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Loan charge: A fair resolution is needed

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Twelve senior tax experts have asked the Chancellor to consider a new settlement opportunity for taxpayers facing the loan charge, and those who have already settled with HMRC. 

14th Jan 2022
Tax Writer Taxwriter Ltd
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Sarah Gabbai, a corporate tax lawyer at McDermott Will & Emery, has co-ordinated a proposal for a new settlement opportunity.

I spoke to the solicitor and CIOT member about the loan charge, HMRC’s failures and how the proposal will give taxpayers finality and closure.

Why have you decided to make this proposal at this time?  

The current situation is patently unjust. Loan scheme users, through no fault of their own, are being asked to pay HMRC amounts that many simply cannot pay, or can only pay by selling their home, re-mortgaging, or raiding their pension. In some cases, the taxpayer has no choice but to declare themselves bankrupt.

This has resulted in serious financial hardship, often with devastating consequences for affected taxpayers’ lives and livelihoods. Sadly, this has led to a number of suicides, and there are frequent reports of others who are suicidal.

We believe that fair and final resolution would acknowledge that the whole situation was a mess and fault should not be attributed – nor tax bills charged - only to those who used these loan schemes and in good faith, principally because they were mis-sold the scheme, or had little choice but to use it.

What evidence is there that loans schemes were mis-sold to taxpayers? 

The widespread nature of the mis-selling is evidenced by an APPG survey reported  in May 2021, which demonstrated that scheme promoters either made claims along the lines of ‘tax law compliant’ ‘QC approved’ that turned out to be hollow or false, or otherwise failed to mention or adequately draw the taxpayer’s attention to the potential risk of challenge by HMRC.

What should HMRC have done in the past to prevent the loans schemes from being implemented, and if they were implemented, to collect the tax due? 

HMRC has failed to protect both the Exchequer and taxpayers from loan scheme promoters and operators by not taking action to:

  • collect PAYE from employers (or deemed employers) on the amounts of the loans, specifically under the agency provisions of ITEPA 2003 s 44;
  • address the taxpayer’s use of the scheme when it had the opportunity to do so pre-Loan Charge, and within the applicable statutory time limits; or  
  • adequately warn people not to use the loan schemes at a time when such a warning was needed, rather than after the fact.

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Replies (69)

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By Justin Bryant
14th Jan 2022 17:42

I couldn't agree more and good luck to them. (I always said here that the LC was totally unfair for more or less the above reasons, yet virtually everyone else here disagreed with me.)

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Replying to Justin Bryant:
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By Hugo Fair
14th Jan 2022 19:21

The problem is that delineating between those who were naïve (whether mis-sold the loan arrangements or coerced into using them as a condition of engagement) and those who were cavalier is ... (a) next to impossible after all this time, and (b) requires a moral stand that is not typically the strength of legislation.
So, totally unfair on some (possibly many), but an obvious loophole for those with an adventurous spirit (or simply an amenable adviser). Where should the line be drawn?

Less controversially, I agree that there's little excuse for not focussing more on the part played by the promoters who recommended and operated these schemes. Here we appear to be back to the wretched policy of HMRC only taking sufficiently robust action against people/organisations who won't or can't fight back.

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By ireallyshouldknowthisbut
15th Jan 2022 17:21

its interesting really, we seem to be through denial on this (ie still claiming the magic loans that are never repaid are tax free loans, and how dare HMRC say otherwise) and into bargaining.

Next stop depression, and finally acceptance.

Whilst everyone feels sorry for those naive and duped, I suspect most people knew it was risky, but just don't like getting caught. I think HMRC have done quite well on this, and quite frankly already given much better terms on this than you get on the average tax investigation.

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Replying to ireallyshouldknowthisbut:
the sea otter
By memyself-eye
16th Jan 2022 11:21

I agree - why did these folks imagine that they could earn this money with no tax consequences?

Garden party at my place anyone?

(Bring your own booze!)

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Replying to memyself-eye:
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By Ian McTernan CTA
17th Jan 2022 13:05

Or perhaps a few cheeky drinks with some mates then deny any wrongdoing (Starmer guilty too).

