Contractors face ruin to pay tax on loans

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Andrew Robins provides an update on the legislation to impose tax and NIC charges on the value of contractor loans and ETB loans which remain outstanding at April 2019.

Budget proposals

Last year Rebecca Cave discussed the Budget  2016 proposals to impose a retrospective tax charge on certain loans to contractors and employees, and the reasons why this charge was seen by many as both unfair and retrospective.

Many things have changed in the world since then, and both political and judicial decisions have been made that many observers feel would justify a review of the original plans. However, when the draft loan legislation was re-published on 13 July 2017, it looked virtually identical to the previous, much criticised,  2016 version.

Disguised remuneration

At the heart of the proposals are the complicated and deliberately punitive ‘disguised remuneration’ (DR) rules. These rules began to take effect from 9 December 2010 and were specifically designed to discourage payments being routed through third parties to defer or eliminate employment taxes.

The DR rules were widely drafted and, in almost all cases, contractor loans and loans made by employee benefit trusts (EBTs) taken out on or after 9 December 2010 were subject to immediate income tax and national insurance (NIC) charges.

The Budget 2016 proposals took the existing DR rules and expanded them further, to cover pre-2010 loans that remain in existence on 5 April 2019. Under the proposals, unless the borrower agrees a settlement with HMRC prior to this date, most outstanding loans will be taxable as earnings on 5 April 2019, creating a typical combined tax and NIC liability of 61% of the loan value.

How to repay

The draft legislation includes a very wide definition of loan and a very narrow definition of repayment.

In particular, for repayments after 16 March 2016 only “payments in money by the relevant person” will be treated as effective, so the transfer of an asset to satisfy a repayment obligation after that date will be ignored. In cases where the expectation was that the borrower would die before the liability matures, the borrower’s estate will be worse off by both the repaid debt and the tax – a typical cash cost of 147% of the amount borrowed, with the possibility of the individual also picking up the employer’s NIC liability.

Settlement agreements

The terms of the HMRC settlement agreements for EBTs and contractor loans are not generous. Essentially, the taxpayer is required to accept that the full amount paid into the arrangement should have been taxed as earnings initially, and to settle the income tax and NIC that should have been paid. HMRC will request interest on this ‘late paid’ tax, although in some cases this can be challenged.

In the case of an EBT, if the value of the trust has increased since its creation (eg due to investment growth), any settlement will now only cover the original contributions into the EBT. The growth in value of the trust will be taxable as employment income when distributed.

HMRC is not willing to change its settlement terms, even where the tax at stake is enough to result in financial ruin for the taxpayer. HMRC’s attitude is heavily influenced by its view that loan arrangements are abusive tax avoidance, and cracking down hard on affected taxpayers is a way to send a signal discouraging anyone from undertaking similar ‘tax planning’ in future.

Solution?

The only way to avoid suffering a tax charge on most outstanding contractor or EBT loans is to repay them in cash by 5 April 2019. Failing that, the choice is between settling with HMRC now or waiting until 2019. This decision comes down to calculating the tax, interest and penalties payable for settling now, compared to the potential total tax charge in 2019.

Is it fair?

Ever since the proposed new charges were first made public they have been criticised. There is a widely-held view that the effect of the charge is retrospective and that its whole premise is unfair.

The counter-argument is that although it affects loans taken out before the legislation was introduced in 2010, the charge can be eliminated by repaying the debt, so the taxpayer can choose what to do. Successive governments have also considered that where tax planning is ‘abusive’, even the most draconian anti-avoidance rules are justified.

Judicial review

It is, in theory, possible to seek judicial review to request the courts to overturn tax charges on the basis that the taxpayer had a legitimate expectation that they would not apply. It is also possible to take a case to the European Court of Human Rights on the basis that the legislation is a breach of the right to peaceful enjoyment of personal property. In practice, even if successful, the cost of making such a challenge is likely to be prohibitive, and the chances of success are very small.

Reality bites

Unfortunately, the reality is that the new loan charges will be introduced, and they will need to be faced head on. The real question for affected borrowers is how to find the money to meet their obligations.

