Retrospective tax imposed on contractors’ loans

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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. 

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

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14th Apr 2016 15:32

well for the majority of that

I agree....and I think that is a good place to stop for me. 

 

 

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14th Apr 2016 17:05

possible ways forward

 

I would be thinking and researching along the following lines

1, I think the promoters are too close to this and should not be representing yourselves in court- get your own independent lawyers. Professionals should not have a vested interest.

2, The promoters have gone? Persue them through the liquidator Directors can be persued personally but you will need to kick the liquidator or appoint your own. s.213 IA 1986

3, HMRC the liability should initially be the employer force HMRC to persue through the liquidator/employer. I assume the employer is still there. They will go for the soft target you need to tell them they should go for the employer first.

4, An assesment incorrectly raised on you is not valid. Regardless of appeal. When they come for the money contest this in court.

5,Was there a misrepresentation to a contract - there must be to my mind, find it!!

6, Be a magnet for other scheme members get a list together -- you are not alone

 

 

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By Old Greying Accountant
14th Apr 2016 18:23

Also ...

... if they were a regulated firm they should have PI, most bodies make members have run-off cover for quite some years - may be worth investigating if you have been mis-sold/misadvised.

 

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15th Apr 2016 09:07

Mis-sold

I agree there may be reason to nake a claim in some cases but not all. A lot of accountants who's clients used these structures will have properly explained the risks and rewards. Here's how it might go in Court.

Judge: Right Mr Accountant. In 2005 you sold this contractor a dodgy tax structure that doesn't work. He's been left with a whole pile of tax to pay. What have you got to say for yourself?

Mr Accountant: Well, I looked at the scheme in some detail; it involved a loan to the employee you see, and I was a bit worried about that. The operator of the scheme told me it was fine, completely straight forward bit of tax planning. I still wasn't convinced so I had a look at a bit of case law, Dextra, Sempra, that sort of thing. Turns out that although HRMC say they won these cases, what the rulings actually re-inforced was that the promotor was telling the truth. The loans were not taxable.

My client had all of the tax risks explained to him in detail, and he decided to go ahead.

Judge: OK. If that's true why are you in court being sued for squillions?

Mr Accountant: Because HMRC changed the law in 2016. Eleven full years after my client entered the arrangement.

Judge: Oh

Prosecution: your Honour I'd like to call a witness.

Judge: OK

Witness: I'm a crystal ball seller, and I went to see this Accountant in 2005. Tried to sell him one but he wouldn't bite.

Judge: Next..................

You see, a retrospective change in the Law complicates things for everyone.

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15th Apr 2016 09:54

i would just correct the

response from Mr Accountant (if he was a 'worried' about such a scheme as you suggest), most 'professional' firms would respond..

'I checked the scheme and took advice from the QC, and the arrangements appeared to fall within the tax legislation.  However, given the nature of the arrangements I did explain to the client that the Revenue may (and indeed more than likely would) challenge the scheme (especially with a DOTAS ref being issued and disclosed on the clients Return) which may result in tax coming into charge.  In addition any changes in tax legislation may impact the tax position.'

 

That's not hindsight...just the caveat I would expect with any tax planning.  It is also the reason I suspect there will not be many accountants who get successfully sued.  

 

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By Old Greying Accountant
15th Apr 2016 10:52

As I say ...

... the loan is only taxable if it is not repaid. As a loan provision should be made for repayment. If the intention when the loan was granted was to write if off at a point in the future then I think it laughable to call it a loan.

This treatment is just bringing the situation in line with s455, agree it is retrospective in that s455 would only apply to monies lent in the last accounting period, but at least s455 loans were actually loans (even though the rules had to be tightened to stop the charge being avoided by bed and breakfasting the loan).

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15th Apr 2016 11:23

Could be worse...

HMRC only want tax on the loan.  What if the loan provider asks for repayment in full on demand?  Then you really will have a problem!

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15th Apr 2016 11:58

Funny you'd mention that

Vaughan Blake1 wrote:

HMRC only want tax on the loan.  What if the loan provider asks for repayment in full on demand?  Then you really will have a problem!

...as this is precisely what is starting to happen with one particular cash-strapped 'provider'

I'm certain HMRC could not be happier. After all they only wanted contractors to go after providers, not the other way around as well.

Complete nightmare for ordinary folk that only wanted to concentrate on the job.

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15th Apr 2016 16:08

Doh, is all I can say!

