Disguised remuneration: Year-end review

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Anyone who has been following the lively debate on disguised remuneration (DR) in the comment sections of Accounting WEB will be aware that the subject continues to generate strong opinions.

With 20/20 hindsight, many would agree that at least some employment/contractor structures created in the past never passed the smell test. However, many also feel that DR itself crosses the line between legitimately tackling abuse and unfairly punishing individuals who entered into arrangements in good faith.

Whatever your views on the rights and wrongs of DR legislation, and of the Supreme Court’s decision in the Murray case, the reality is that HMRC now has a set of very powerful tools with which to challenge affected structures.

Historically, I was one of many advisers who believed that the transfer of funds into an Employee Benefit Trust (EBT) sub fund did not create employment income for the beneficiary. Even so, I have been advising clients to take advantage of HMRC settlement agreements ever since the first opportunities appeared in 2011.

Although I am aware that individual cases continue to be appealed, and that we may see further litigation over the next year, I find it difficult to see any realistic prospect of cases being settled outside the Supreme Court.

The cost of pursuing an action that far, coupled with the lack of sympathy shown by the judiciary to perceived avoidance of any kind, is enough to make me question whether it can ever be sensible to advise a client to continue to fight.

This inevitably leads to a consideration of the latest iteration of HMRC’s settlement terms, published on 7 November 2017. For the first time, these terms specifically include reference to contractor schemes, although in practice they reflect the position as it has stood for some time now.

In brief, for employment arrangements income tax, employer’s and employee’s national insurance contributions (NICs) and interest must be paid for all years under enquiry or “in time”, in which contributions were made or loans were taken out. Out of time years cannot be taxed in this way, but if the taxpayer wants to avoid future DR charges, it will be necessary to pay the tax, employee and employer NICs by way of voluntary restitution (although without interest).

For contractors, income tax and interest is payable on the value of loans made or benefits provided, rather than on the gross value of contributions. No NICs are payable by employed contractors, but HMRC may pursue the employer for these. Self-employed contractors will have to pay class 2 or class 4 NICs. Employed contractors must pay income tax for out of time years via voluntary restitution to protect against future DR charges. HMRC’s guidance states that self-employed contractors “may need to make voluntary restitution payments”, which raises the prospect that this may not be necessary for the self-employed in at least some cases.

HMRC always reserves the right to charge penalties, although in practice I have yet to see this happen. HMRC may also seek payment of inheritance tax (IHT) where trusts are involved, and this is certainly a cost that should be taken into account when considering whether to settle. Some employers may be able to claim tax deductions, and taxpayers can claim credit for previously paid tax to provide a very small plaster to cover the gaping wound.

It is not always going to be the case that settling will give rise to a lower liability than, for example, paying the DR loan charge in April 2019. In cases where no corporate tax deduction is available, it may also be preferable to trigger a DR charge now, on which the employer can claim relief. However, in many cases settlements spreading taxation of benefits over several tax years will reduce effective tax rates compared to suffering the whole charge in one go.

One final factor to consider when thinking about settling is the benefit of certainty. Taxpayers have had potential liabilities hanging over their heads for many years now, and even a settlement on unfavourable terms may come as a relief compared to the ongoing stress of not knowing what will eventually happen. For most of those still affected, the benefit of being able to get on with your life must weigh strongly in the scales against the tax cost of settling.

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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01st Dec 2017 13:46

The Murray case put the tax liability on the employer not the employee, why was that not mentioned?

New retroactive/retrospective legislation attempts to transfer that liability to the employee.

It would be nice if AccountingWEB experts wrote an article to highlight the retrospective element rather than just toe the HMRC line.

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01st Dec 2017 13:57

For most of those still affected, the benefit of being able to get on with your life must weigh strongly in the scales against the tax cost of settling.

Really ?? for the most I speak with, Bankruptcy will be the only option (myself included). By all means close loopholes, but retro tax going back 20yrs along with re-writing legislation to circumnavigate and completely ignore a supreme court decision is bang out of order !

Also, if the public believe we all deserve it and it will stop at Tax Avoidance, think again. A very, very dangerous precedent has been set here and it will only expand into other areas !

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01st Dec 2017 14:06

Hi Andrew

I'm currently looking at this for a couple of clients who have had EBTs in the past and am trying to estimate what the potential settlement figures might be.