About Andrew Robins

Andrew Robins

Andrew Robins is a partner in RSM’s London private client tax team, advising on all areas of UK personal taxation. He specialises particularly in advising high net worth individuals, non-UK domiciled individuals, non-UK trusts, and members of corporate remuneration plans such as employee benefit trusts and international pension plans.

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21st Aug 2017 20:59

Can someone confirm why the Spotlight 39 analysis in the link below does not work (assuming the loan is illegal in the 1st place for one reason or another)?

https://www.accountingweb.co.uk/any-answers/this-spotlight-39-scheme

Para 164 of the case in the link below seems to support such a possibility (without any dishonesty etc.).

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10032/TC0...

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22nd Aug 2017 09:54

By definition a loan is "something that is borrowed and is to be paid back with interest".

As a commercial proposition why would you work for many years for no remuneration but instead receive a loan that has to be repaid?

If 'loans' drift on for many years with no sign of them being repaid at some point they surely become 'remuneration'. HMRC have simply drawn a line in the sand as to when that point is.

I see no retrospection 0r unfairness here.

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to Vaughan Blake1
23rd Aug 2017 15:43

Fair or unfair: Its water under the bridge but what do ‘reasonable’ people now do practically?

This forum and others on ebt’s have had their fair share of views, and whilst there are numerous shades of grey to what have been black and white views on this particular subject, we are faced with “retrospective” legislation, like it or not.
As regards morality of retrospective legislation : If the Government were to introduce a speed limit on motorways of 50 m.p.h but back date it 10 years and fine all those clocked doing 51 mph or more (from past records) there would be up-raw. Rightly so.
But let us for one moment accept that’s what ‘we’ are faced with, fair or unfair, it matters not.
To me THIS retrospective legislation falls in to four categories:
1. Those with liquid assets sufficient to repay the capital element of their loans (either made to companies, partnerships or individuals) before 5/4/2019 and willing to do so.

They should.

This would avoid the tax and then they can deal with extraction under present tax rules.

Everyone is happy?

2. Those with illiquid assets sufficient to repay the capital element of their loans (either made to companies, partnerships or individuals) before 5/4/2019 and willing to do so.

Here they should also be allowed to repay (via assignment) and there should no difference between those wise enough to have not invested in liquid assets (after all who wishes to hold money in banks – which is not only risky (the Government won’t even guarantee all but the minimum) but returns are incredibly poor) to those who invested more less wisely in longer term secure investments?

After all Government funded education surely taught us to be wise.

How utterly unfair is it for the Government to unfairly treat wise people to unwise people. Maybe they intend to introduce a ‘wise’ tax !!

HMRC definitely need to recognise the difference between cash assets and other assets and work out a ‘reasonable’ and far more ‘sociable’ result that mirrors those who have liquidity freely available to them against those that don’t.

And don’t forget not all contributions made to EBT’s were liquid in the first place and certainly long term assets valued at pre 2008 bank crisis levels still remain below those heady heights and need far more time to recover, especially as a result of Brexit! Also a Government introduced disaster on the UK taxpayer!!

3. Those with assets (liquid or not) sufficient to repay the capital element of their loans (either made to companies, partnerships or individuals) but NOT willing to do so, ie. Those that can pay but won’t pay.

Here the Government have not only a right to go after these people who flaunt the system (even those who now say they didn’t know, but continue to flaunt the law) and that should be applauded.

And finally the difficult but practical crowd:

4. Those with assets (liquid or not) insufficient to repay the capital element of their loans (either made to companies, partnerships or individuals) before 5/4/2019 and willing to do so.

What is the point of wasting tax payers money going after a lost cause?

In a totally opaque lending system if trustees of ebt schemes made genuine loans which are now distressed as a result of either genuine market forces or individual’s stupidity what would HMRC do if the trustees then sold their debt in a distressed but open market environment before 5/4/2019?

