be no difference financially on either route, that is if NI and tax are not merged. The reason though this is not being done retrospectively is because tax was being paid, so all that is needed is an alignment going forward - most likely the costs of identifying and collecting any past shortage would outweigh any income derived.  

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By DotasScandalDotOrg
13th Apr 2016 17:44

Gambling...

I have a feeling I'm wasting my time, but anyway: the risk that a contractor accepts, by definition, is to be out of contract. Most contractors who entered into schemes (on the recommendation of accountants...did I mention that before?) did not do so for the extra "dough" (as the take-home pay was equivalent to what could be obtained through a Ltd. Co.) but because it was presented to them, by professionals, as a low-admin and RISK-FREE vehicle for their contracting work. It was to REDUCE risk, not to increase risk. Contractors don't "gamble" as you say, they are too busy looking for clients, keeping themselves up-to-date with their industry, and practicing their profession. All of this carries sufficient risk. Is that really difficult to comprehend?

Again, I would like to quote David Gauke circa 2008:

"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 (nb: that's DOTAS). Schemes that result in people making tax savings are disclosed to HMRC, which has the opportunity to review the situation and introduce legislation."

(notice how the "greedy tax avoiders" of today were referred to as honourable "people making tax savings" in those saner times)

Here lies the profound guilt of HMRC - by their failure ot act, they implicitly created the illusion (one could say legitimate expectation) that they were fine with all these arrangements, and have been directly responsible for the whole "scheme industry" prospering. By their inaction, they validated the narrative served by the promoters to their clients! Why do you think the "gamblers" favoured DOTAS-registered schemes over non-DOTAS? (in retrospect, a very wrong move, since those who went non-DOTAS escaped the APN legislation!)

The whole "Osborne Ultimatum" is simply a massive COVER-UP OPERATION to absolve HMRC of any responsibility, by scapegoating a minority for their own failures using the wave of "tax avoidance" hysteria (that they themselves stirred up) as a pretext. 

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By Old Greying Accountant
13th Apr 2016 18:18

I know of no ...

... reputable accountant who would have referred top anyone using such a scheme, DOTAS or otherwise, as "honourable people making tax savings" - the phrase gullible idiots come to mind more readily.

I think Black Knight would agree, most such accountants had the same thought about DOTAS as about the PSC box - that it was like the woodman marking a yellow cross on the trees to be felled - and only those blinded by greed didn't spot that.

My advice at the time was, it is your decision, but I would urge extreme caution as there is a high probability you will be caught out and have a large back tax bill in the future. 

To blame HMRC is unfair and juvenile - "not my fault miss, he made me do it"

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By BigFrankBurton
13th Apr 2016 20:04

Do you have any issues with retrospective tax , legislation , APN , or the prospect of double rptaxation in 2019.
The whole legal system is being abused and subverted and no one seems to be aware of this.
Right or wrong of EBTs , the method of collection is a real attack on our rights and legal system.

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By gordo
13th Apr 2016 18:39

Let's go round again

Old greying accountant

I can assure you that the QC's will have considered this matter long, long before you and I got there.

The only way to get a proper answer to your very reasonable questions are to have the matter come out in open Court, where the learned Judge(s) will consider the matter and reach an judgement, which as Vaughan has pointed out is their opinion based upon all of the evidence that they have reviewed.

What we need to be aware of is that HMRC do not want this to come to Court because they are afraid of losing. They have found a wonderful ruse called APN's which allows them to demand money of citizens with no automatic right of appeal. Now that they have successful collected £2 billion they don't want to have to give it back. Hence, this new ruse to propose a change in law to allow them to keep the money. Even better, they want a three year run at intimidating and harassing people in the hope that more will throw in the towel and pay up, because it is affecting their life, their sanity, their marriage. This is a shocker and it goes very deep. I should point out that there are many reasonable people at HMRC, but this is being driven by policy i.e. by their political masters who want cash now and who certainly don't want to have to then give it back.

I think this needs to come out.
Don't let HMRC get money by this route because your clients will simply be next.

Incidentally, if everything you said was correct and also if none of it had been considered before, then the liability would still lie with the employers, not the individual contractors.