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Replying to ireallyshouldknowthisbut:
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By Jdopus
17th Jan 2022 13:59

I do not agree at all with your suspicion. In my experience every person I've encountered who was caught under one of these schemes was directly pushed into working for an umbrella company by government bodies and councils and made the (reasonable) assumption that because they were being told to do this in order to keep their jobs by a government body that everything was above board.

Many social workers (who are all of the clients I've encountered who were caught under this) were outright told that either they agreed to work for these umbrella companies or they were simply out of a job. To my mind it's indefensible that people can be retrospectively punished by one branch of the government for simply complying with a demand from a different branch of the same government.

The only big winner when all has been said and done out of this were councils who were able to bypass expensive public sector sick pay, pensions and liability by passing all the risk on to non-financially literate workers.

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Jennifer Adams
By Jennifer Adams
16th Jan 2022 12:53

I have a client in such a 'loan' situation. She is French and although her English is OK the technicalities of the 'loan' arrangement set up for her were not explained. She was just told she had to set up a company and that the agency would sort everything out.
She received a letter from HMRC about 4 years after she had left the agency and so came to me.
When I rang HMRC they said that they had found it difficult to get their head round the complexity of exactly what happened but it was a tax avoidance scheme.
She paid up and that was it. Then she received another letter on another different arrangement (this time deductions for a management fee). Again rather convaluted.
Her work? IT admin assistant

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Replying to Jennifer Adams:
By ireallyshouldknowthisbut
17th Jan 2022 11:58

@jennifer, thats awful. I know this has happened to far too many people like that.

But as you note, they have paid up. That is my experience of people who have come to me. The honest tax payers settled years ago.

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By Paul Crowley
16th Jan 2022 18:23

SERIOUSLY?
Cannot believe any user could fail to understand that this was a deliberate scheme that ended up with no tax being paid or deducted
Pretty basic but if I agree to borrow from Fred that Fred might one day want his money back
The entire body of taxpayers has been disadvantaged by all concerned with such tax evasion

Zero sympathy and shame on the authorities if the correct tax is not collected

Even worse
Suggesting refunds of tax for people who paid their tax
Where are the refunds for all my clients paying the correct tax?

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Replying to Paul Crowley:
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By k.gordon
17th Jan 2022 09:38

I understand your perspective and would simply ask you one question at this stage.

Suppose X had participated in a failed tax avoidance scheme and HMRC had missed the generous time limits for collecting the tax due. Do you believe that the time limits should be retrospectively removed so as to all the correct amount of tax to be collected from X?

Keith

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Replying to Paul Crowley:
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By k.gordon
17th Jan 2022 09:38

I understand your perspective and would simply ask you one question at this stage.

Suppose X had participated in a failed tax avoidance scheme and HMRC had missed the generous time limits for collecting the tax due. Do you believe that the time limits should be retrospectively removed so as to all the correct amount of tax to be collected from X?

Keith

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Replying to Paul Crowley:
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By k.gordon
17th Jan 2022 09:40

DELETED AS DUPLICATED

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By Justin Bryant
17th Jan 2022 10:23

Again, we see idiotic, ill-informed comments from virtually all here. Even if you accept the taxpayers knew it was so-called unacceptable tax avoidance, it is unprecedented to have 20 year retroactive tax legislation that has the likely consequence of bankrupting you. Retroactive legislation is far, far, worse than retrospective legislation (as, inter alia, there is no 4 year DA time limit) and see para 180 here that confirms that:

https://publications.parliament.uk/pa/ld200203/ldjudgmt/jd030710/will-7.htm

So, please tell me why it's fair to pick on these particular people in this unprecedented punishing manner and not all the other unacceptable tax avoiders i.e. what's the difference (especially as I have see some tax avoidance schemes bordering on if not actually criminally illegal, unlike EBT loans which at least before 2011 were always implemented under correct prevailing tax law and after 2011 merely sought to legally exploit (sometimes gaping) weaknesses in the appallingly drafted P7A)?