DotasScandalDotOrg wrote:

Vaughan Blake1 wrote:

HMRC only want tax on the loan.  What if the loan provider asks for repayment in full on demand?  Then you really will have a problem!

...as this is precisely what is starting to happen with one particular cash-strapped 'provider'

I'm certain HMRC could not be happier. After all they only wanted contractors to go after providers, not the other way around as well.

Complete nightmare for ordinary folk that only wanted to concentrate on the job.

This is exactly why I would have warned off any contractor seeking my advice on these.  As you say there is a signed loan agreement with repayment on demand terms for 90% of all your 'earnings'.  Why, why, why would you sign something like that? It defies belief.

As an exercise, can you imagine trying to convince a small child that they from now on they will get 20% more pocket money provided they promise to repay 90% of it all at your whim in the future.

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15th Apr 2016 11:33

Sorry

Not getting on the bus to go around again

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15th Apr 2016 11:57

don't blame you andy

but perhaps we are all guilty of putting words into other peoples mouths throughout this thread which inevitably requires correcting.

 

Not sure what the contractors are after, support in a fight for justice, sympathy for being sold a pup, whatever it is, it is important to know who your audience is. 

 

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15th Apr 2016 12:03

Not sure

justsotax wrote:

Not sure what the contractors are after, support in a fight for justice, sympathy for being sold a pup, whatever it is, it is important to know who your audience is.

410 comments in, and still not sure? Wow. It seemed to me that a few people went out of their way to make it clear that contractors impacted don't give a *#%(! about "sympathy", but would appreciate the luxury of having the courts decide whether they are to be subjected to tax. A luxury currently out of reach due to all manners of manipulation by HM services, as eloquently exposed by gordo. 

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15th Apr 2016 12:09

"Ordinary folk"

Would not take a loan of £90K (approx) each and every year, when earning only £10K per year (approx.)

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15th Apr 2016 12:15

I know its frustrating...

isn't it Dotas...all of these well formed arguments posted on a website where the respondents are primarily those who would never have suggested such schemes as their view was they were contentious/questionable in nature.  You want your day in court....and what would you like the majority of the accountancy profession who did not get involved in these schemes to do?!    

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15th Apr 2016 12:26

If nothing else.

justsotax wrote:

You want your day in court....and what would you like the majority of the accountancy profession who did not get involved in these schemes to do?!    

If nothing else, to realize that by shouting for blood and cheering for retrospection / condoning HMRC acting as Judge, Jury, and executioner, they are participating in a classic scapegoat escalation.

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15th Apr 2016 12:17

You have your truth, Shirley

But we probably met a few hundred times more of these people in the flesh than you. We'll have to agree to disagree here.

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By Old Greying Accountant
15th Apr 2016 13:18

When DOTAS started ...

... no one but a complete idiot would think anything more than it was HMRC's way of identifying and closing down loopholes and therefore to steer well clear, certainly the majority of accountants thought that.

The clue is in the name "Tax Avoidance Schemes". The biggest disservice and cause of antagonism on this thread is to try and compare the DOTAS schemes to a salary/dividend arrangement. These are not schemes, a company has owners and it has directors, how it remunerates them is a commercial decision, nothing is put in place that is not already there, it is just a matter of deciding which route income is taxed, tax is not avoided, it is minimised by being taxed in the most efficient way for the recipients.

These DOTAS schemes put in place things that are not naturally or commercially there, contrived purely to avoid tax on large portions of income completely. As a tax payer I am more than happy for retrospection on these matters as these fantasies have increased the burden of tax on everyone else and taken funding from the sick and the vulnerable, from education and pensions and from the ability to police and defend the nation that these poor victims cherish so dearly.

The fact the government is spendthrift and wastes billions of pounds of hard earned (by the tax payer) tax revenue, and were government spending controlled either tax could be reduced, or services improved is relevant, but for a different thread.

If you go back through past posts of the majority of those supporting the HMRC stance you will see they have it on record, over many years, that they would never touch these schemes, and if a client asked would tell them yes there are such schemes, they are highly risky, and I will not act for you if you adopt one. 

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15th Apr 2016 13:45

wow...well

I didn't realise that by not condoning the Revenue's approach to this area I was some sort of fully paid up member of the Revenue supporters club.

 

What amazes me is the complete lack of responsibility taken by intelligent people when faced with making a decision on which they have signed a document.  At no point at any stage anywhere have I seen anyone take even the smallest hint of responsibility for their own actions.  A bit more due diligence before entering into an agreement in which you have little or no knowledge is a good idea.....sorry that's hindsight....intelligent people wouldn't make that mistake.....would they....   