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By gordo
13th Apr 2016 21:10

HMRC argue for tax where no income or benefit exists.
HMRC are not interested in playing fair. Arguing for tax where no income or benefit exists! That's not trying to collect the right amount of tax! : 

"HMRC argued that although the employees do not get any financial benefit from the lease and pay a full price for them through leasing charges they are still liable for income tax under Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003. The "cash equivalent" of the leased car, calculated in accordance with chapter 6, should be be treated as part of the employee's earnings chargeable to income tax, HMRC argued."

https://www.accountingweb.co.uk/article/end-road-company-car-tax-dispute...

They do not win 80% of cases, (I can expand upon this false claim by HMRC) even though they only take cases to Tribunal when they expect to win.

It is shameful.

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By Andy Davis
13th Apr 2016 21:14

A different tack

There are so many issues raised in this I thought it might be helpful to try and get some concensus on some of the points at issue, one by one.

So to all still contributing on this thread (BigFrankBurton, OldGreyingAccountant, VaughanBlake, TheBlackKnight, Gordo, CField, JustSoTax, DifficultTimes, DotasScandal and ShirleyM) can we start with the single issue of who carries the tax liability if (and it's a huge if) it eventually transpires that the loans are taxable.

To help I will lay out a typical scenario (Simplified, or this will be a huge post) laying out how these arrangements typically work.

The promoter (employer) controls the whole process. The employer is a sizable business in its own right employing hundreds, even thousands of contractors to fulfill service contracts, along with support staff to deal with the necessary admin (client contracts, employment contracts etc)

The contractors are employees of the employer (No question of them exerting any control over the employer or being deemed as shadow directors).

The employees (Contractors) have, and are paid in accordance with their employment contracts.

In addition to salary the employer may at their discresion release a loan to the employee. (Which typically happens). Since the budget it has become even clearer that the loans are discresionary and controlled by the employer as they have been refusing new loans to employees (Honest - I have seen it!).

The employer controls, and has a contractual relationship with the client (End user), raises invoices for the work done, and collects the cash for those services.

Given that set of circumstances (Simplified, but pretty typical),  if (there's that big if again) the loans are taxable, who does the tax liability rest with.

Please don't get sidetracked by my spelling or bad grammar, and don't go off at a tangent about how this isn't howe these arrangements work (they are - I've seen a few) or something else off topic. Just all answer the question. One word - who's tax liability is it?

I'll start you off. My answer - Employer

Why - incorrect operation of PAYE.

I await all of your answers with interest

If we can get agreement on that then we can move on to another aspect;.

 

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By cfield
13th Apr 2016 23:13

Follow the money

Andy Davis wrote:

One word - who's tax liability is it?

Depends where the money is. If it's still with the employer, then they should pay. If it has been passed on to the employees (as loans or whatever) then the debt should be transferred to them. Yes, I agree, that may seem harsh, but these schemes are so utterly abusive that draconian measures are justified.

Now I've got a question for you Andy. Out of all the money your employer earned for your services as a contractor, how much tax was paid on it (as a %) over the whole period you participated in the avoidance scheme?

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By Andy Davis
14th Apr 2016 08:54

Still trying a different tack

cfield wrote:

Andy Davis wrote:

One word - who's tax liability is it?

Depends where the money is. If it's still with the employer, then they should pay. If it has been passed on to the employees (as loans or whatever) then the debt should be transferred to them. Yes, I agree, that may seem harsh, but these schemes are so utterly abusive that draconian measures are justified.

Now I've got a question for you Andy. Out of all the money your employer earned for your services as a contractor, how much tax was paid on it (as a %) over the whole period you participated in the avoidance scheme?

Not a one word answer - I asked whose liability is this legally, not who you think should bear the liability (I already know the answer to that question)

And I can answer your question - 0% - I am not a contractor.

Now, lets see if you cananswer mine? - One word - who's liability is it (in accordance with the law)

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By Andy Davis
14th Apr 2016 13:36

Still collecting votes

cfield wrote:

Andy Davis wrote:

One word - who's tax liability is it?

Depends where the money is. If it's still with the employer, then they should pay. If it has been passed on to the employees (as loans or whatever) then the debt should be transferred to them. Yes, I agree, that may seem harsh, but these schemes are so utterly abusive that draconian measures are justified.

Thanks for the vote. I understand where you believe the liability should fall, but I asked where under the current law the liability actually falls in the circumstances I described?