As to the view that it's because the loans weren't really loans (which is not a good reason for the above distinction anyway), the courts have rejected that time and time again. See latest case here at para 195 et seq: https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08348.pdf

Furthermore, the above case shows that before P7A, in certain cases such EBT loan planning was not even ineffective tax avoidance under Rangers (but was effective and legal tax planning where there was no "acquiescence"), contrary to HMRC's lies and propaganda thereto.

[Edit] I have just seen Keith's comment above and he makes the same obvious point as me that others here are blind to for some strange reason (simple human prejudice and ignorance I expect - so I doubt the pro-LC brigade here will change their view).

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Replying to Justin Bryant:
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By bobsto12
17th Jan 2022 10:19

Utter arrogance. You think people who paid their taxes are Ill informed idiots?I really hope the politicians put you in your place and you are made to pay every last penny of back tax. You are wasting your time dreaming up convoluted nonsense to justify the unjustifiable.

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Replying to bobsto12:
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By Justin Bryant
17th Jan 2022 10:19

Again, avoiding our above question. What great debating skills you have.

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Replying to Justin Bryant:
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By bobsto12
17th Jan 2022 12:25

Theres nothing to debate. You got caught and now you have to pay. You think you are creating clever arguments but they really aren't you are going to get no where. The public would be outraged if you did.
Getting away with under paying tax for years doesn't make it legal. Pretty simple concept even you should be able to grasp.

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Replying to bobsto12:
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By moneymanager
17th Jan 2022 12:25

"You think people who paid their taxes are Ill informed idiots?"

Perjoratives don't further any discussion but it is hard to argue that many people and companies pay more tax than they might for the simple reason of being unaware of anything from a provison in Statute to a timing of the own actions.

And, let's be honest, HMRC/gov hasn't helped the "man in the street" with the move of the website from the pretty good hmrc version with its tiers of deatil and links to the Manuals to the Enid Blyton version at gov.uk., showing my age a tad, how many unadvised individuals would have made use of even something quite basic like the old carry back and cary forward rules and just paid the tax "due"?

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Replying to bobsto12:
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By Rgab1947
17th Jan 2022 13:46

A bit feisty methinks. Bad day at the office?

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
17th Jan 2022 11:46

I love Justin's froth on these.

Do you not yet accept then that if a loan is o/s, it is within HMRC's powers to tax that loan and bring it into charge at ANY point it likes?

That is not retrospective if its a real genuine o/s loan, and indeed the main risk of such schemes which I would hope any mildly competent advisor would have made their client aware of at the time if selling these schemes that the loan keep this a "live" issue, not one that goes away.

The words "hoisted" and "peterd" and "own" do spring to mind.

HMRC of course gave tax payers their own choice of poison, which they didn't need to do.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
17th Jan 2022 11:51

Why don't you answer our simple question, rather than avoiding it with with irrelevant points - see our above assumption (which is wrong in your favour, but we'll ignore that for the sake of argument)? Possibly because you can't.

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
17th Jan 2022 12:10

I think the point I make is very relevant.

If its a loan, then taxing the still o/s loan is not retrospective.

The question of time limits does not apply. Unless it was a salary, in which case then of course it was tax fraud at the time. 20 years. Heads I win, tail you lose. The barristers are trying to get the coin to land on its edge.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
17th Jan 2022 12:34

Again, you have not answered our question. Your points are again irrelevant to our question and you do not even seem to understand our assumption we are making in your favour (to avoid such irrelevant points).

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Replying to Justin Bryant:
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By k.gordon
17th Jan 2022 13:17

Perhaps this rephrased question will assist.

Suppose X enters into an avoidance scheme saving him £1m in tax and HMRC have missed the time limits to assess him.

Would it be right for legislation to be enacted to the effect that:
- to the extent that X does not pay £1m by (say) 5 April 2022, X shall be deemed to have additional income in 2021/22 of £1m/m (where m is X's marginal income tax rate)?

In other words, a charge that effectively captures the tax liability that HMRC had previously missed.

As to contributors' assumptions about the level of knowledge that participants had (having spoken with many, there is undoubtedly a range) and the assumptions about what professional advisers have done in the past (I would suggest caution be exercised here because I am unaware of any those signatories having ever promoted/encouraged/endorsed an avoidance scheme).