Is this a capital loss of the trust it can offset should the trust be held liable to make good the tax? or is the individual/partnership or company made liable but with the firm knowledge that we all know the individual/partnership or company can’t pay the tax and still has a debt to a distressed debt investor in any case?

Are we going to see trusts offloading a plethora of distressed book debt prior to 5/4/2019 I wonder?

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to Exfoliate
23rd Aug 2017 17:11

oh come on really.
The reaction is just worse than one would have expected granted but after years of not doing anything about it, It is not unexpected. The sensible had been nervous of these arrangements for years. If it fails the substance over form principle then thats a red flag. As for retrospective? So was the removal of indexation on capital gains. the real penalty is that this all hits in one go so hiher rates of tax will be payable during the fix. thats the risk that should have been forseen and advised on. if It wasn't then perhaps it's a snail in a bottle moment.
I do think the providers and pedlers of these schemes ought to be dealt with too as reasonable accountants advised against these schemes and have just been proved that their advice was right. Despite being treated quite badly at the time. Hopefully these contractors will realise that they paid the idiots a lot of money instead of taking the right advice.

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to Exfoliate
23rd Aug 2017 17:20

Would that it were so simple.

Having taken advice (which I would urge each and every person affected by this to do), I have been advised *against* paying back the loans. I had considered short-term loans to do so.

The 2019 Loan Charge has broad reaching anti-avoidance measures built in which are not simple or obvious in their implications. It is possible to pay back the loan, release the cash from the EBT, pay all applicable taxes and still HMRC may try to apply the 2019 Loan Charge. I'm no expert, but this is what I have been advised. HMRC have given themselves pretty much carte-Blanche to decide what does and does not qualify as "repayment" which exempts the tax-payer from the 2019 Loan Charge.

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22nd Aug 2017 10:45

Another angle is to argue that the Rangers case causes there to be tax at the point of payment into the EBT and thereafter any loan therefrom is no different to a loan from any non-employment related family trust i.e. it's not employment related, so is outwith P7A (and ITEPA generally) and so the retrospective loan charge is toothless and assuming HMRC are too late to assess the original EBT payment then they are out of time. Any views on that argument?

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to Justin Bryant
22nd Aug 2017 12:47

Justin Bryant wrote:
Any views on that argument?

It sounds like a search for another technicality to avoid a legitimate tax bill that is as repreehensible the original "loans" plan. Are you really trying to say that the EBT just coincidentally made "loans" to Rangers employees, and there are no connections between the two things.

I'm all for saving as much tax as possible for clients in legitimate ways. That's avoidance which, despite media presentation, is perfectly legal.

Schemes like this that stretch and twist the law to try to get money tax-free are the reason why avoidance and evasion are conflated.

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to stepurhan
23rd Aug 2017 11:43

On the contrary this would put the primary responsibility for the tax back on the organisers of these arrangements who accrued the majority of the benefit from the arrangements. HMRC have, and in fact always had, the powers to pursue underpayment of PAYE/NICs from these companies (and their directors/owners), but chose not to.

The loans are an outstanding issue which contractors also need to resolve and may incur IHT by releasing them.

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to stepurhan
23rd Aug 2017 13:22

Why do you think the tax bill is "legitimate"?

The schemes are not illegal. They were not illegal when they were done and are not illegal now.

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to graweb901
23rd Aug 2017 16:24

graweb901 wrote:

Why do you think the tax bill is "legitimate"?

The schemes are not illegal. They were not illegal when they were done and are not illegal now.

Because they relied on loans that were never in reality loans, they were taxable income dressed up as loans.

But, unless I've misread the article, the option to repay them as the loans they allegedly are is in place until 5 April 2019. So either they are loans, and they should be repaid, or they aren't and the tax is legitimate.

It seems you are trying to have your cake and eat it by saying they are loans, but that they shouldn't have to repay them now. Please do show me the financial institution willing to grant commercial loans on such generous terms.

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to stepurhan
23rd Aug 2017 16:48

I'm not doubting that in some instances what was paid as a loan should have been paid as a salary.