Employer or employee?

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By The Black Knight
14th Apr 2016 09:53

would agree with that

Andy Davis wrote:

There are so many issues raised in this I thought it might be helpful to try and get some concensus on some of the points at issue, one by one.

So to all still contributing on this thread (BigFrankBurton, OldGreyingAccountant, VaughanBlake, TheBlackKnight, Gordo, CField, JustSoTax, DifficultTimes, DotasScandal and ShirleyM) can we start with the single issue of who carries the tax liability if (and it's a huge if) it eventually transpires that the loans are taxable.

To help I will lay out a typical scenario (Simplified, or this will be a huge post) laying out how these arrangements typically work.

The promoter (employer) controls the whole process. The employer is a sizable business in its own right employing hundreds, even thousands of contractors to fulfill service contracts, along with support staff to deal with the necessary admin (client contracts, employment contracts etc)

The contractors are employees of the employer (No question of them exerting any control over the employer or being deemed as shadow directors).

The employees (Contractors) have, and are paid in accordance with their employment contracts.

In addition to salary the employer may at their discresion release a loan to the employee. (Which typically happens). Since the budget it has become even clearer that the loans are discresionary and controlled by the employer as they have been refusing new loans to employees (Honest - I have seen it!).

The employer controls, and has a contractual relationship with the client (End user), raises invoices for the work done, and collects the cash for those services.

Given that set of circumstances (Simplified, but pretty typical),  if (there's that big if again) the loans are taxable, who does the tax liability rest with.

Please don't get sidetracked by my spelling or bad grammar, and don't go off at a tangent about how this isn't howe these arrangements work (they are - I've seen a few) or something else off topic. Just all answer the question. One word - who's tax liability is it?

I'll start you off. My answer - Employer

Why - incorrect operation of PAYE.

I await all of your answers with interest

If we can get agreement on that then we can move on to another aspect;.

 

Would agree with that with a straight employee, it's the employer.

Bit more confusing if it's your own limited company. Then it' s going to flow straight through to the directors.

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By Andy Davis
14th Apr 2016 09:57

Would agree with that

With the type of structure we are talking about this is typically how the arrangements are set up. I have not seen an example where someone has tried to work this through their own Company

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By Old Greying Accountant
14th Apr 2016 12:06

One word ....

Andy Davis wrote:

The promoter (employer) controls the whole process. The employer is a sizable business in its own right employing hundreds, even thousands of contractors to fulfill service contracts, along with support staff to deal with the necessary admin (client contracts, employment contracts etc)

The contractors are employees of the employer (No question of them exerting any control over the employer or being deemed as shadow directors).

The employees (Contractors) have, and are paid in accordance with their employment contracts.

In addition to salary the employer may at their discresion release a loan to the employee. (Which typically happens). Since the budget it has become even clearer that the loans are discresionary and controlled by the employer as they have been refusing new loans to employees (Honest - I have seen it!).

The employer controls, and has a contractual relationship with the client (End user), raises invoices for the work done, and collects the cash for those services.

... EMPLOYEE

Reason, because all the above is a complete load of b*llocks, a fabrication, a fairy story, a contrivance, a manipulation of the true reality of the situation.

Also it is discretion and discretionary - comes from discrete!

Agreed the employer is at fault, but the employee is knowingly complicit 

But all that aside, OK, tax the employer, after all they have these loans that are repayable on demand to call in to cover it don't they - or had you forgotten you have to repay a loan at some point?

 

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By DotasScandalDotOrg
14th Apr 2016 12:28

Again....

Old Greying Accountant wrote:

Reason, because all the above is a complete load of b*llocks, a fabrication, a fairy story, a contrivance, a manipulation of the true reality of the situation.

Also it is discretion and discretionary - comes from discrete!

Agreed the employer is at fault, but the employee is knowingly complicit 

But all that aside, OK, tax the employer, after all they have these loans that are repayable on demand to call in to cover it don't they - or had you forgotten you have to repay a loan at some point?

I understand it itches you very badly to condemn all these end-users wholesale, but what's the problem with letting the Tax Tribunals decide whether it is indeed "a complete load of b*llocks"? 

We can replay all the historical cases all we want. But why exactly does HMRC, in this case, need to subvert the normal legal process, the principles of which have remained stable for centuries? 