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By gordo
15th Apr 2016 14:46

Old greying

Did you just say that Dividends are a form of remuneration?

Can I ask what commercial salary the Directors earned for their hard work, following your commercial decision on how to reward them and how much was the shareholders reward? NIC is not reduced by taking dividends, it is avoided.

Contractors didn't have this option.

I realise this won't make you happy, but...

If you are happy to vote for retrospective legislation  and by so doing make HMRC invincable, but don't realise that their wish list may be along the lines of:
1. DOTAS schemes (a name given to them by HMRC)
2. IR35
3. Deciding what a Directors commercial salary should be, or worse, should have been over the last 10 years.

Retrospective legislation is the thin edge of a wedge that you may well regret supporting. This is an experiment by HMRC.

There is nothing wrong with what you have done....currently.
Though that could change in the future with retrospective impact and then you could be in firing line for legal action because you didn't see it coming.

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By Old Greying Accountant
15th Apr 2016 15:23

No

gordo wrote:
Old greying Did you just say that Dividends are a form of remuneration? Can I ask what commercial salary the Directors earned for their hard work, following your commercial decision on how to reward them and how much was the shareholders reward? NIC is not reduced by taking dividends, it is avoided. Contractors didn't have this option. I realise this won't make you happy, but... If you are happy to vote for retrospective legislation  and by so doing make HMRC invincable, but don't realise that their wish list may be along the lines of: 1. DOTAS schemes (a name given to them by HMRC) 2. IR35 3. Deciding what a Directors commercial salary should be, or worse, should have been over the last 10 years. Retrospective legislation is the thin edge of a wedge that you may well regret supporting. This is an experiment by HMRC. There is nothing wrong with what you have done....currently. Though that could change in the future with retrospective impact and then you could be in firing line for legal action because you didn't see it coming.

I did not, I just used the term remunerate as a coverall for payment for work done as well as return on investment, but you do yourself no favours keep banging that drum.

As Gordon Brown hammered home, NI is not a tax, so no tax is avoided there!

Many directors of companies employ others who earn profits to be distributed. Many sole directors earn incomes far in excess of work put in, especially those directors of companies selling tax avoidance schemes, but even I, as an accountant make more than it would cost me to employ someione to do teh work, so why should not that be distributed as profit rather than paid as salary - If I charge £150 for a tax return that takes an hour, why not pay £25 for the salary and pay £125 as the dividend, that's what it would be to pay someone to do it instead of me. 

If a "contractor" was a genuine contractor not an employee pretending to be a contractor and thus fell outside IR35 they had the dividend option same as any other bona-fide trading company.

 

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18th Apr 2016 11:23

NI avoidance

Old Greying Accountant wrote:

 

I did not, I just used the term remunerate as a coverall for payment for work done as well as return on investment, but you do yourself no favours keep banging that drum.

As Gordon Brown hammered home, NI is not a tax, so no tax is avoided there!

Many directors of companies employ others who earn profits to be distributed. Many sole directors earn incomes far in excess of work put in, especially those directors of companies selling tax avoidance schemes, but even I, as an accountant make more than it would cost me to employ someione to do teh work, so why should not that be distributed as profit rather than paid as salary - If I charge £150 for a tax return that takes an hour, why not pay £25 for the salary and pay £125 as the dividend, that's what it would be to pay someone to do it instead of me. 

If a "contractor" was a genuine contractor not an employee pretending to be a contractor and thus fell outside IR35 they had the dividend option same as any other bona-fide trading company.

Hilarious double standards! NI not a tax so it's OK to avoid it. Unbelievable.

And I fully understand the concept of dividend as an investment return. So by your figures - £25 per hour for a 35 hour week = salary £45,500. If that is what you pay yourself with the additional 'profit' as a dividend then fine. If not (and your salary is nearer £10,000) you have just destroyed you own argument.

Now which is it? I suspect you may be an NI avoider.

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By Old Greying Accountant
18th Apr 2016 12:28

And btw ...

Andy Davis wrote:

Old Greying Accountant wrote:

 

I did not, I just used the term remunerate as a coverall for payment for work done as well as return on investment, but you do yourself no favours keep banging that drum.

As Gordon Brown hammered home, NI is not a tax, so no tax is avoided there!