You mention in your article that " if the taxpayer wants to avoid future DR charges, it will be necessary to pay the tax, employee and employer NICs by way of voluntary restitution".

The issue I have is the employing company is in liquidation, and so won't be in a position to pay any settlement - in one case the individual was a director/shareholder, in another they were merely an employee with no other connection to the business.

I'm aware that HMRC can look to pursue the employee in these cases (and in fact there is a consultation ongoing where they are looking to strengthen their powers around this).

Is it likely that an employee looking to settle things, pre-April 2019, would have to make a voluntary payment of the employer's NIC?

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01st Dec 2017 14:20

This is a disgrace for Treasury, HMRC, and all MPs serving in House of Commons. Targeting the low hanging fruit of individuals who can’t afford a prolonged court case instead of pursuing the liability of employers who were in fact liable under the existing tax law (which the Rangers case has now clarified) and who accrued the majority of the benefits from the financial arrangements. A conscious choice has been made to make 000’s of ordinary people pay instead of the organisers who have now pocketed £millions in profits and are now cruising the Mediterranean drinking cocktails.

I will NEVER again have any faith in the fairness of the UK tax system or the rule of law in the UK.

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01st Dec 2017 14:17

Andrew, I think the points you raise are valid but they miss a couple of fundamental points.

First, the premise is that contractors are the only party who benefited and as such whether they settle or seek some other solution, they are fighting 100% of the tax bill having had perhaps 60% of the benefit. I'm pretty sure that if HMRC could be persuaded or told that a more reasonable approach would not only net them more but actually recover some of the lost ground in terms of trust, then all benefit. Unfortunately HMRC seem to be on a path of driving contractors out of the UK, solely to "increase compliance".

Second, let's not overlook the part played by HMRC in creating the mess that they now claim to be "solving". Even now, some schemes have no enquiries at all and vary little from those subject to crushing pressure to settle, yet HMRC is not at all called to account. I suggest that any impartial enquiry into how HMRC has performed in this area will expose failings, unfairness and questionable tactics.

So I agree, its seems that retrospective law (see Finance Bill today) and bully boy tactics seen as perfectly acceptable means that settlement on hugely unfair terms is a sensible option, but in doing so, HMRC has created a group of perhaps 2m people who will never trust them again.

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01st Dec 2017 16:54

I agree with all thats been said so far so will not repeat. The article is extremely "shallow". The subject if very complicated and deserves a much greater analysis than an article which probably took 10 minutes to write.

Of course it keeps up the profile of Mr Robins and RSM so job done!

Yet another tax advisor who has given up the ghost and has fallen in line with HMRC. Presumably hoping for an "honour" one day.

More importantly today's announcement says clearly that no new powers are required and that Regulation 81 will allow transfer of liability to the employee as a "notional" payment. Does anyone have any experience of this or an opinion as to whether it would work?

Secondly with regard to those facing bankruptcy today's announcement means that the HMRC debt would not have "preferential status". This means in a bankruptcy situation the trustees (to protect the beneficiaries of the trust - not just the employee) would have to make a claim for the outstanding loan. Therefore unless the employee has enough assets to settle the HMRC debt and the loan to the trust then HMRC would only get a proportion (approximately 31%) of the available assets. The other 69% would go back into the trust. This could then be distributed (and taxed) in due course.

Does anyone have a view as to whether a bankruptcy scenario might play out this way?

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to Trethi Teg
04th Dec 2017 08:49

Just to confirm on bankruptcy, the scenario that you describe above is accurate. I have client that regrettably fell into the above position.

The trustee in bankruptcy (a Big 4 firm) took independent legal advice to confirm the value of the creditor claims (loan repayment requests from trustees). This diluted HMRC's share of the free assets whilst the trustee in bankruptcy distributed the available funds pro rata to the trustees of the offshore trust in full and final settlement of the loans outstanding.

As you can read from this, there is no incentive for HMRC to initiate bankruptcy proceedings.

The regulation 81 scenario is also correct.

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to David Gill
04th Dec 2017 09:26

What is the time limit for Regulation 81, can that also be used for the past 20 years?

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to crushedbyhmrc
04th Dec 2017 14:54

The new "retroactive" rules announced on 22nd November 2017 sweep up offshore employers on the transfer of liabilities up to 5/4/14.

HMRC doesn't need to rely on that for onshore employers.