Let the courts rule. 

What happens afterwards between employer and employee is not of our concern. 

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By Andy Davis
14th Apr 2016 13:25

Thanks for the one word

Old Greying Accountant wrote:

... EMPLOYEE

Reason, because all the above is a complete load of b*llocks, a fabrication, a fairy story, a contrivance, a manipulation of the true reality of the situation.

Also it is discretion and discretionary - comes from discrete!

Agreed the employer is at fault, but the employee is knowingly complicit 

But all that aside, OK, tax the employer, after all they have these loans that are repayable on demand to call in to cover it don't they - or had you forgotten you have to repay a loan at some point?

Thanks for the vote. Off at a tangent again which I was trying to avoid, but never mind.

Take a step back for a moment, look at the example I have given you, suspend your belief that the position described is a fabrication, and a naughty word I do not wish to repeat. If this was the true position, if the contractors were real employees, if they got their salary whether they worked or not, if they got holiday pay, SSP and SMP, if they got employment rights afforded to all real employees (Unfair dismissal claims. constructive dismissal etc), if the loan payments were truly under the control of the employer,  Who would have the liability to the tax (as the law stands)?

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By cfield
14th Apr 2016 13:58

Discrete and discreet

Old Greying Accountant wrote:

Also it is discretion and discretionary - comes from discrete!

Actually OGA, it comes from discreet, as in keeping something confidential. Discrete means individually separate and distinct, and is often used in the context of discrete (counted) or continuous (measured) data, as in a discrete number.

Only being fair.

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By Old Greying Accountant
14th Apr 2016 14:11

I'll take that ...

cfield wrote:

Old Greying Accountant wrote:

Also it is discretion and discretionary - comes from discrete!

Actually OGA, it comes from discreet, as in keeping something confidential. Discrete means individually separate and distinct, and is often used in the context of discrete (counted) or continuous (measured) data, as in a discrete number.

Only being fair.

... fair do's

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By DotasScandalDotOrg
13th Apr 2016 22:52

Re: A different tack

I'm no expert, but Employer seems like the logical answer to me.

(Isn't it why HMRC wants to change the rules yet again to be able to go after the Employee for the tax even if it is the Employer who is liable?)

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By Strengthinnumbers
13th Apr 2016 23:02

Employer should be but HMRC does not care about that. They will get money from where they can and as much as they can.

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By Strengthinnumbers
13th Apr 2016 22:57

Such good comments
to be fair why don't we change law retrospectively for ALL did tax avoidance or were part of it? HMRC sat on returns for years, PM did tax planning legal way and chancellor family can do overseas property deals. One mans tax avoidance is planning and other mans crime. Not a word to accounts and QC who setup all this.
Many were overseas who were told this is how you operate in UK. They did wrong punish them but also punish everyone else.
This is just to win elections. Kill 200,000 families and buy votes from multiple of that number. If it was about morals, parliament would have empty and HMRC privatised.

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By DotasScandalDotOrg
13th Apr 2016 23:53

Scapegoat mechanism

Strengthinnumbers wrote:
Many were overseas who were told this is how you operate in UK. They did wrong punish them but also punish everyone else.

True that. Many foreign experts (a lot of Aussies and Kiwis it seems) who were lured into contracting in the UK post-2005 were told just that. They looked around, and indeed, everywhere...IR35 terror and people joining "contractor schemes" promoted in broad daylight. DOTAS? What's that? Ah, it means it's declared to HMRC so that they can amend the legislation if they don't like the scheme. Good. Where do I sign? Stupid foreigners!
No one will complain if we fleece them before sending them back to their country penniless, eh, cfield??

Re point no.2 - well, of course they won't punish "everyone else". That's the whole point of scapegoating....single out one victim, and make it bear the sins of ALL. 
The scapegoat must be killed. Only then will peace, harmony, and reason be restored to the community.
The promoters who peddled this sh*t, the QCs that signed it off and, last but not least, the accountants that recommended it will all come out of this fiasco innocent like doves.