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
17th Jan 2022 13:19

Unless we are talking about cross purposes we are talking about time limits. I have explained why this is a false question.

We seem to be back to Schrodinger's loan - its was a loan for income tax purposes and so none was due, but not a loan when you being treated as being taxed on its deemed repayment. Instead you maintain it is out of time for assessment.

The defence of this is sounding like Prince Andrew's legal team. Very expensive and eloquent arguments about very narrow points of law which few really follow, but ultimately undermined by the reality.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
17th Jan 2022 13:43

I see. Your simple answer is that it's a "false question" by us to ask why these taxpayers have been singled out for this unprecedentedly harsh treatment. How on earth did Keith overlook this obvious folly in our question and that there was such an obvious, simple, clear answer to it? How totally dumb we must both be.

You may be forgetting the fact that the Morse Review proved I was always on the right side of this argument and that pretty much everyone else here was proved wrong. Do a search if you need to confirm that.

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
17th Jan 2022 14:21

I don't see what exactly is harsh, HMRC could have made the rate of tax on such unpaid loans 90% if they wanted to.

I am not defending the length of time HMRC took to close this avenue, nor the lethargic nature of processing those caught up in it and certainly not those innocents caught amongst the sharks and those knowingly trying it on.

But I will defenced HMRC as a tax payer and citizen using public services for using what you seem to think is a "loophole" (I thought you tax people were big on those) namely bringing the 'loans' into charge by engaging in the fiction of their existence.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
18th Jan 2022 09:50

Not harsh you say? I doubt you'd say that to the faces of all the friends and families of the suicide victims. That aside, what other UK tax measure do you know that has been so harsh that it caused suicides and broken families etc. as in this case? Then again, I suppose it's easy for idiots like you say it's not harsh when it's not your life that's been totally and utterly devastated by such an unprecedentedly harsh measure that was introduced by the very underhand and duplicitous means of HMRC.

The MR confirmed the original LC was overly harsh anyway, so you're wrong in any event.

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Replying to ireallyshouldknowthisbut:
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By k.gordon
17th Jan 2022 14:27

I am not making any legal points at all (I will leave that as you say to Prince Andrew's legal team). I am simply focusing on a question of fairness.

You are entitled to take the view that all tax ever due remains payable forever until actually paid. In that case, the question of time limits becomes irrelevant (and you will need to petition Parliament to have time limits removed).

I am simply looking at the current legislative framework that does provide for time limits. And within that framework I fail to see why contractors have been singled out for worse treatment than the more egregious avoiders (who would generally have deeper pockets as well).

I will be offline for the next few hours so please excuse any delayed responses in the interim.

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Replying to k.gordon:
By ireallyshouldknowthisbut
17th Jan 2022 18:26

k.gordon wrote:

You are entitled to take the view that all tax ever due remains payable forever until actually paid.

Eh? That is a nonsense conclusion to draw from my statements.

The reason HMRC could hit this one despite being slow off the mark is due to the still o/s loans leaving the wide open door.

Loan "a thing that is borrowed, especially a sum of money that is expected to be paid back with interest."

If you are still struggling, perhaps draw out the double entry. Clue, loans are on the BALANCE SHEET, not the P&L. To remove something from the balance sheet it needs an opposite entry, ie a repayment.

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Replying to ireallyshouldknowthisbut:
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By k.gordon
17th Jan 2022 19:38

I do not particularly appreciate your condescension. However, I shall let that pass.

If we are looking at double entry, please explain why a loan should be taxed as if it were an outright payment, yet still be due for repayment to the lender.

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Replying to k.gordon:
By ireallyshouldknowthisbut
18th Jan 2022 11:51

k.gordon wrote:

If we are looking at double entry, please explain why a loan should be taxed as if it were an outright payment, yet still be due for repayment to the lender.

The "why" is that it is a simple way to defeat the tax scheme. At the time the sellers of these schemes where going blue in the face telling everyone it was a loan, so HMRC shrugged, and said "OK its a loan, so we will tax you on that".

Put it another way, why didn't all these people simply pay their loans back then? if they are really loans and need to be repaid, why would you pay tax on them and then have to repay them in the future? Seems pretty dim to me.