HMRC is well within the time limits for regulation 80/81 because the existence of loan outstanding at 5th April 2019 is a relevant step, treated as a notional payment.

They have 4 years to get all their ducks in line.

Basically, HMRC has all it needs to cover all situations.

For those contributors, particularly accountants, who appear to be rejoicing in the discomfort being experienced by taxpayers (and their advisers) affected by the above changes in legislation, I would simply state the obvious and observe that it's only a matter of time before HMRC/government's disregard of the law (in relation to legitimate taxpayer disputes) is extended to all other areas of tax.

Whilst the potential liabilities are significant (and life changing) for individual taxpayers affected by the loan charge/disguised remuneration, the overall figures which will be collected will be comparatively small - individuals and companies that have benefited from tax planning arrangements can be sacrificed to serve political objectives. Once these people have been stripped of their wealth, the target will move onto everyone else.

If you are still in doubt, I would strongly recommend that the Whole of Government Accounts is essential reading for those supporters of the DR legislation which is the subject of this article.

Application of even the most simplistic analytical review techniques demonstrates where the problem really lies - a deficiency of assets of £2.4 trillion, excluding state pension liabilities of £4.1 trillion, which is increasing every year.

The rule of law is important. Taxpayers have a right to rely on their legitimate dispute with HMRC being heard independently through the courts. They are being denied this opportunity by this type of legislation.

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01st Dec 2017 17:37

Bankruptcy is not an option for me, it would ruin my career COMPLETELY.

The only remaining option is ending this rather quickly...any fast moving train or high enough building/cliff will do.

I've had it with the UK and HMRC bullyboy tactics - they can clean up their own mess...

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02nd Dec 2017 16:31

To those who bought into the "too good to be true schemes" who always come out of the woodwork in the comments of DR articles:

Hopefully you had fun taking the tax-free money down the shops or the car dealership or whatever you did with it.

Hopefully you didn't use any hospitals during the years you felt you were above paying income tax and you didn't have any kids in school.

Your day of reckoning is coming. Slowly but surely.

You were greedy and stupid and you know it. So put the violin away and face up to your mistakes.

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to AnnAccountant
02nd Dec 2017 17:24

To Ann Accountant

I hope that, in future, you find yourself being penalised by draconian retrospective legislation.

At that point I will be interested to see if you have such a morally supperior attitude.

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to AnnAccountant
02nd Dec 2017 17:47

To Ann Accountant

Sorry - forgot to mention a few things in previous comment.

In one financial year where legally reduced my tax liability by using legitimate arrangents I paid tax equivelent to ten times that paid by the "average" Uk taxpayer - in the form of Employers National Insurance (a tax by any other name) so that took care of my one visit to A and E with my grandson. I also paid three times the "average" council tax so didn't feel too embarresed about putting my bins out. I have no kids in school so thats not an issue.

I also paid a sum of about £30,ooo in business rates in return for them taking my bins away - sorry thats incorrect the council actually charged me extra for that.

Finally I think I will work out how much VAT I paid out. I will then compare that to the average VAT paid by others.

All in all I paid far more in tax then the average person but certainly got less out of the state than the average person.

Finally any moeny I saved will eventually attract 40% IHT.

Its about time we did have a "fair" tax system i.e. one flat rate of tax, one flat rate of council tax and nothing on money left over after paying tax i.e.No IHT.

Once weget to that stage there will be no need for tax avoidance.

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By rbw
to Trethi Teg
04th Dec 2017 10:36

"Finally any moeny I saved will eventually attract 40% IHT."

Really? Are you promising not to - for example - spend the money on your care, make lifetime gifts more than 7 years before you die, move your assets and yourself to another State, or take advantage of an IHT avoidance scheme?

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to AnnAccountant
02nd Dec 2017 17:47

To Ann Accountant

Sorry - forgot to mention a few things in previous comment.

In one financial year where legally reduced my tax liability by using legitimate arrangents I paid tax equivelent to ten times that paid by the "average" Uk taxpayer - in the form of Employers National Insurance (a tax by any other name) so that took care of my one visit to A and E with my grandson. I also paid three times the "average" council tax so didn't feel too embarresed about putting my bins out. I have no kids in school so thats not an issue.

I also paid a sum of about £30,ooo in business rates in return for them taking my bins away - sorry thats incorrect the council actually charged me extra for that.

Finally I think I will work out how much VAT I paid out. I will then compare that to the average VAT paid by others.