Here is what the late Rene Girard (of Stanford University) had to write about the Scapegoat Mechanism (cfield, pay attention - Girard wrote about you)

"Girard calls this process ‘scapegoating’, an allusion to the ancient religious ritual where communal sins were metaphorically imposed upon a he-goat, and this beast was eventually abandoned in the desert, or sacrificed to the gods (in the Hebrew Bible, this is especially prescribed in Leviticus 16).The person that receives the communal violence is a ‘scapegoat’ in this sense: her death or expulsion is useful as a regeneration of communal peace and restoration of relationships.However, Girard considers it crucial that this process be unconscious in order to work. The victim must never be recognized as an innocent scapegoat rather, the victim must be thought of as a monstrous creature that transgressed some prohibition and deserved to be punished. In such a manner, the community deceives itself into believing that the victim is the culprit of the communal crisis, and that the elimination of the victim will eventually restore peace."

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By Difficulttimes
14th Apr 2016 08:16

Andy Davis - Nice try on bringing some sense and reasoning to this debate but there are people on this forum whose thought pattern is 

TAX AVOIDANCE/EVASION = STUPID BAD PEOPLE = PAY UP OR ELSE = DON'T CARE IF YOU GO BANKRUPT 

I think we all know the answer to that question and that is what the Judge said in the Rangers case (which I should add that HMRC lost in both the FTT or Upper Tier). I'm still waiting on the press release to come out - has anyone seen it? 

Due to this judgement they sneakily put the line in there about going after the employee if they employer is not available or something like that? How that works in practice - who knows?

You know the only piece of case law that HMRC roll out to get you to pay up? It's the infamous Boyle case which was where he lowered his tax bill by exploiting exchange rate fluctations.  He even admitted that he never viewed the loans as anything other than a way to receive his income without suffering tax on it, in an admission that was surely unhelpful to his appeal.

Anyway, what I discovered yesterday was this scheme was not DOTAS registered and the summary of this judgement was 'the narrative to the judgement illustrates the importance of using DOTAS (Disclosure of Tax Avoidance Schemes) numbers when completing a tax return.'

“The judge made clear reference to the use of this number to defend a tax discovery notice and assessment when issued by HMRC.”

So, you would think when they rolled out the APN legislation they would go on the offensive on non-DOTAS registered schemes? The ones where people are not declaring anything no?? Of course not no we will make a condition of an APN that it is a DOTAS registered scheme? Why you ask? 

Because HMRC can do a simple search on the 1169 DOTAS registered schemes on their database and find the taxpayers who were involved in them - It's that easy? 

Why would they want to attack non-DOTAS registered schemes? That would involve hours upon hours of investigative work trying to find these schemes and individuals that may and probably will come to nothing and we can have a huge payday but using the 'Find' function on Excel to find these DOTAS schemes. 

Then the first APNs or PPNs that HMRC will issue are the ones to a scheme involving off-setting your tax liability through a film avoidance schemes? These people are seen to be rich footballers, socialites etc. The public will have no sympathy for them and I'm sure the Judge will agree with our position. Yep won that - green light to issue APNs on mass to everyone else. Oh yeah there was a press release about that one. 

It was a brilliant masterstroke - very well done! 

But what failed with this plan was the fact that people didn't agree to settlement? Only 10% at best I hear - the terms were rubbish and my case has not been heard in court and I am openly admitting that I did something wrong. Why would I? Just because some chump who was operating a dodgy scheme and openly admitted it in court that it was income after the majority of his counterparts settled - why would I settle? 

So next step? Bring in this legislation to force people into settling regardless of what happens with litigation and we will give you 3 years to 'get your tax affairs in order' as someone on this forum said. What does that even mean? Keep watering my money tree with the hope that it starts producing 50s instead of 20s?

At the end of the day another brilliant cunning masterstroke which would never have been proposed if the APN legislation wasn't passed in the FB 2014 - after that HMRC were given the green light to do what it takes to bring down these dodgy low-life scum tax dodgers. As long as it's not the MPs of course. 

The question is what is next? This is certainly not the end of it and the disgruntled accountants on this forum who lost clients back in the day when they left Ltd. companies and signed up to these schemes are now suffering because clients are once again running for the hills and not wanting to do anything that may mitigate their tax liability. Who knows what retrospective tax legislation comes in...

Now back to calling me an idiot, naive etc. I'm off to water my tree outside to get ready for 2019!