In many instances, the loan agreement clearly says that the loan is repayable at a date after 5th April 2019. Should that borrower repay early just to avoid tax? Is it legitimate that a tax law can alter a commercial agreement made years ago?

I would also observe that no Court has decided that in the circumstances of many contractor arrangements, the loans were "in reality" anything other than loans. The only decided cases and therefore "legitimate" reasoning have special circumstances.

Are we however to believe that we are taxed according to public opinion and not the rule of law?

A loan agreement agreed by lender and borrower is legitimate. Reference to a "commercial" benchmark is totally inappropriate. Why should HMRC, plainly for all to see the least commercial organisation you have ever met, be appointed arbiter of what that loan should be and when it should be repaid.

What next? HMRC decide that all mortgages should be a maximum of 1.5x income and any excess is money given to you on non commercial terms and therefore able to be taxed? Plainly nonsense, but that is effectively what is happening.

I think the majority of my clients consider that the scheme they used is not, viewed from today, on the "acceptable" side of the tax planning/avoidance/abuse line. They would accept that they would not use such arrangements today. What they object to however is that HMRC, having spent 15 years mainly in silence "investigating", have now decided that Tribunal action is too tiresome and instead will use retrospective law.

Cake and eat it? No. They accept that they should pay something, but not everything.

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to graweb901
23rd Aug 2017 16:53

I think your phrase "commercial arrangement" is a key point. Working for a repayable loan rather than wages is simply not commercial!

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to graweb901
23rd Aug 2017 16:55

Is the date after 5th April 2019 the 12th Of Never?

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22nd Aug 2017 11:25

Glad to see HMRC holding the line on this one.

There should be no reason to go soft on those seeking to avoid paying their fair share of taxes.

It has always been the case that those seeking to avoid paying the expected amount of tax take a risk that their actions end up with more tax than may have been the case if they didn't go down that route.

Its a very poor advisor that was blinded by the commissions on offer to promote such schemes such that they did not properly explore the downsides with their client.

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to ireallyshouldknowthisbut
22nd Aug 2017 13:21

I think you'll find that the "advisors" knew exactly how weak these schemes were and you'll see in the small print of the contracts that the "taxpayer" signed that their fees were non-refundable if the HMRC blocked the scheme.

Win win for these financial firms who seem to have less ethics than their counterparts in the banking industry...

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By gordo
22nd Aug 2017 14:39

HMRC want to introduce a retrospective tax going back 20 years precisely because they want to circumvent the rule of law.

The proposal in the draft legislation is apparently now contrary to the Supreme Court decision in Rangers FC, as Justin has alluded to. The ICAEW had already pointed out that the planned charge is retrospective and contrary to HMRC's argument in Rangers FC.

ICAEW actually said that "the measure contravenes generally accepted notions of fairness and breaks the constitutional convention against retrospective legislation, imposing tax charges in cases where taxpayers already had legal certainty that none were due."

As it happens the proposed charge covers up any mistakes by HMRC such as not raising determinations on employers or failing to raise enquiries into tax returns.

Has there been any case to support the argument currently put forward by HMRC for raising APNs on individuals? That's going to become irrelevant anyway though if HMRC get their way, because HMRC are going to invent a new law prior to these people getting their day in court. This new law actually doesn't solve the court issue and these people could still win in court, but HMRC will have already invented this new law and taxed them regardless. The Judiciary have become redundant.

Yet still some people say… quite right I never felt it should have worked to begin with and people should have known better!

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to gordo
22nd Aug 2017 16:29

But, the top and bottom of it is that the idea that these payments were 'loans' was pure fiction. If they were loans, why not simply repay them as expected and the tax problem will magically evaporate! If the employee can't or won't repay the loan then it is no longer a loan and must be earnings from the employment.

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to Vaughan Blake1
23rd Aug 2017 14:15

"Pure fiction"?

Would you like to explain that to those clients of ours who in addition to tax demands and APNs have repayment demands from the lenders?

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to graweb901
23rd Aug 2017 15:27

I would like to ask them what they thought the repayment terms were of the 'loans'.