Thanks (1)
Replying to ireallyshouldknowthisbut:
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By k.gordon
18th Jan 2022 13:06

Actually, the scheme did not need defeating. It was defeated in Rangers. What needed doing was for HMRC's administrative failures to be brushed aside with some legislative sleight of hand.

However, I will remake the point I have since made elsewhere. You are wrongly attributing your own assumptions onto a varied class of taxpayers, many of whom simply had no idea of what they were getting involved with or even that loans were involved. THIS IS NOT THE NORMAL APPROACH OF TAX AVOIDANCE PROMOTER. MANY PARTICIPANTS WERE SIGNING UP FOR WHAT THEY BELIEVED TO BE AN ADMINISTRATIVE SOLUTION SO AS TO ENSURE THAT THEIR TAX AFFAIRS WERE IN ORDER. See the FTT decision in Hoey if you need independent judicial evidence of that.

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Replying to k.gordon:
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By justsotax
18th Jan 2022 14:20

Of course it is normal for many punters to sign up to an 'admin solution' that is backed by a tax barrister, requires special disclosures, is 'insurance' backed and costs 25% of the tax it is saving.....

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Replying to justsotax:
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By k.gordon
18th Jan 2022 17:20

And in this case, the fees were approximately 85% of the tax saving (but obviously that was not explicitly stated).
I fear you are presuming a lot about how these schemes were marketed by basing your assumptions on how avoidance schemes are normally marketed.
These were somewhat different.

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Replying to ireallyshouldknowthisbut:
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By AndrewTall
18th Jan 2022 10:20

Why tax the loan? Why tax those loans and not others? Why tax those 'balance sheet assets' and not others such as property or stock? Why not recognise the amount subject to PAYE up-front in the balance sheet and offset it against the loan? The only place where we normally see loans taxed is s.455 CTA10 and that's a refundable charge, so hardly comparable.

The actuality is of course that 'loan' is of course not what HMRC are actually seeing to tax, it is just a convenient yardstick. HMRC are seeking to tax income that they could and should have taxed historically and merely doing so by reference to the loan, which is where they are clearly seeking to circumvent the time limits placed upon them and retrospectively undo the mistakes that they made which caused much of the problem.

I don't think that any of the signatories (many of whom I know) think that the people should not have paid tax on their earnings, that point has been settled by the courts, I think you (and to be fair many other commentators) are being distracted by an irrelevance - that the people targeted were involved in a tax scheme and HMRC is out of time to assess them - and missing the actual point, that HMRC is circumventing time limits with retrospective (or at least retroactive if one wishes to split an irrelevant hair) taxation.

There is a subsidiary point that HMRC is trying to have its cake and eat it to by saying that the initial payment was subject to PAYE, and also trying to collect IHT, etc on the grounds that it was not a payment but a loan. Elsewhere in tax HMRC is quite forcefully of the view that a double dip of this sort is morally reprehensible and so it is unclear why they consider it fair and reasonable when they are the ones doing it.

I would personally add that the charge has the effect of masking HMRC's failings so avoiding HMRC being properly held to account and thus being forced to learn from its mistakes which it has done only partially to date.

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Replying to AndrewTall:
By ireallyshouldknowthisbut
18th Jan 2022 20:18

AndrewTall wrote:

Why tax the loan? Why tax those loans and not others? Why tax those 'balance sheet assets' and not others such as property or stock? Why not recognise the amount subject to PAYE up-front in the balance sheet and offset it against the loan? The only place where we normally see loans taxed is s.455 CTA10 and that's a refundable charge, so hardly comparable.

The actuality is of course that 'loan' is of course not what HMRC are actually seeing to tax, it is just a convenient yardstick. HMRC are seeking to tax income that they could and should have taxed historically and merely doing so by reference to the loan, which is where they are clearly seeking to circumvent the time limits placed upon them and retrospectively undo the mistakes that they made which caused much of the problem.

I don't think that any of the signatories (many of whom I know) think that the people should not have paid tax on their earnings, that point has been settled by the courts, I think you (and to be fair many other commentators) are being distracted by an irrelevance - that the people targeted were involved in a tax scheme and HMRC is out of time to assess them - and missing the actual point, that HMRC is circumventing time limits with retrospective (or at least retroactive if one wishes to split an irrelevant hair) taxation.