All in all I paid far more in tax then the average person but certainly got less out of the state than the average person.

Finally any moeny I saved will eventually attract 40% IHT.

Its about time we did have a "fair" tax system i.e. one flat rate of tax, one flat rate of council tax and nothing on money left over after paying tax i.e.No IHT.

Once weget to that stage there will be no need for tax avoidance.

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to Trethi Teg
02nd Dec 2017 20:08

Well done for earning so much. I mean it.

But the idea isn't for high earners to only pay for what they use, they have to pay for others too. Some people aren't as clever as you and can't pay for their hospital treatments etc. That's why you need to pay your tax - at least on pre-shopping centre/car dealership money.

Also, if the VAT you refer to is that paid over by your business - it isn't the business that pays it, it is your customers - the business just acts as an unpaid tax collector for HMRC. Btw - I doubt I like that anymore than you do - but let's not digress.

Final things - retrospective this, retrospective that. The mantra is getting a bit old and annoying.

1) Re the 2019 charge - The loans being in place is a continuing state of being. You can tax those - it isn't retrospective taxation. eg you can bring in a new tax on houses and it can apply to anyone who owns one when the tax comes into force - you don't have to limit it to people who buy a house after the date.

2) We all know the schemes were just some stupid ruse rather than genuine commercial transactions. You knew from the outset that your "Employment Committee" would decide to stick all that money in your sub-trust. I doubt you are so generous as to have allowed it to be voted off to your office cleaner.

It was always earnings/a distribution by another name. It always looked like earnings and quacked like earnings. The (not so) magic documents you were told to sign doesn't change that - so I'm not sure what is retrospective about taxing it as earnings.

You and your pals have been wasting so much resources and are the reason for some pretty draconion and wide ranging pieces of leg. You basically forced HMRC into it by keep using ever more abusive schemes - even post 2011. You all deserve far worse than what is coming to you, you really do - for all the knock on effects your abusive behaviour has had.

It was abusive - and you all knew it then. Let's not lose sight of that.

You've just chanted together for so long that you've convinced yourselves that righting the wrong is unfair.

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to AnnAccountant
02nd Dec 2017 19:22

AnnAccountant wrote:

To those who bought into the "too good to be true schemes" who always come out of the woodwork in the comments of DR articles:

Hopefully you had fun taking the tax-free money down the shops or the car dealership or whatever you did with it.

Hopefully you didn't use any hospitals during the years you felt you were above paying income tax and you didn't have any kids in school.

Your day of reckoning is coming. Slowly but surely.

You were greedy and stupid and you know it. So put the violin away and face up to your mistakes.

To AnnAccountant,

Thank you for coming out of the woodwork when punitive retrospective tax is mentioned.

I hope you enjoy bellowing insults at to up to 40,000 "stupid" and "greedy" people and their families in despair.

I hope you sleep well at night knowing you've set the world to rights with vast knowledge using your insults at people who've made a mistake and are simply informing the wider world of their situation.

I assume you're an accountant, so I hope your clients never find out who you are or your day of reckoning might be faster and more sure than ours.

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to crushedbyhmrc
02nd Dec 2017 20:39

I'll sleep better knowing that people who draw what amount to earnings pay tax on those earnings - rather than dodging their obligations at the expense of others.

Also, my clients would be fine. My clients understand that tax needs to be paid. I'm not saying they always pay it with a smile, but there is an understanding and an acceptance about it.

Some of you need to grow up a bit - both in terms of appreciating that you need to pay into the system and in terms of facing up to the consequences of your past mistakes/deliberate acts of signing up to obviously abusive and contrived schemes.

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to AnnAccountant
02nd Dec 2017 22:47

Thank you AnnAccountant, I'm glad you sleep well even with your outlook on life. I wish your clients well if ever they are investigated by HMRC, I'm sure you'll back them very well.

If I could be so bold, could I have tne benefit of your boundless taxation knowledge and as you if a scheme was "obviously abusive" and "contrived" why has it taken HMRC 17 years to deal with it and requires retrospective taxation to do so?

Your considered response is appreciated and I look forward to your next batch of insults and not answering the question.

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to crushedbyhmrc
03rd Dec 2017 09:20

HMRC has been completely incompetent with all this - to be put it mildly. Far too slow, far too dithering. The slow action gave the schemes an air of legitimacy and allowed sellers to give people the impression that HMRC either accepted them or could do nothing about them.