 

 

 

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By Vaughan Blake1
14th Apr 2016 12:03

Tax avoidance/evasion?

Difficulttimes wrote:

TAX AVOIDANCE/EVASION = STUPID BAD PEOPLE = PAY UP OR ELSE = DON'T CARE IF YOU GO BANKRUPT 

Why have you grouped these as if they are interchangeable?

I think everyone would agree with:

TAX EVASION = STUPID BAD PEOPLE = PAY UP OR ELSE = DON'T CARE IF YOU GO BANKRUPT

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By DotasScandalDotOrg
14th Apr 2016 12:20

Treasury's narrative

Difficulttimes was merely summing up the narrative the Government & HMRC have been pushing for a good few years now in order to set the stage for their retrospective hold-up. Namely, that there is no difference between evasion and avoidance, that the latter is as bad as the former. This amalgamation is found in every document, every speech from Gauke & co. It's far from innocent, and no doubt part of a long running strategy probably devised by the professional mental manipulators at Behavioural Insights Ltd.

This leads to hilariously contradictory statements when it is the PM himself that has to justify his legal 'tax avoidance' and distance himself from accusations of evasion. 

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By Andy Davis
14th Apr 2016 13:14

An update on the score - in answer to my question

The score so far is:

EMPLOYER - Me, DotasScandal, StrenthInNumbers, TheKnight (4)

EMPLOYEE - OldGreyingAccountant (1)

DEPENDS - CField (1)

It's a start. Come on the rest of you. This might actually get (most of) us to agree on something.

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By justsotax
14th Apr 2016 13:25

in the scenario above...

employer....(for what its worth)

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By Old Greying Accountant
14th Apr 2016 13:53

The problem is ...

... the word "IF" - what you are trying to do is irrelevant and I have no more sympathy for you than those who tried to get loss reliefs through contrived investments in film companies.

Just because a bit of paper says it is an elephant, doesn't stop it being a giraffe, to continue an earlier analogy - and as we all know, the law's as ass[***]!

All it does is curb the relief for those that genuinely need it, as anti-avoidance provisions generally have a broad brush affect that hurts everyone, including those the original reliefs were intended to help.

The question is, why did you sign up for this scheme, I can probably answer for you, to avoid paying tax - none of it is done for any commercial reason in respect of underlying transaction, i.e. a worker/contractor supplying services to an employer/customer - the rest is all just scotch mist. 

Bottom line is, if you want to live in the UK with the benefits and opportunities that affords, pay your tax, if not go live elsewhere.

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By Andy Davis
14th Apr 2016 13:50

Not giving an answer then.

Ok. I'll take that as an abstention.

Don't know how many more times I have to say this, I'm NOT a contractor. Stop telling me I've done stuff

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By Old Greying Accountant
14th Apr 2016 14:10

If that is aimed at me ...

Andy Davis wrote:

Ok. I'll take that as an abstention.

Don't know how many more times I have to say this, I'm NOT a contractor. Stop telling me I've done stuff

... I was using "you" generically, not specifically meaning you yourself.

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By DotasScandalDotOrg
14th Apr 2016 13:54

Why?

Old Greying Accountant wrote:

The question is, why did you sign up for this scheme

You'll find ONE answer from ONE contractor (not me) here: 

https://www.dotas-scandal.org/the-telegraph-hmrc-flexes-new-powers-on-co...

There are many others (https://www.dotas-scandal.org/testimonials)

NB: here I'm giving you the benefit of doubt and assuming you are even a tiny bit interested in an answer.

 

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By Old Greying Accountant
14th Apr 2016 14:14

If the answer ...

DotasScandalDotOrg wrote:

Old Greying Accountant wrote:

The question is, why did you sign up for this scheme

You'll find ONE answer from ONE contractor (not me) here: 

https://www.dotas-scandal.org/the-telegraph-hmrc-flexes-new-powers-on-co...

There are many others (https://www.dotas-scandal.org/testimonials)

NB: here I'm giving you the benefit of doubt and assuming you are even a tiny bit interested in an answer.

... is for genuine commercial reasons and you have been caught by this then I am interested and you have my full sympathy. Other than that, no , couldn't give a stuff.

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By justsotax
14th Apr 2016 13:50

i am disappointed Andy...