Many directors of companies employ others who earn profits to be distributed. Many sole directors earn incomes far in excess of work put in, especially those directors of companies selling tax avoidance schemes, but even I, as an accountant make more than it would cost me to employ someione to do teh work, so why should not that be distributed as profit rather than paid as salary - If I charge £150 for a tax return that takes an hour, why not pay £25 for the salary and pay £125 as the dividend, that's what it would be to pay someone to do it instead of me. 

If a "contractor" was a genuine contractor not an employee pretending to be a contractor and thus fell outside IR35 they had the dividend option same as any other bona-fide trading company.

Hilarious double standards! NI not a tax so it's OK to avoid it. Unbelievable.

And I fully understand the concept of dividend as an investment return. So by your figures - £25 per hour for a 35 hour week = salary £45,500. If that is what you pay yourself with the additional 'profit' as a dividend then fine. If not (and your salary is nearer £10,000) you have just destroyed you own argument.

Now which is it? I suspect you may be an NI avoider.

that is a little bit of light-hearted tongue in cheek word play, but the I forgot that is probably too subtle for some as they take everything they are told/read as gospel.

And for the record, I don't trade as a company, so no, do not avoid NI, was just using an example, but will respond no more now unless it actually relates to the OP as it is getting a bit tedious now.

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18th Apr 2016 14:27

More BTW

Old Greying Accountant wrote:

that is a little bit of light-hearted tongue in cheek word play, but the I forgot that is probably too subtle for some as they take everything they are told/read as gospel.

And for the record, I don't trade as a company, so no, do not avoid NI, was just using an example, but will respond no more now unless it actually relates to the OP as it is getting a bit tedious now.

OK back on topic. By your definition a loan arrangement is a tax avoidance technique.

By my definition paying dividend instead of a market rate salary is an NI avoidance technique. (If you assist your clients with this, you are promoting it in my book however you dress it up)

Both have case law behind their respective principles of taxation, and both should be allowed to continue in accordance with the law.

If HMRC don't like it they should change the law, but only in respect of future advances, not historical transactions.

 

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By Simples
15th Apr 2016 14:53

Retrospective

Any new legislation that enables HMRC to claim additional taxation from historical tax years is retrospective plain and simple. In this case it will enable HMRC to claim taxation going back decades.

The nuances of the latest legislation are being debated when the real debate should be about allowing HMRC to introduce retrospective taxation full stop. This is a black and white question, not a varying shades of grey.

Regardless of the the gaps HMRC are trying to plug there is no justification that makes retrospective taxation correct. If one instance of retrospective taxation is deemed permissible then where does this stop? Current/Future governments could then find any number of reasons to broaden the scope of retrospective tax.

It is wrong: End of debate.

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By Old Greying Accountant
15th Apr 2016 15:24

DOTAS started ....

Simples wrote:

Any new legislation that enables HMRC to claim additional taxation from historical tax years is retrospective plain and simple. In this case it will enable HMRC to claim taxation going back decades.

The nuances of the latest legislation are being debated when the real debate should be about allowing HMRC to introduce retrospective taxation full stop. This is a black and white question, not a varying shades of grey.

Regardless of the the gaps HMRC are trying to plug there is no justification that makes retrospective taxation correct. If one instance of retrospective taxation is deemed permissible then where does this stop? Current/Future governments could then find any number of reasons to broaden the scope of retrospective tax.

It is wrong: End of debate.

... 2004, hardly decades.

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By gordo
15th Apr 2016 15:06

What I find frightening is HMRC's manipulation of the justice system and then the use of Behavioural Psychologist to get us all to accept that as 'reasonable', like Pavlov's dogs. 

How can HMRC say 'we lost in Court so we are changing the rules to tax the very thing we lost in Court on, but not just from this day forward we are going to catch historical transactions even though a UK Court of Law has already ruled on the matter?'

Put a stop to the offending practice yes, but  do not override the rule of law in the UK.

Some people on here would appear to advocate suing others for creating, promoting or selling the solution that worked in Court!

Check out Milgrams experiments in 1963 related to Obedience. We are being played.

Consider also what I believe a deliberate attempt to cause stress and thereby reduce the cognitive function so that people are less able to think clearly. I was immediately suspicious of this 3 years gap to 5th April 2019 and the patently false reasons given for doing so. 

I am equally suspicious of why they did not bring in a law now to stop new loans if these are  still rife as HMRC claim. 

I think this is an experiment. If this works, what will be the next target? 