You won't hear me defending HMRC here at all. This should all have been nipped in the bud quickly - for the benefit of both the Exchequer and many who probably wouldn't have used the schemes but only did once they had become "established" - and perhaps were told they were stupid if they didn't (or accountants who were told they would get sued for negligence if they didn't put clients in touch with scheme sellers).

I make the above as a standalone statement that relates to your post as I am afraid I cannot answer the question in your 2nd paragraph - as you have peppered it with premises - such as about retrospection. Sorry to dodge directly answering it - but that's why ;)

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03rd Dec 2017 16:21

Save your breath Ann - I agree entirely with you. From my 53 years in the profession I've seen most of it, if not all. I shan't shed a tear for any of these people but do agree that HMRC should have been more proactive a lot earlier.

They'd rather spend their time challenging a few agents about their tagging processes for company accounts (see recent post on the subject).

I also found out yesterday that umbrella companies are still alive and kicking. You know, these are the ones that pay a load of money in the form of motor running and subsistence to enhance the contractor's take home pay.

I also sleep well at night knowing that all of my clients are paying the correct amount of tax without creating fancy trusts and artificial loans. There again most of my clients would be delighted to be paying higher rate tax.

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to thomas34
03rd Dec 2017 22:17

It would appear from your comment of "There again most of my clients would be delighted to be paying higher rate tax." you're falling for the myth that all scheme users were higly paid. I can assure you none of my time in a scheme was at the higher rate.

The issue here is that because of HMRC inaction I have the tax liability plus 17 years of interest to pay plus IHT on the loan plus whatever HMRC decide to add because they can.

Some in a similar position will have 20 years interest to pay.

I'm not expecting you to shed a tear, I just want to show that not all tax avoiders are multi-millionaires and show how people are being treated.

Some made a mistake a long time ago. In my case, HMRC did nothing for 14 years and have now introduced 20 year retrospective legislation on arrangements to cover their inaction.

Having an article like this published which effectively does HMRC's job for them with no analysis of the situation is poor journalism at best.

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to crushedbyhmrc
04th Dec 2017 10:47

So to be clear, these people worked for 17 years and in return were loaned their wages, in the expectation that they had to repay them at some point. In addition they paid a chunky amount each year for the privilege.

Seems weird to me to be honest.

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to Vaughan Blake1
04th Dec 2017 14:23

No, this person did less than one year of work 17 years ago.

HMRC sent a letter 14 years ago saying they didn't think it worked and this person had left the scheme 2 years previously anyway.

No further correspondence from HMRC since.

They are now enacting a law to tax that income on top of any income I have in 2019 (so likely to be higher rate even though the original earnings waould have been in lower rate) or settle now with 17 years interest applied at tax rate in year drawn.

Both taxes are likely to have IHT applied which isn't allowed to use the 325k limit. and works out about 1% of total per year.

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03rd Dec 2017 19:54

AnnAccountant and thomas34, I think you both have acknowledged that HMRC have been slow to act and this has lead to people building up far larger exposures than they would have otherwise. If HMRC had acted against these schemes in a swift and effective way, say 5-years after they initially went mainstream - actively and aggressively marketing themselves - then people may have still been able to pay the full tax liability which is now being forced upon them. This would have been before the horror of up to 20-years of compounding interest made it entirely unfeasible to pay. HMRC didn't act in a timely fashion. They acted much, much too late and even then in a fairly arbitrary and punitive manner against the contractors only. The organisers of these schemes who took fat fees for little actual work (10-15% generally) are escaping scot free due to the changes in legislation. The RangersFC case made completely clear that the employer in most arrangements was actually liable under existing legislation. The organisers of the schemes likely choked on their Martinis reading this. HMRC/Treasury having decided to change the law retrospectively had a choice in where to enforce the tax liability. They could have decided to share the financial burden fairly between the parties who benefited from the arrangements. Rather than do so, they took the easy path which will inevitably lead to bankruptcy for many thousands of professionals and a loss of career for those working in the financial sector.

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04th Dec 2017 11:25

it is tough to have any sympathy. You paid some bunch of cowboys 10-15% of your expected gross income, to effectively reduce your tax bill to nothing. It seems for most without hesitation or question. For the last 10 years the Revenue have started to crank up the pressure, for some, they got out...but for those who stayed...even less sympathy.