There is a subsidiary point that HMRC is trying to have its cake and eat it to by saying that the initial payment was subject to PAYE, and also trying to collect IHT, etc on the grounds that it was not a payment but a loan. Elsewhere in tax HMRC is quite forcefully of the view that a double dip of this sort is morally reprehensible and so it is unclear why they consider it fair and reasonable when they are the ones doing it.

I would personally add that the charge has the effect of masking HMRC's failings so avoiding HMRC being properly held to account and thus being forced to learn from its mistakes which it has done only partially to date.


Nope. Can't help you on the whole the loan still exists issue if you don't know how loans or balance sheets work. Tried and failed with the double entry bookkeeping albeit I think you do understand but pretend not to.
Still I am sure you and your ilk will keep on flogging this long dead horse for as long as there are highly paid and well connected tax dodgers trying to hide behind the sob stories and genuinely duped trying one last time to wriggle off on a technicality. Good luck with that.
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Replying to ireallyshouldknowthisbut:
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By AndrewTall
19th Jan 2022 09:44

Either the loan never existed and it was taxable up-front - as the Rangers decision ruled, in which case there is no loan outstanding - or it was a loan and therefore not taxable - you can't have it both ways and pretend to be equitable.

As for the double entry you didn't say how you were accounting for the unconditional obligation of the employer to pay for the services which the HoL ruled existed in the Ranger case (unless you think that the employee can have an unconditional obligation to be paid without the employer necessarily having an unconditional obligation to pay them), which should be Dr Wages and Cr amount due to employee - thus netting off directly against the loan you claim should be outstanding.

As for the tax dodgers they are currently trying to sue the promoters in a number of cases, nothing to do with me, don't really know which side I support less. As for the duped who are paying more tax than they would have paid due to the deliberately poor design of the loan charge and have suffered scheme costs they didn't even see the fine print of, and frequently didn't benefit from the tax saving in the first place, well I still think that a credible tax authority whose failings led to them being in the scheme in the first place should not seek to profiteer from them and that a credible government should not encourage more promoters to rip off and so will support attempts to get a fair solution where all the guilty parties share in the cost, not just one and where the tax authorities are not encouraged to fail in their duties safe in the knowledge that they can foul up as much as they like and then just change the rules to dodge the consequences.

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Replying to ireallyshouldknowthisbut:
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By justsotax
17th Jan 2022 13:50

Ireally does pretty much sum up the position, the double edged sword of claiming it was a loan that is repayable, and then attempting to suggest that something is retrospective when a 'new' charge is brought against said loan outstanding.....

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By bobsto12
17th Jan 2022 10:13

Taxes are needed to pay for the NHS education defence etc. If everyone avoided tax like these individuals the country would fall apart. No sympathy at all and as for the emmotional blackmail aspect, I doubt anyone who paid their taxes will think anything other than it is self inflicted.

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Replying to bobsto12:
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By Justin Bryant
17th Jan 2022 10:18

That is a typical dud response that does not answer Keith's or my question above i.e. why pick on just these EBT loan people and not all the others (many of whom did egregious if not criminally illegal schemes)?

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Replying to Justin Bryant:
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By bobsto12
17th Jan 2022 12:18

You are just so arrogant. You got caught just accept it instead of trying to justify the unjustifiable. You want all the benefits of our society without paying your fair share of taxes. Its incredibly simple to rest of the population.

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Replying to bobsto12:
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By moneymanager
17th Jan 2022 12:30

"You want all the benefits of our society without paying your fair share of taxes"

That's fair enough and here's a simple solution, abolish ALL the current tax codes internationally and apply a single flat rate of tax, no allowances, no incentives, done.

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Replying to Justin Bryant:
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By Heating_installer
17th Jan 2022 12:47

As a lay person, I would turn the question round and ask why is there any time limit on ANY tax avoidance/evasion issues - no loan scheme participants should not be singled out amongst the many schemes but they sure as h.ll shouldn't be let off the hook.
Should a serious crime detected years after the perpertration not be prosecuted just because the relevant police force was understaffed or inept at the time of the act or that it seemed to be that everyone was doing it so it must be okay?