At its roots, Behaviourist theory is based upon you being a machine that can be manipulated.

As Accountants we all know that HMRC like to believe that their interpretation of the law, is the law, but we also know that if we feel strongly that HMRC are incorrect then our route to justice is the Tribunal and Court system. As Accountants we also know that HMRC will try it on at times. I gave a very current example earlier from the front pages of accountingweb where HMRC were trying to collect tax that was clearly unfair. 

New laws that have a retrospective impact are patently a breach of law and natural justice. Throw that out and we might as well give up as tax advisers.

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15th Apr 2016 15:07

if you ever owned

any shares, a property or have a directors loan you will realise with every year that passes changes to tax legislation take place that impact the tax position of said items which will not have been known prior to you making that decision.   Tax rates have recently gone up on dividends, impacting anyone who decided (based upon tax legislation at the time) to retain the profit rather than distributing and will therefore see their tax increase as a result. 

 

Retrospective - by your definition new tax rules have always been retrospective - loss of PPR as an example given many posts ago. (perhaps I missed your post objecting to PPR being halved for people who owned property prior to the change in legislation?).

 

 

 

 

 

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15th Apr 2016 15:13

Exactly, justsotax

The loss of relief on mortgage interest for Buy-to-let landlords will hit all those with outstanding mortgages, regardless of when the mortgage was taken out.

If the loans are still outstanding, then you played a home goal. The promoters exploited tax free loans. HMRC are exploiting the fact that the loans are still unpaid, but you can easily prove them wrong by repaying the loan.

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15th Apr 2016 15:22

i guess i just have one more question

do you see the 'loan' as capital or revenue in nature?

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By gordo
15th Apr 2016 15:25

Eh No

Nobody is trying to change the tax you pay on the dividends you received last year, or the year before, or the year before that.

Any nobody is trying to get you to pay income tax on your outstanding by-to-let mortgage. Nor are they removing the tax relief on interest that you got last year, or the year before, or the year before that.

I thought we had been through this.

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By Old Greying Accountant
15th Apr 2016 15:36

But you may be forced ...

gordo wrote:
Eh No Nobody is trying to change the tax you pay on the dividends you received last year, or the year before, or the year before that. Any nobody is trying to get you to pay income tax on your outstanding by-to-let mortgage. Nor are they removing the tax relief on interest that you got last year, or the year before, or the year before that. I thought we had been through this.

... to sell your house because you have tax due but no income to pay it from, possibly suffering tax at 140%, no different to you selling your house to pay the tax on a "loan".

This change is no more retrospective than if we get a "mansion" tax based on the current value of a house in a now en vogue area that you bought 40 years ago for for £10,000, in a slum area, spent thousand on it to make it presentable and are enjoying retirement in a £1.5m house just on a state pension.

Shit[***][***] happens, but some you can see coming from far off, yes HMRC have spent too long sorting it out, but they are under resourced, any one with half a brain has seen this coming and would have ducked in time.

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By gordo
15th Apr 2016 15:49

If you get a 'mansion tax'

I will gladly help you fight it.

In the meantime...

Incidentally HMRC tried to argue that under resourced line in Court recently, thankfully a learned judge threw it out. HMRC have all the resources and all the time in the world when compared to an individual on the receiving end.

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15th Apr 2016 15:57

Please some of you need to pull your head in - seriously get a grip and stop being so condesending. Are you calling 65,000 people stupid? half a brain? Is that what you are saying? If you aren't going to say it to my face or the other 65,000 people out there then don't put it on here! 

I'm not going to argue that I was naive and I never realised the risks that were involved - maybe because I was never told there were any. I was presented with an option that was legal (and still is!) and I was able to work through as a contractor and I took it. I now see that I was there for the taking as we are an easy faceless target. 

Every day I think back and did I miss something? Maybe -  but I was too busy living my life and looking after my family.

The only positive I can say about this discussion is that we are probably having more discussion about this issue than the consultation will probably have.  

For me personally, I've given up on getting the money back. It's gone now regardless of what happens with the proposed legislation. I think many of us think that now. What I do want is to see my scheme in a court of law to see if I was reckless and naive and you know what if we win but they still keep my money at least I can tell my daughter that Daddy wasn't in the wrong it was the Government that was in the wrong.  

 

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By Old Greying Accountant
15th Apr 2016 16:10

I say nothing here ...

... I wouldn't say to your face.