In the end the Revenue are after those who benefited....(perhaps you should consider suing those who sold you these dodgy schemes....although I dare say most have shut up shop)

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to justsotax
04th Dec 2017 12:37

You are quite right. Having taken large sums of money, most of the organisers have shut up shop. Those who are still around are offering “solutions” to the problem which involve even more fees. The least wary are going to be taken for a ride yet again and HMRC will have no sympathy for them.
You have to understand that most people had no idea what they were getting into. Advisors told them you can set up a ltd company and get X% of what you bill, but you might get an IR35 investigation at some point, or you can join this loan arrangement and get X% (usually the same) but this is all supported by QC opinions and is bulletproof (I have an email using the term “bulletproof”).

Also, I need to point out that the people who joined the schemes later on are likely in a better position than those who used them earlier and got out 10 years ago as interest has now been piled on due to HMRC prevarication.

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04th Dec 2017 11:34

I am one of those that believe DR doesn't exist. You're either employed or self-employed (including one man band ltd Co's with worker and work giver deciding which) . Anything artificial (or has an artificial element in it) is evasion and not avoidance. Some years ago when some of these schemes were beginning to raise their ugly heads, HMRC said that they would not accept those sort of schemes. What happened? Nothing. HMRC just waited, went to FTT, and is now "reaping the rewards". Why they weren't stopped in the first place is beyond my comprehension. They managed to put Lester behind bars and had a pop at "Doddy". Perhaps they were easy targets. Instead HMRC plonked about with IR35, until now. If HMRC had a proper and fit tax system to supervise all this charade would evaporate. Mind you we wouldn't have much to moan about then would we?

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By rbw
to johnjenkins
05th Dec 2017 12:14

"Why they weren't stopped in the first place is beyond my comprehension."

Those putting all the blame on HMRC (and IR before them) might at least contemplate that they don't have a free hand on legislation. Ministers have the final say. And the team of Ministers and special advisers when EBTs took off was essentially the same as the ones who championed other "long term incentives"; and who thought it a wizard idea to introduce a nil rate band for CT.

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to rbw
05th Dec 2017 12:42

I think you miss the point, it's not a change in legislation that so upsets everyone it's the retrospective element of the change. After all aren't we entitled to know the consequences of our actions ? And isn't it every taxpayers right to manage their affairs to pay the least amount of tax, not the Government's right to retrospectively arrange the taxpayer's affairs to pay the most amount of tax?

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04th Dec 2017 11:50

An analysis of these schemes by me when I was in practice left me in no doubt that as they relied on loans never being repaid that they were not legal or very doubtful to work in the long run.
I also have a history of being fairly successful in cases that were investigated by HMRC.
I therefore agree with Ann Accountant that this has been coming. My advice is PII claims will need to be pushed very strongly. Do not let the loss adjusters talk you into accepting settlements.

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to geoffmw1
04th Dec 2017 12:44

I would respectfully ask you to read the Supreme Courts opinion in the Rangers case. There was nothing “illegal” and the loans (if properly administered) were not taxable. The SC ruled rather that applying a purposive approach means that the employer should have paid tax on the payments into the trusts under PAYE rules as this was a redirection of earnings.

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to HMRCVictim
04th Dec 2017 12:56

To be clear. What I am saying is that the tax planning failed although it did so for entirely different reasons than HMRC have been arguing for years (and which advisors repeatedly pointed out to their clients were flawed).

This has consequences for HMRC which they are desperately trying to find a way around by seeking ways to transfer PAYE liabilities from employers to employees. Even if this requires retrospective legislation to achieve it.

HMRC regards the Supreme Court as an inconvenience in getting to the result which they decided on long ago. This should send a shiver down the spine of tax professionals.

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to HMRCVictim
04th Dec 2017 14:02

If HMRC are able to discard/ circumvent Supreme Court rulings which inconvenience them, then they truly are the ultimate authority in the UK. Tax professionals will no longer be necessary, all you have to do is look for whether HMRC raise an eyebrow.

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to HMRCVictim
04th Dec 2017 14:25

It starts as an eyebrow and ends up with a finger in the air! Judge Jury and executioner comes to mind.