I don't know how much of this particular issue falls into the 'gig' economy type minimum wage jobs market and perhaps there is some argument for sympathy for those simply too uneducated to ever understand what was being done to them but...
Those who are selling houses and sadly committing suicide must be involving sums indicating significantly above average income which in turn implies a level of education and understanding that precludes any ignorance related to paying no income tax on hundreds of thousands or millions over the years.

The fact that previous legislation didn't specifically preclude the activities in earlier times is not (in the real world) a sound defence - we all know that to run our society there is taxation and as such any scheme that allows one to have income with no tax is inherently 'unreasonable'
Persons that weasel out of their moral obligations based on such technicalities are pretty universally disliked by society and receive little sympathy when their deeds catch up to them, as exhibited here.

It would be very interesting to know how many of the signatories to this letter have been involved with using or perpetuating these schemes!

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Replying to Heating_installer:
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By Justin Bryant
17th Jan 2022 12:58

You have not "turned our question round". You have simply rephrased it. No-one has answered our question and I doubt anyone will. Certainly HMRC have not answered it.

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Replying to Heating_installer:
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By k.gordon
17th Jan 2022 13:55

That is an intelligent question. However, ever since the 16th century, the law has provided time limits in all sorts of settings as a matter of fairness and balance.

Otherwise, for example, HMRC could point to something you did (or they think you did), say 30 years ago, and you would probably have no way to explain what happened (or prove it).

My objection to the loan charge has been solely based on the fact that these statutory fairnesses have been sidestepped and only in relation to one section (and in my view the least culpable section) of those who might be accused of participating in tax avoidance. (Actually, in most cases these people were pawns in someone else's tax avoidance but let's not let such facts cloud the intellectual debate.)

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Replying to k.gordon:
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By Heating_installer
18th Jan 2022 11:40

[quote=k.gordon]

Otherwise, for example, HMRC could point to something you did (or they think you did), say 30 years ago, and you would probably have no way to explain what happened (or prove it).

While I take your point I would counter it thus:

If you conduct straightforward affairs and pay the tax you owe without attempting any 'clever' workarounds to pay less then there is little to no reason for or likelihood of such an investigation arising, IF it were to do so then the only thing that could be found are some basic arithmetic errors that would not amount to much.
To quote Moria Stuart - 'Tax doesn't have to be taxing' - it becomes so when you try to avoid it.

If you choose to make your affairs complicated by engaging in schemes and workarounds using the letter of the law to evade the spirit then it is up to you to keep records of what you did for as long as you wish or you will, as my mother used to inform us as kids, be caught in your own web of lies (debatable reasoning).

I can accept that HMRC and other related parties are far from blameless in allowing the situation to exist for so long that many people have been embroiled that might not otherwise have been.
While there are, as you say, time limits on many situations (and we will agree to differ on the fairness of that!) this situation is not one of the many where HMRC have arbitarily decided to apply their own interpretation of the law.
The democratic government of our country have decided that this scheme (and its mismanagement by the authorities) is of sufficient importance that specific legislation has been passed to pursue the participants.
I agree this is unfair, not because it opens the timeframe on the loan scheme participants but because it does not encompass all tax avoidance in the same extended timeframe, be that single director PSC's or the Amazons and Googles of the world.

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Replying to Heating_installer:
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By k.gordon
18th Jan 2022 13:03

At the moment, the current scale of time limits works without discrimination between tax avoiders and not.

As to whether time limits should be changed to factor in avoidance, that is another matter. But I would say two things:

1. Trying to come up with a definition of avoidance that is sufficiently unambiguous so as to make the rule clear is going to be extremely difficult.
2. You are wrongly attributing your own assumptions onto a varied class of taxpayers, many of whom simply had no idea of what they were getting involved with or even that loans were involved. THIS IS NOT THE NORMAL APPROACH OF TAX AVOIDANCE PROMOTER. MANY PARTICIPANTS WERE SIGNING UP FOR WHAT THEY BELIEVED TO BE AN ADMINISTRATIVE SOLUTION SO AS TO ENSURE THAT THEIR TAX AFFAIRS WERE IN ORDER. See the FTT decision in Hoey if you need independent judicial evidence of that.