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to Vaughan Blake1
23rd Aug 2017 15:51

Why ask them now?

Where were you in 2003 when these schemes were being recommended by accountants and others and commissions were being paid?

Why not say, "we all agree, viewed from 12 years later, that the "loans" were not loans and everybody should have known better. Still not actually illegal of course. We now accept however that a change of law, new retrospection and public opinion means that tax should be paid. Why though, all by the contractor. Why is the accountant not paying say 40% of their commission as a contribution, why is the end client not paying the employers NIC, why is the agency laughing all the way to the bank?"

I'm afraid that your view is based on perfect hindsight and at the time, many parties colluded to convince a contractor to use a legal (still legal) scheme and profited.

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to graweb901
23rd Aug 2017 16:50

I would like to ask your clients now as I would like an answer to see what they thought the position was at the outset.

In 2003 I was losing clients when I told them noooo don't do this! Not a 'hindsight' view from me.

It was the same with all the rather edgy schemes at that time, split car ownership, Turkish loans, etc etc. They all had been signed off by a QC, same one in most cases as I recall!

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to Vaughan Blake1
23rd Aug 2017 17:23

Then I welcome you to the minority of advisers.

I was not at that time in practice at all and confess that the whole situation was invisible to me until around 3 years ago.

All I can report however is that your position was not matched by some very well known names.

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to Vaughan Blake1
24th Aug 2017 16:42

Vaughan Blake1 wrote:

I would like to ask them what they thought the repayment terms were of the 'loans'.


The repayment terms were generally fixed dates (not more than 5 years apart) including any accumulated interest. EBTs had various different strategies for gradually reducing the nominal value of the loans over many years culminating in a taxable release of any remaining balance.
Repayments were generally reloaned less any trust costs to the employees.

I could draw analogies between this and various other entities who rely on continuous access to credit to roll over liabilities (banks, governments, interest only mortgages), but I am sure this won't change your views on the "legitimacy" of the arrangements.

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to gordo
22nd Aug 2017 19:12

It seems to me that people have boxed themselves into the thinking that just because they have converted what ought to have been income tax paid for work done in a single period into a magic “loan” which is never repaid, there can be no changes to how that magic loan is treated in the future.

This underlines why it was never a loan in the first place quite frankly.

I no other area do we jump up and down about rule changes. Eg BTL investment, you dont get a static set of rules for CGT based on the regime when you purchased it, its the rules in place when you sell that matter.

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23rd Aug 2017 10:58

Adding to this, surely the directors in allowing such vast unaffordable, unsecured loans which have no chance of being repaid to be granted by a company have been in breach of their fiduciary duties, in a word, reckless, and there is an argument for them to be disqualified?
One generous concession would be to schedule the tax over a period equal to that which the loan was taken over, very generous perhaps, but more likely to achieve a higher yield over time.

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to Smokoe Joe
23rd Aug 2017 19:41

I think you misunderstand how these arrangements were organised. The company paid the employee a basic salary and paid other amounts to a trust (it is this payment which the Supreme Court ruled in the Rangers case should be subject to PAYE and NICs. I agree with this outcome). The Employee Benefit Trust then advanced loans to the employees.

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to HMRCVictim
24th Aug 2017 11:37

No, I don't, arranged being the operative word, arranged artificially to avoid paying tax, not for any commercial reason, the fact it was contrived by a purely artificial chain of entities and legal smokescreens is irrelevant, substance over form is what I am looking at, and is how the law should operate.

I do agree that the snake oil salesman should be pursued too though.

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to Smokoe Joe
24th Aug 2017 16:48

Substance over form is what the Supreme Court relied on in the Rangers case and ruled that the employer is liable for PAYE/NICs. If HMRC use this ruling then they would now be pursuing those who arranged the structures and own the umbrella companies. Instead they are changing the law to make the employees liable.