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04th Dec 2017 11:50

An analysis of these schemes by me when I was in practice left me in no doubt that as they relied on loans never being repaid that they were not legal or very doubtful to work in the long run.
I also have a history of being fairly successful in cases that were investigated by HMRC.
I therefore agree with Ann Accountant that this has been coming. My advice is PII claims will need to be pushed very strongly. Do not let the loss adjusters talk you into accepting settlements.

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04th Dec 2017 12:24

AnnAccountant - Thank you.

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04th Dec 2017 13:17

Geoffmw1 has said "An analysis of these schemes by me when I was in practice left me in no doubt that as they relied on loans never being repaid" and as normal Annaccountant spouts about morality whenever the opportunity arises.
So what happens where the loans are genuine Geoff but cannot be repaid in cash before 5/4/2019? and Annaccountant what say you when loans are made out of already taxed income and the scheme used saved not one penny in tax ? Yet you find you're now on the receiving end of another huge tax bill, taxing you a second time?

Having paid corporation tax of 28% within a company I owned and then contributing those taxed funds in to a trust for the benefit of a number of employees and having them loaned out from the trust to another corporate entity to generate more income and yes pay more tax, (rather leave the funds with some shoddy bank paying little interest), why should that result in a further 62% in tax just because the genuine loan may well not be repaid in cash prior to 5/4/2019? Having paid £2.8 mln in corporation tax from profits of £10 mln, leaving £7.2 mln net, I am now faced with a further demand of £4.5 mln with no capability of arguing unless I am prepared to go to the Supreme Court, but no money to do so.

I think being left with £2.7mln having earned £10 mln is paying far more than my fair share, and no I didn't use any hospitals in the meantime but paid private medical care on top. Sometimes your rhetoric goes to far for those of us that are innocent and have not benefitted !

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to Exfoliate
04th Dec 2017 16:04

It's funny hearing you desribe the arrangement. Now you say it back to youself, can't you see how strange it sounds?

Also, if there was no benefit to it (loans made out of taxed income as you state) then why did you bother?

The question is purely rhetorical as I'll never get to the bottom of the actual fact pattern especially as it is regaled through various distorting filters - deliberately or otherwise.

Perhaps you do fit into a different category of 'scheme user' than others but the above doesn't really help me see your point of view.

I mean, if you just wanted to use post-CT profits to re-invest in your company, no action is really needed. You don't need to put the money into a trust. I put it to you that you did that to try to get the loans repaid income tax-free in the future.

But whatever. Tell it to the judge.

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to AnnAccountant
06th Dec 2017 09:20

Ann I missed this one from you, but to put you right on one matter, contributions of company funds in to a trust have other commercial benefits and are not solely for tax saving reasons as I explained, namely asset protection should future management screw things up, which regrettably for me did happen but these funds remained safe.
As to your opinion, "that I made the loans to be repaid income tax free" maybe you can explain to me how I can personally benefit from these loans? The facts are indeed simple and not at all complicated, Holding Company A (owned by me) contributed taxed funds to an EBT, the EBT subsequently loaned the money to a subsidiary Company B, which following a restructuring I acquired at arms length. Assuming Company B now becomes liquid, it's only the illiquidity that prevents repayment to the trust, then how on earth am I personally supposed to take this money either out of the company B or out of the EBT (should the loans be repaid) without paying income tax? If you could answer that question then you've found a wonderful loop hole and I'd be happy to contract you to take me through the steps. So your argument does not stand up.
Unfortunately as for your very last comment, even if I did trust UK law which I don't judges seem to have little understanding let alone there's always another higher judge with a different opinion, I don't have the funds to fight this through to a Supreme Court.

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to Exfoliate
05th Dec 2017 17:28

Because HMRCF quite rightly are now saying in effect "you must now repay the loan bescause technically it is repayable on demand". Let me simply go back to my original point that the brazenness of Employee benefit trusts was based on a false premise.

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to geoffmw1
06th Dec 2017 08:54

Are you saying Geoff that HMRC have the legal right to demand a loan is repaid when HMRC "choose" even though the legal contract between two parties doesn't call for the loan to be repaid before a certain event ? That gives them carte blanche power doesn't it?

I appreciate you follow an identical argument to HMRC that EBT loans in ALL cases were never intended to be repaid, although that wasn't the view of the courts at the time.

The power of HMRC has now overturned that court view and we must now all accept that EBT loans are effectively disguised remuneration.

However, IF that was the "clear" view for everyone before the trust was even set up, then alternative and far less penal tax liability options WOULD have been taken.