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Replying to Heating_installer:
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By Paul Crowley
17th Jan 2022 19:52

There is no time limit on a personal liability honestly declared to HMRC, even if they choose not to persue the liability for many years
Several threads on this site complaining about that
The issue here is the idea of a supposedly repayable loan that was not ever intended to be repaid
But somehow there is tax relief on the payment to the lender
Hence all who enjoyed paying zero tax for 20 years and kept the money tax free want to not pay tax or repay the loan
This was seriously expensive at the start so that only highly paid people were the tax "avoiders", man in the street could not afford it
When clear that this failed all the lenders and sellers went offshore and still claimed it was a working tax scheme.
Prices fell and even Basic rate taxpayers were drawn into these schemes
Those who earned the most were the biggest avoiders

If my mum 'lends' me some money with no expectation of repayment then at some point it becomes a gift
Similarly it is not unreasonable to assume that the employee that is 'lent' some money that never needs to be repaid at some point gets 'income'

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Replying to Paul Crowley:
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By Heating_installer
18th Jan 2022 12:40

Thanks for the clarification on the scheme, as you say the scheme evolved over the years, are my ideas below anywhere close to the two extremes of situation?

As I understand it part of the sympathy for these participants seems to be that having paid income tax on the loan, the entity making the loan still expects repayment.

I have assumed that at the outset of this scheme the 'loans' were made by the participants 'own' company to them as employees of that company and that the participant was a generally a PSC

Surely if the loan is deemed salary and IT is paid the loan ceases to exist in that its staus on the books changes? Alternatively the participant repays the loan and no IT is due but other liabilities arise for the company and/or BIK for the participant.
In both these cases it is in the power of the participant to effect the relevant 'corrections'to the books and close out the matter and distribute the profits in a legal manner. No sympathy.

More assumption! As the scheme gained traction and became mass market, some companies 'contracted out' the reward of their 'employees' to fourth party (offshore) scheme operators who advanced 'loans' to the 'employees' instead of salary. Loans made at 'nett' rates.
At this point the unpaid IT and NI is distributed to the 'employer/operator' (that may be single or separate entities)

HMRC then come calling and assess the loan for IT.
If the former option is taken and the participant pays the tax to HMRC they have no means to effect the change in status of the loan and the unscrupulus scheme operator, sensing an oppotunity for more unearned gain, calls in the loan.
The alternative option to repay the loan (assumming BR) being four times larger value is even more unattractive/impossible and the likelihood of seeing a tax compliant redistribution is pretty much nil, making this route a non-starter?

At which point the issue of culpability/sympathy is based on an assessment of the participants level of understanding and complicity - an assessment that big government is notoriously bad at making with common sense and at which the 'players' are supremely skilled!

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Replying to Heating_installer:
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By Paul Crowley
18th Jan 2022 15:03

The problem is there were so many versions of the same thing
To at least pretend the money received was a loan, it was impossible to have anything in writing to contradict it
HMRC accepted that if the loans were repaid, no tax due
But people chose not to repay the loans, so clearly the loan was a fiction, and always was a fiction

When the trusts or other 'lender' were being controlled by the employer and scheme arranger there was no risk of repayment being demanded
It clearly was money that would never be repaid
As the schemes slid down the system and were organised by the less reputable and offshore, control of the lender became less stable
By then of course everybody knew it was a failed concept and the salesmen knew.
But people still wanted to believe, so still "borrowed" money

My firm was approached to introduce clients. We considered it a pure scam. Trouble is PII companies will often settle had the scam worked, and clients considered that we should have made them aware of "tax planning" opportunities

I fully accept than HMRC and HM Gov should have stamped hard on this from day one, but they did express their opinion that it did not work

It was a slow expensive start affecting a small number of exceedingly rich taxpayers but ended up as a pandemic feeding on the greed of all concerned.

How can I have sympathy with the very rich consumer of this "product" choosing to knowingly pay no tax for 15 years.

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