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23rd Aug 2017 10:31

I went to a tax dodge seminar thingy (not how they described it, I think "tax planning" was what it was marketed as) a few years ago to hear from a firm of planners how they could save you thousands in tax by basically using loans (and other methods). The gist of what I got out of it was that what they were doing wasn't illegal (yet) but that if it was later found to be illegal (pretty likely) then you would have to pay the tax anyway. Plus interest, fines, and of course their non-refundable fee. If it walks like a duck.. etc..

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23rd Aug 2017 10:37

At last we have some traction!.

We have been discussing this retrospective and unfair proposal and the fact that it will result in thousands of bankruptcies for a core part of the UKs working population.

Suffice to say that the arrangements used by contractors benefited a whole range of entities. True, the contractors themselves but also their clients, the agencies they used, umbrella companies, scheme promoters, scheme designers, accountants and bookkeepers. Why then is only ONE of those groups in the crosshairs?

Many of the promoters and accounting firms who advised the individuals to go into the schemes are long gone. They have been allowed by HMRC to slide into oblivion and the fees they took are now beyond the reach of HMRC. In my opinion, the accounting and tax profession needs to examine its part in this debacle very carefully.

There is now, as Andrew says, an impossible position for many. The contractors cannot pay the tax on the loans. They cannot pay the loans. The trustees may be liable and their only source of income is the contractor. HMRC is being stubbornly intractable and is not listening to any reasonable settlement offers, even though Rangers has driven a coach and horses through their current strategy. We await with anticipation but not hope the HMRC statement on 22nd September about a new offer to contractors.

Whilst I'm very pleased that this issue is gaining some attention and will hopefully expose the shortcomings of a number of parties involved in the marketing and promotion of schemes, at the end of the day my concern is for my clients, many of whom at facing financial ruin, health and personal issues and because they are average earners, without access to the sort of advice available to wealthier users of tax planning.

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to graweb901
23rd Aug 2017 12:12

No sane person would work on the basis that they would be loaned money which was repayable rather than being paid earnings.

Thus, these thousands are either all insane or worked on the premise that the 'loan' would never be called in.

Taxation rules change as a previous poster has pointed out and for example no one can rely on the same CGT rules applying from the purchase to the sale of an asset. If the 'loan' exists in 2017-18 it is the tax rules for that year that apply. Your very argument that this is 'retrospective' seems to suggest that you consider that the tax treatment was in someway finalised in the year that they were made. How could this be with an on going 'loan'?

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to Vaughan Blake1
23rd Aug 2017 13:32

Not sure my clients think of themselves then or now as "insane"?

I'm sure my clients saw others using a "tax compliant" and "QC approved" scheme and thought "HMRC are silent and I'm told that a challenge is unlikely, so why not".

Aided by some slick salesmanship and frankly some biased advice from "professionals", they signed up.

Now HMRC want ALL the tax from them and not from the others who benefited.

Where does ALL the blame lay?

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to graweb901
23rd Aug 2017 16:30

graweb901 wrote:

Not sure my clients think of themselves then or now as "insane"?

I'm sure my clients saw others using a "tax compliant" and "QC approved" scheme and thought "HMRC are silent and I'm told that a challenge is unlikely, so why not".

Aided by some slick salesmanship and frankly some biased advice from "professionals", they signed up.

Now HMRC want ALL the tax from them and not from the others who benefited.

Where does ALL the blame lay?

You say your clients are affected by this.

You indicate that they have been clients long enough for you to know they weren't "insane" when they entered into these schemes.

Then I think I know where a big chunk of the blame lays, and why you are so keen to call this measure unfair.

Or did your clients enter into these schemes without your knowledge or approval?

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to stepurhan
23rd Aug 2017 16:56

I'm pretty sure that the implication of your post is that I somehow encouraged clients to enter these schemes?

I'm positive that you should have checked before making that accusation.

For your clarification.

We started helping clients around 2 and half years ago. It is not a condition of being a client that schemes are stopped, but we always recommend leaving any arrangement. To our knowledge less than 1% of our client base remains an active member of a scheme.