I am sure had I contacted you before the EBT was set up, you would presumably have said no don't do it, in which case I would have been able to take an alternative nil tax option, however and with great respect, your view was not the courts' view, and as HMRC themselves refused to comment on a hypothetical transaction, their view couldn't be properly heard, let alone they chose to accept the decisions of lower courts and tribunals in 2002 and 2007 so again sending the message they agreed with these earlier decisions.

It's folly to suggest that HMRC can chop and change all the time particularly where it has such damaging affect on people's lives. As the article first suggested people do want to get on with their lives but this is a rather penal way to have to do that.

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04th Dec 2017 13:37

Many on this blog have spoken about HMRC inaction and slow to respond to the problem, that's at its best but at its worst it can be called "entrapment".

On a daily basis we are all faced with various options that often give rise to different tax liabilities and indeed some considerable differences.

In my own case I had 6 options to fund an investment. Two had no tax liability, one had 10% liability, one c.35% and two c.40%.

The law was clear, the court cases were clear and when asked for clarification, HMRC responded 'we do not provide opinion on hypothetical cases' make your choice.

12 years later, they introduced retrospective legislation to provide clarity to their previous unclear position. Now the tax rate for the option I chose has changed to 62% plus interest and penalties should I refuse to pay. Had I taken the other tax free option, I would be OK.

Now that's what I call outrageous entrapment !

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04th Dec 2017 14:19

I will admit I do not have a lot (but maybe a little) sympathy....that said I am quite amazed by the number of contractors 'duped' into a scheme they had little or no understanding or, but apparently are now experts in the tax legislation and its current interpretation in law...

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to justsotax
04th Dec 2017 14:31

If you found out 10 months ago that you were facing bankruptcy, what would you do? I’ve pretty much given up working and I read about this every single day.

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to HMRCVictim
04th Dec 2017 14:44

I also consult with independent tax professionals and discuss with other contractors who are affected. We’ve had to learn fast. These are smart guys, many are top of their chosen profession. This just was not their field. The organisers were also very ready and willing to answer any questions which came up, including from independent accountants. Some people were even recommended to use these schemes early on by their accountants.

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to HMRCVictim
04th Dec 2017 15:02

Yes I do likewise. Ruminating over the injustice isn't good for mental health or well being, nor family relationship. Also what's the point in working (even if your mental stability allows) just so HMRC can dip their hands in to your pocket (don't forget they now have even more powers to access your bank accounts!!).

The only good thing to come out of the advice I chose to accept all those years ago, was the ex-wife leaving for pastures new now the money tree's been chopped down. Albeit taking the roots and stump with her when she left !!

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to justsotax
04th Dec 2017 14:33

Well let's be clear, contractors did not necessarily have in depth tax knowledge which is why they paid for so called 'expert opinion' in the first instance, and having no alternative guidance (HMRC refusing to make clear their intentions, and in reality letting everyone think they had accepted previous court/tribunal rulings which went against them), were complicit in the contractor being 'duped'. The contractors having been 'duped' once are not saying they are tax experts, but clearly are more knowledgeable than they once were given the likelihood of personal/corporate bankruptcy, with no intention of being dupes a second time. Regrettably we are not all experts in everything !!

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to justsotax
04th Dec 2017 16:33

Yes, we made the effort because are facing life from the gutter now. Happy?

I suspect a lot of us now know more about that little area of taxation than some of the supposed accountants who frequent the comments section here.

We made the effort to look at the facts then we commented.

Hence, we are giving our side of the story: HMRC require retrospective legislation to crack down on schemes from 20 years ago and MPs have been assured the tax is not retrospective many times.

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04th Dec 2017 14:48

To all the high and mighty accountants saying 'You deserve all you get and we have no sympathy' then all I can say is your clients are very lucky to have such professional representatives, who paid close attention to where these schemes would probably end up.
Instead of aiming your lack of sympathy towards us, maybe you could get together and weed out all of your colleagues that aren't and still continue to play a very unprofessional game, by duping contractors into these schemes on the back of 'They are QC and HMRC approved'.
We pay professionals such as yourselves to advise us, so whilst we may have to take the responsibility of being a little naive, we also paid these so called professionals to provide us with legal, solid advice. So please stop coming here and saying 'I told you so' and go and re-educate the dodgy accountants in your profession, or help hold them to account and make them share the responsibility they were also part of !

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