The government is just doing its best to do its job to ensure everyone makes a fair contribution to society, and there was enough coverage at the time DOTAS started to set the alarm bells off.

As was cited earlier, "a man hears what he wants to hear and disregards the rest"

People earning enough to make these schemes worthwhile should have the wit to perceive a risk, and to do adequate due diligence before signing up, and if they did sign up to make provision for it going wrong.

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15th Apr 2016 17:16

Coverage?

Old Greying Accountant wrote:

and there was enough coverage at the time DOTAS started to set the alarm bells off.

Coverage where?  In your professional press? Are you expecting a contractor from a completely different professional (or geographical, for that matter) background  to be at all times on top of all the latest and greatest in the little world of UK tax? Some of us are busy actually practising our professions, when not looking for clients and keeping on top of our game , as I'm sure you do yours.

That's why the "idiots" got opinions, and second opinions from...oh...accountants! But we're going a bit in circles here.

So maybe rather than going there again, you would care to explain why for TEN YEARS, HMRC sat on their hands and never ever gave the slightest hint to those they were supposedly "enquiring" about? (and please spare us the "they are underresourced" line). A simple letter would have caused 90% to drop off the "schemes" at once, and the "scheme" industry to collapse. The price of a 2nd class stamp. No need for retro shenanigans. 

I would invite you to peruse the Gauke quotes I published a couple days ago in an earlier post. He says clearly that inaction with regard to arrangements the Revenue has been aware of and has allowed to exist for years creates a legitimate expectation in the eyes of the taxpayer. These quotes are from 2008. 

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15th Apr 2016 16:30

I've got better things to do with my time then continue with this conversation as my situation and the overall situation won't change - unless you think HMRC are reading this and this will decide whether they proceed with what is proposed?? Is this why you are so desperate for the final word? We all know it's going to happen regardless so you can stop wasting your time. 

I still don't get why a few of you are so passionate about this? I think there is more to it ie. this is impacting on your own business and you are looking at pointing the finger at someone? I would hope not  as you are looking at the wrong people I would hope it's because you want to see everyone paying their 'fair share' of taxes in this world regardless of what our out-dated taxation laws say. I can handle that. 

Time to move on. 

I will leave it to you guys to give one another high fives and slaps on the back for not getting involved. 

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15th Apr 2016 16:46

Let's be clear, either

65,000 people signed up to a scheme in the genuine belief that they may have to repay 90% of their earnings at some point in the future. This makes them not very smart in my book.

or

65,000 people signed up to a scheme that despite signing a valid loan agreement, worked on the genuine belief that the loan would never be called in. This makes them duplicitous in my book.

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19th Apr 2016 09:23

I repeat my earlier post

Vaughan Blake1 wrote:

65,000 people signed up to a scheme in the genuine belief that they may have to repay 90% of their earnings at some point in the future. This makes them not very smart in my book.

or

65,000 people signed up to a scheme that despite signing a valid loan agreement, worked on the genuine belief that the loan would never be called in. This makes them duplicitous in my book.

And ask DotasScandal and Andy to clarify which camp they fall into.  To me this is the key issue, what did you actually believe on the day the agreement was signed and why?

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19th Apr 2016 13:08

Clarity

Vaughan Blake1 wrote:

And ask DotasScandal and Andy to clarify which camp they fall into.  To me this is the key issue, what did you actually believe on the day the agreement was signed and why?

I am quite firmly in the camp that:

1. Does not believe HMRC should be allowed to change the rules retrospectively

2. Does not believe that HMRC should be allowed to issue APN's when they cannot demonstrate within the confines of the legislation they they have justification to do so;

3. Does not believe that HMRC should be allowed to issue APN's to Contractors when the liability (if it even exists) legally rests with their employer;

4. Does not believe that HMRC should be bullying contractors into paying tax which in all likelyhood (should the arrangements be tested in court) is not due;

5. Does not believe that so many peolpe actually think this behavior is acceptable.

With regards to loans made to contractors, theses were made in accordance with the legislation, and case law which showed them to be not taxable as income.

I have said it in earlier posts, but will spell it out again. Each provider will have a different loan agreement with different terms and conditions. I do not know, nor do I need to, the terms of these loans (Which are undoubtedly different for each provider). In entering these arrangements contractors and their advisers will have considered case law which clearly confirmed (irrelevent of the repayment terms) that the loans are not taxable as income

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19th Apr 2016 15:56

Great answer - but to another question

Andy Davis wrote:

Vaughan Blake1 wrote:

And ask DotasScandal and Andy to clarify which camp they fall into.  To me this is the key issue, what did you actually believe on the day the agreement was signed and why?