In previous lives, no principal of our firm nor any employee has been involved in promoting or selling schemes to contractors. We are one of exceedingly few advisory firms who can claim absolutely no bias and who have not ever been paid commissions.

I would cordially invite you to either remove your post or admit that you made them in the absence of the facts.

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to graweb901
29th Aug 2017 09:44

I willl take you at your word that you didn't actively promote these schemes.

However, your claim for the moral high ground is scuppered by this sentence.

graweb901 wrote:
It is not a condition of being a client that schemes are stopped, but we always recommend leaving any arrangement.

You are accusing other accountants of promoting these schemes and thus being responsible for the current problems. The moment you did not make bringing those schemes to an end a condition of acting as their agents, you became part of the problem.

Most accountants I know would cease to act if a client was involved in such schemes and refused to take their advice to leave them. By not doing so, you have effectively endorsed the schemes, though admittedly not as much as the accountant that sold it to them. (From the client's point of view, it seems that you simply aren't keen on them, but are happy to deal with them anyway).

You had the chance to either distance yourself from these schemes, or arrange a smoother exit for those clients. You did neither.

In all honesty, I find that worse than if you had sold the schemes in the first place. You knew the schemes were wrong, but let them continue regardless. At least accountants that sold the schemes might have (foolishly) thought everything was alright.

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to stepurhan
29th Aug 2017 11:11

I am very much saying that some accountants and accounting firms actively and forcefully promoted and sold the schemes. Whilst "most of the accountants you know" may have walked to the exit, that is not the picture we have when we examine our clients' records. Instead we see an accountant promoting a scheme, happily telling the client that HMRC enquiries are "normal" and then in some cases leaving the client in the lurch by refusing to act when HMRC enquiries become to technical or hot to handle.

As for becoming "part of the problem" I can safely ignore that skewed view as being born of ignorance of the reality for these clients.

We are not "happy to deal with them". What we do is deal with the consequences of having been part of a scheme. That involves exiting clients from the loans and other legal obligations and trying to convince HMRC not to bankrupt them.

Nobody knew the "schemes were wrong" until the Rangers case. The only case before that was distinguishable on its facts. Most advisers became aware from 2008 that the schemes would be attacked and we do have some evidence that some advisers did refuse to act for a client who insisted on using one. Unfortunately a lot of their competitors did not show the same scruples.

I suggest you read my earlier post. We have been around 2 and half years How were we meant to be telling people in 2002, not to use these schemes? If we had access to the same time machine that HMRC uses, perhaps we could.

I'm afraid your analysis is flawed in pretty much every way. However it is typical of the reaction from many advisers today who are happy to leap to judgement with half the facts, so I'll forgive you.

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23rd Aug 2017 11:11

Yet again the pigeons finally come back to roost on a scheme that seemed to be 'too good to be true'.

It's not a loan if you never repay it and never have the intention of paying it back.

I'm glad I never get involved in this sort of 'planning'.

Of course the promoters and 'advisers' have all long gone with their massive fees and as usual the poor sucker who was persuaded to sign up for the scheme will be left with the mess and the tax bill.

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23rd Aug 2017 11:23

I was approached some years ago to give pro bono advice to a person, not my client, whether he should go into one of these schemes. I stongly advised againts it as it did not and does not stack up.

Regretfully he did not follow the advice as financially he was struggling as earnings were modest. Mortgage + kids.

The person now is a client. Very modest earnings (then and now) with several APN's which essentially will put him in the street with wife and two kids. Bankrupt.

Much as it was of his own making I question the value of putting people in the street like that. The suffering will be large especially for the kids.

As the point was made, there were many advisors taking large fees/commissions advising clients who get away with it unscathed.

It just does not seem right.

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to richardterhorst
23rd Aug 2017 12:04

Richard, but it does seem right to me! You advised him it was dodgy, he went ahead anyway and spent money which was not his to spend, but should have gone to the NHS etc etc

You would have to be in this up to your eyeballs to end up on the street over it. Ie putting your whole income on one for years which is quite frankly crazy situation to have been in without thinking "is this right?" and ignoring those - like you who said it was not.