I felt that you were at least giving a 'free vote'....I tried to look objectively based upon my own experience and presume others have done the same.  You gave an open question, but seem to be insisting that one of the options is NOT employee.  That may be your view, but that may not be others.

 

I refrained from heavily caveating my response in order to try and keep things on a level.  Indeed I read the article earlier on this page from Taxation, and whilst hitting all of the points on here...came back to the same conclusion or at least general direction.  That is that the Revenue should not be allowed to make these changes and we should feel sorry for the 'poor' contractors.

 

This may have some weight, but I do object to the implication that accountants en masse suggested these schemes.  Indeed from this scenario it seems more likely that one or two of the bigger players would have suggested these routes to 'employers'.

 

It may be convenient but the bottom line is that a significant tax saving over normal planning advice has been made through artificial means - and by that I refer to the loan not ever being raid.  It cannot therefore come as a surprise (no matter how right or wrong) that there is little sympathy from the 'smaller' practitioners who didn't peddle these schemes.

 

     

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By Andy Davis
14th Apr 2016 13:59

I'm sorry

justsotax wrote:

I felt that you were at least giving a 'free vote'....I tried to look objectively based upon my own experience and presume others have done the same.  You gave an open question, but seem to be insisting that one of the options is NOT employee.  That may be your view, but that may not be others.

Sorry, yes I see your point, but I did just ask for a one word answer. When they start coming back with 'it should be this' and 'it should be that', well, that is demonstrating the answer I got was not to the question I asked. All I asked was what would the legal position be, not what do you think it should be.

I will refrain from comment on any further votes.

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By justsotax
14th Apr 2016 14:13

I am not a solicitor

and don't practice law...therefore it can only ever be what I think - like it or not. 

 

 

 

 

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By justsotax
14th Apr 2016 14:16

Dotas...

having read some of the testimonials it is clear that these contractors hold their agents and HMRC in equal contempt for this whole mess...may I suggest a two pronged attack...one through the courts against hmrc...and one through the courts against the promoters/introducers.

 

 

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By Difficulttimes
14th Apr 2016 14:31

But...

justsotax wrote:

having read some of the testimonials it is clear that these contractors hold their agents and HMRC in equal contempt for this whole mess...may I suggest a two pronged attack...one through the courts against hmrc...and one through the courts against the promoters/introducers.

 

 

Two things to note here: 

a ) It is these promoters/agents solicitors who are representing on behalf of us to HMRC (if it ever gets to litigation)

and more importantly (b) , before you could think about taking action there has to be a legal judgement that says the scheme doesn't work and is disguised remuneration. 

Otherwise, what would the contractor say in court - 'HMRC says this doesn't work and they want all this money from me' Judge ' Has this scheme been heard in litigation?' Contractor 'No just that HMRC says that it doesn't work'. Judge ' Next'!

Funny enough, I've heard on another forum of HMRC officers telling contractors to 'sue' the promoter for being part of the scheme because I assume the person like most of them didn't have the £ to pay for it. So HMRC officers are apparently, legal experts as well now??

At the end of the day, HMRC wanted the contractor and promoter/introducer/accountant to be at one another's throats and eventually drive the promoter out of business which has worked a treat.  Then the contractor is left holding the bath water. Good times! 

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By DotasScandalDotOrg
14th Apr 2016 14:57

Legal proceedings

justsotax wrote:

having read some of the testimonials it is clear that these contractors hold their agents and HMRC in equal contempt for this whole mess...may I suggest a two pronged attack...one through the courts against hmrc...and one through the courts against the promoters/introducers.

The one against HMRC has been initiated a long time ago. Contrary to what they'd have you believe, HMRC have control of the timeline, and it is them who have been using all manners of 'delaying tactics' to push the whole thing back.

Now that the first contractor schemes (often in fact litigation associations constituted of former contractors, when the schemes themselves are not in existence anymore) have hearings scheduled at the FTT and that the day of reckoning is looming at long last, HMRC comes up with "the Osborne Ultimatum" to push people to abandon litigation.

Connect the dots? 

Yes I know what some here will say...we have to accept that subversion of the legal process is "just the way in works now"!

As for suing promoters, 99% of them are gone....so who is there to sue? 

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By justsotax
14th Apr 2016 15:05

the introducers then...

given they seem to be the accountants who made the suggestion and took the commission... and if these aren't disguised remuneration situations what is all this fuss about....