I am quite firmly in the camp that:

1. Does not believe HMRC should be allowed to change the rules retrospectively

2. Does not believe that HMRC should be allowed to issue APN's when they cannot demonstrate within the confines of the legislation they they have justification to do so;

3. Does not believe that HMRC should be allowed to issue APN's to Contractors when the liability (if it even exists) legally rests with their employer;

4. Does not believe that HMRC should be bullying contractors into paying tax which in all likelyhood (should the arrangements be tested in court) is not due;

5. Does not believe that so many peolpe actually think this behavior is acceptable.

With regards to loans made to contractors, theses were made in accordance with the legislation, and case law which showed them to be not taxable as income.

I have said it in earlier posts, but will spell it out again. Each provider will have a different loan agreement with different terms and conditions. I do not know, nor do I need to, the terms of these loans (Which are undoubtedly different for each provider). In entering these arrangements contractors and their advisers will have considered case law which clearly confirmed (irrelevent of the repayment terms) that the loans are not taxable as income

Andy, you spectacularly/deliberately entirely miss the point!

Either on day one the contractors believed the loans were repayable, or they didn't.  Simple question, no tricks.

Whilst the actual loan agreements may well be valid documents in isolation, if there was some side 'nod and a wink' agreement that the loans would never be repaid, then it is a sham.  The loan should thus be treated as earnings on day one.

If I were HMRC I would be requesting the original promotional blurb to see what it said on the matter.  Your day in court with a cross examination could be revealing as Mr Boyle found out!  I would also be a 'mystery shopper' on some of the many sites that still advertise that contractors "can keep 90% of their earnings, using an HMRC 'compliant' scheme".

 

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19th Apr 2016 17:03

Not missing the point

Vaughan Blake1 wrote:

Andy, you spectacularly/deliberately entirely miss the point!

Either on day one the contractors believed the loans were repayable, or they didn't.  Simple question, no tricks.

Whilst the actual loan agreements may well be valid documents in isolation, if there was some side 'nod and a wink' agreement that the loans would never be repaid, then it is a sham.  The loan should thus be treated as earnings on day one.

If I were HMRC I would be requesting the original promotional blurb to see what it said on the matter.  Your day in court with a cross examination could be revealing as Mr Boyle found out!  I would also be a 'mystery shopper' on some of the many sites that still advertise that contractors "can keep 90% of their earnings, using an HMRC 'compliant' scheme".

I did not miss the point at all. It just has no relevance, as Gordo has just pointed out in the previous post. For the record, in every circumstance I have seen the loans are clearly explained as being repayable, as are the terms upon which they are to be repaid. Sorry to dissapoint, no nod or wink, no nudge (Unlike HMRC).

I would point out, that most accountants I have come across who have put such arrangements in front of clients will have used providers with a good repuatation in the marketplace. (I know you think that's an oxymoron - what I mean by that is a provider who properly creates and operates the arrangement, ensuring it is properly implimented, takes detailed and fully considered QC opinion, discloses the arrangement to HMRC, is communicative with HMRC  in relation to their queries, and only admits contractors after ensuring their individual circumstances make it appropriate, and that they have been fully educated about the risks - they are out there!)

They will not generally have introduced contractors to the schemes still operating on the internet offering 90% returns, and I would also agree that these schemes probably will not work as advertised if tested (But only because they will have been constructed poorly, and implimented badly).

Having said that I wait for the pitch fork and torch brigade to come back at me with the regurgitated jibes that have littered the last 10 pages of posts.............................. can't wait.

 

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By gordo
15th Apr 2016 16:53

Old greying

I just spotted your earlier post. 

Sorry I missed it because it was a beauty.

Apparently I do myself no favours because in your world NI is not a tax. So said Gordon Brown, bless him.

Well at least the Contractors will be delighted to learn that they didn't really avoid the amount of tax that HMRC claim because some of it wasn't a tax. 

You never answered my question about a commercial salary. Indeed maybe you are a Director of your own Company. What remuneration would you take for your many hours working on or in the business. I presume you don't directly put hours in as a pure shareholder/investor. 

Unless the business runs itself and you are purely an investor, which would be fair.

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15th Apr 2016 17:01

it is sad...but

just because 65,000 fell for it (or just a couple) makes difference.  A 'scheme' requiring a QC's assurance, with some tricky offshore loan thingy, which you will receive instead of income should at least set off a small tone in the back of the head of a risk averse individual.