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to richardterhorst
23rd Aug 2017 13:04

Pour encouraged les autres ?

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to richardterhorst
23rd Aug 2017 14:09

A large part of this problem could have been prevented if all those who now see clearly with 20:20 hindsight that the arrangements would cause bankruptcy, family displacement, mental and physical health problems, had said so at the time.
That time was between say 2002 and today.
Instead many professionals enriched themselves and are sitting pretty with their fees, watching those they charged spiral down into despair.

I have to say that the accounting/tax profession will not come out of this with their reputation enhanced.

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By kaff
to graweb901
23rd Aug 2017 18:55

I have to say that the accounting/tax profession will not come out of this with their reputation enhanced.

[/quote]

Possibly not, but at least they'll have paid on their earnings. Or will do now.....

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23rd Aug 2017 11:31

HMRC are not very sympathetic to users of avoidance schemes.
I expect there's not much sympathy out there in general too.
They have done nothing about the scheme providers however.
Where was the consumer protection?

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23rd Aug 2017 11:37

I had a client who was a contractor working at a major bank. He said that the contractors were being accosted by people with clip boards as they left the bank, basically being told that accountants were not giving the correct advice and if their scheme was followed it would save thousands in tax.

The scheme being proposed involved loans and foreign exchange transactions. The scheme had not even been registered with HMRC and we parted company with the client when he refused to disclose the existence of the scheme on his self assessment tax return.

I pointed out as many of the pitfalls as I could think of, but the client just saw me as negative. I have never promoted these schemes and I don't believe many reputable accountants would either.

It is wrong to accuse accountants and tax advisers generally of suggesting these schemes. It seemed to me to be inevitable that any client venturing down this path would eventually be hung out to dry.

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to raybackler
23rd Aug 2017 14:13

No, I'm afraid it's not wrong.

I have evidence from some well known accounting names of their positively encouraging clients to speak to their "planning arm" because "too much tax was being paid".

We should not assume that the attitudes displayed today from the profession were those of the past.

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to graweb901
23rd Aug 2017 16:32

graweb901 wrote:

No, I'm afraid it's not wrong.

I have evidence from some well known accounting names of their positively encouraging clients to speak to their "planning arm" because "too much tax was being paid".

No it IS wrong to accuse accountants GENERALLY of being complicit in this.

Undoubtedly there were firms that did encourage entering these schemes. None of the many accountants I know were among them. Not even the ones for whom tax planning is their main source of income.

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to stepurhan
23rd Aug 2017 17:29

I think you may have a point but our files have some well known names in them.

The issue is that there were many parties who benefitted from the arrangements, but HMRC is chasing, with prejudice, only one.

It may be a coincidence that the party being chased is perhaps the "softest" target and one that may not expose HMRC shortcomings?

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By kaff
to graweb901
23rd Aug 2017 19:11

The parties who are being chased by the tax authorities are the parties who have not paid tax on their earnings. It's not HMRC's job to police the advisory community, or to compensate anyone who feels they've been let down by their advisors.

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to kaff
23rd Aug 2017 19:55

HMRCs role is to collect the tax as specified by law. That was unclear before, but the Supreme Court have now made it clear. PAYE and NICs which are the employers liabilities based on amounts they paid into EBTs. Off you go HMRC, collect the tax that was due!

If the companies have been dissolved, then go to the directors who took all the dividends. If the contractors themselves organised, arranged, profited from the company, then you will be collecting from him. I didn't and thousands of others also didn't.

Anything other than this means that HMRC are deciding tax policy rather than the elected government. They would be deciding who should pay what taxes and doing so 20-years retrospectively.

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to HMRCVictim
24th Aug 2017 10:10

I did say "generally" as stepurhan has pointed out. I am sure that there were some accountants that did give out wrong advice.

I do, however, agree that all those complicit in the chain ought to be penalised in some way, but as so often with this type of scheme, many have disappeared over the horizon, particularly the scheme promoters, leaving the users of the scheme holding the baby.

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