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By DotasScandalDotOrg
14th Apr 2016 16:42

The fuss

justsotax wrote:

given they seem to be the accountants who made the suggestion and took the commission... and if these aren't disguised remuneration situations what is all this fuss about....

Did you read difficulttimes's comment about the prerequisites for suing this party or that party?

And the fuss? I don't know...may have something to do with a pile of "guilty until proven innocent" APNs with 90 days payment terms, based solely on HMRC's opinion?

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By gordo
26th Apr 2016 14:10

Understandably there is emotion on both sides.

We can't blame the Accountants on here for standing their grounds. Many have very clearly said on a number of occasions that they would never have recommended such schemes and that they view them as highly abusive. 

So if we don't want the Accountants to label all Contractors the same then let's not label all Accountants the same.

By the same token it is clear that some Contractors probably did get involved in order to minimise their tax liability. However others were potentially misguided, or mislead, but often they took advice from what they believed was a reliable source and they fully disclosed the matter on their Tax Returns (under advice from Accountant to prevent Discovery). So full Disclosure to HMRC who already had the schemes registered some years before and who got an Employers Annual Return every year with a list of employees.

We can't blame all QC's either. We don't know what their remit was and besides it appears to me that what was advised did work as the law stood at that time. Let's not forget that. Can't sue somebody because HMRC introduce legislation that retrospectively impacts upon the planning done (assuming such caveats were given and if it's a QC then you can bet they were). 

What about the Promoters? Were they all a bunch of rogues? Well I can't be sure of all and there are certainly some that I have researched on the internet that appear to be able to decide in 5 minutes whether it was the right strategy for your circumstance and who offer 90% return or more, so some may be rogues. However I can categorically say in my own experience that the ones I spoke to were definitely not rogues. Indeed, they were very specific on the warnings on risk and their analysis was impressive. The risk warnings came before the analysis and they also included all the risks of the alternatives, such as IR35. 

Again, we cannot be certain which providers were careful with their warnings and which were not. So we can't label all providers together. Neither can we be certain who understood the warnings, who ignored the warnings and who didn't receive any warning. Certainly, I fully understood the warnings because as an Accountant myself, I understood (most of) the tax issues.

So the only thing I can think to do: legislate from this day forward to stop any new loans and litigate those historical schemes that HMRC see as abusive. (This is not what HMRC have done. Why?)

The case I posted overnight, which came from accountingweb, on company car tax, demonstrates that HMRC will use substance over form when it suits their purposes then ignore it and argue for a strict interpretation of the law when that suits their purposes. It also demonstrates HMRC will pursue tax in cases where there is patently no income and no benefit. HMRC didn't just try it on, they actually took it all the way to the Court of Appeal. Who sanctioned that use of taxpayers money!

Behavioural Psychologists. Behavioural psychology has its roots in conditioning.  Remember Pavlov's dogs? The Behavioural Insights team's strap line on Twitter is " ..to encourage people to make better choices for themselves....Known as worlds first nudge unit. ", how insidious, better for whom and are the people aware of how they are being "encouraged" and for what purpose? Are we being conditioned, like Pavlov's dogs, to accept Big Brother? Can anybody tell me the definition of nudge?

There may well be a wide variation in the motives and the experiences of Contractors. I cannot be certain. I am pretty sure of what HMRC are up to, but again I cannot be absolutely 100% certain. I am broadly aware of HMRC resiling from agreements reached years ago, it would appear to be so that they can delay the day in Court (perhaps forever) and issue APN's (Accelerated Payment Notice) demanding an Advance Payment that the Government then record as Income.

So I conclude that HMRC cannot be trusted to be judge, jury and executioner. Let's us see this in Court and let the learned Judge(s) decide.

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By Andy Davis
14th Apr 2016 16:49

Me too

 

A pretty fair summary. Time to move on.

Thanks Gordo.

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By DotasScandalDotOrg
14th Apr 2016 17:11

Moving on...

Andy Davis wrote:

Time to move on.

We wish :-/

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By Andy Davis
14th Apr 2016 17:54

I know what you mean

Lots more to come yet as this all plays out.

Just nothing else to add to what's been said on the thread over the last 2 weeks.

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