 

It is legal still....its just the Revenue have moved the goal posts....as they do each year. 

 

If its capital then generally as with any other capital item it is affected based on current legislation whatever the circumstances of the original acquisition (debt or asset).  If its income - in which case I would agree this is retrospective....then why was it not taxed at the time. (don't tell me...its a loan....and loans are not taxable....but they still exist as any other 'capital' item is and are open to tax changes....).

 

  

 

 

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15th Apr 2016 17:07

Gordo, do the math

Company makes £100k profit, pays a £10,000 salary.  It will pay £18k in corporation tax.

Mr Director takes a net £72,000 dividend.  Under the old rules he will pay HRT on roughly £40,000 at 25% on the net -ie £10k.

Thus, Mr D and his company have paid £28k in tax.

Meanwhile, Mr Contractor pays no tax, but pays £20k to Tax Scams R Us Inc.

Mr C is £8k better off, HMRC is £28k worse off.

 

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By Old Greying Accountant
15th Apr 2016 17:20

I just want ...

... sharks to stop peddling these schemes as all it does it make life worse for the rest of us, and yes, I do want everyone to pay a fair share of tax, no problem with making that as low as genuinely possible, but these schemes take the urine, especially as contractors are paid higher rates than salaried staff to compensate for tax/holidays/sickness etc.

If contractors had not had the cake and eaten it the rest off us would not be on dry crusts.

In keeping with the above, these 65000 have pissed[***] in the well and contaminated it for everyone.

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15th Apr 2016 17:31

Old Greying in self-parody territory

Old Greying Accountant wrote:
If contractors had not had the cake and eaten it the rest off us would not be on dry crusts

Really, the country is on "dry crusts" because of contractors?
Bless your heart.

I think we'll keep it to that.

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15th Apr 2016 22:37

Seriously..

Old Greying Accountant wrote:

DotasScandalDotOrg wrote:
Old Greying Accountant wrote:
If contractors had not had the cake and eaten it the rest off us would not be on dry crusts
Really, the country is on "dry crusts" because of contractors? Bless your heart. I think we'll keep it to that.

... go practice sex on yourself too you patronising twit.

The more you write the more I hope HMRC take you to the cleaners.

 

Someone actually said 'thanks' to this comment? Seriously? Feels a bit like mob mentality.  Not sure the moderator of these forums would be impressed by comments like that?

Old Greying Accountant - I think with comments like that you need to have a long look in the mirror because maybe just maybe the contractors aren't to blame for the fact your business isn't going so well. 

Have a good weekend everyone! 

 

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By Old Greying Accountant
16th Apr 2016 23:11

WTF are you talking about now ...

Difficulttimes wrote:

Old Greying Accountant wrote:

DotasScandalDotOrg wrote:
Old Greying Accountant wrote:
If contractors had not had the cake and eaten it the rest off us would not be on dry crusts
Really, the country is on "dry crusts" because of contractors? Bless your heart. I think we'll keep it to that.

... go practice sex on yourself too you patronising twit.

The more you write the more I hope HMRC take you to the cleaners.

Someone actually said 'thanks' to this comment? Seriously? Feels a bit like mob mentality.  Not sure the moderator of these forums would be impressed by comments like that?

Old Greying Accountant - I think with comments like that you need to have a long look in the mirror because maybe just maybe the contractors aren't to blame for the fact your business isn't going so well. 

Have a good weekend everyon

... I've not said anything about my business, other that it doesn't peddle fairy tale tax scams.

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18th Apr 2016 11:35

NI avoidance

Old Greying Accountant wrote:

... I've not said anything about my business, other that it doesn't peddle fairy tale tax scams.

And it is a promotor of national insurance avoidance arrangements.

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By Old Greying Accountant
18th Apr 2016 12:13

I don't think ...

Andy Davis wrote:

Old Greying Accountant wrote:

... I've not said anything about my business, other that it doesn't peddle fairy tale tax scams.

And it is a promotor of national insurance avoidance arrangements.

... I have said I do that either.

I do not promote anything, in the context you are using the word. I have clients that ask me to set out options for them, they then tell me how they wish to proceed based on an informed choice.

That said, I have no problem with avoiding tax by using the best laws to account for a genuine situation that exists. A big difference to artificially constructing a scenario to use laws in ways they were not intended. 

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