Loan charge: A fair resolution is needed
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.
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I am not expecting you to have any sympathy for the very rich consumer of this "product" choosing to knowingly pay no tax for 15 years. To be honest, I have no sympathy for such a person either.
What does attract my sympathy are the far more modestly endowed contractors (ranging - in income scales - from social workers to IT consultants) who were duped into being paid via these schemes as a condition for working. They saw no real tax savings, because those tax savings were swallowed up in fees.
What happened is that the promoters saw an opportunity and expanded these schemes on an industrial scale, failing to make clear to their clients that these schemes depended on a controversial interpretation of the tax law.
It is equivalent to buying your car from someone purporting to be a reputable dealer only to find out that the car was stolen. Your money has now gone and you have no-one to turn to for recompense.
I agree that people should pay their fair share of taxes, but I don't agree that Parliamentary protections should be ignored or that they should pay for other people's failings, both of which are happening here in at least some of the cases.
The key problems in my view are two-fold. Firstly HMRC failed again and again over many years to deal with the EBT issue and did so to an appalling degree - and structured the loan charge to both be vindictive and retrospectively undo all of their own errors at the taxpayers expense. Had HMRC done its job properly the disguised remuneration legislation would have been introduced the first budget after Dextra, the settlement opportunities would have catered for owner-managers and not been on a 'have-your-cake-and-eat-it PAYE+trust taxes basis, the enquiries would have been opened promptly on both PAYE and CT sides, etc - and the EBT schemes would have died c2008 with most of the victims of the loan charge never entering into them.
Secondly while the courts have held that for PAYE the taxpayer was unconditionally entitled to the income (and thus subject to PAYE) the employer is not deemed to have been unconditionally obligated to pay the employee, with the payment to the EBT then being accompanied by the obligation to pay it on to the employee. Instead the employee is deemed unconditionally entitled to payment under PAYE law but had no right to income under the rest of commercial law, this inconsistent view then creates the fictitious EBT balances that are now being pursued along with the IHT, etc charges that deterred many from entering into the settlement agreements.
Why should honest tax payers have to foot the bill. I can’t understand why anyone ever thought this was a valid scheme. I am sorry but those affected should have paid their fair share of taxes like everyone else.
"Why should honest tax payers have to foot the bill", for an absurdly complicated, obscure, badly written, and repeatedly and often for politically driven motives tinkered with tax code? I could vote for that.
Presumably all the signatories have all made a very good living at some time or other trying to defend the indefensible !
Have not had nor was there any chance of having a client who wanted to enter into one of these loan arrangements.
Again presumably everybody who did were warned in no uncertain terms by their advisors and the legal eagles above of the potential consequences and make provisions for it !!
Presumably all the signatories have all made a very good living at some time or other trying to defend the indefensible !
Have not had nor was there any chance of having a client who wanted to enter into one of these loan arrangements.
Again presumably everybody who did were warned in no uncertain terms by their advisors and the legal eagles above of the potential consequences and make provisions for it !!
Quite. We have a client who did one of these (came to us as a result of getting caught) and STILL seems to be paying into a 'defence fund' which seems little more than a tax on hope.
We had one also
Basic rate taxpayer who ended up paying more in costs to the scheme than the tax would have been
Sympathy? No
He googled "how do I pay no tax" and found the dubious offshore sellers and their offshore accountants.
None of the fees paid were taxed in the UK
I wish that they had been so informed, and for that matter that they had all been looking for a tax dodge rather than in some cases being told that to perform their services they had to use the structure provided without any understanding of it, it would make it easier to lack sympathy, but it would also miss the point. Two wrongs don't make a right and bad cases lead to bad law.
The loan charge is designed to retrospectively fix HMRC's failings, HMRC had all the powers it needed to identify the relevant returns and open the relevant enquiries, it did not do so, and it did not do so for year after year after year, even long after its failings had been pointed out to it - by several of the signatories amongst others. when it did enquire it often did so very badly as the people involved were case managers drafted in from elsewhere in the revenue and had no understanding of the tax legislation themselves. The loan charge legislation is also inconsistent with the treatment of people in similarly contrived schemes where HMRC did not fail so abysmally - the legislation should not be used to correct HMRC's failings when these were plainly evident in this area as far back as Sempra and should treat taxpayers equally - it isn't just the taxpayers (and those who sold them the schemes) at fault, HMRC, and given the prolonged failure Parliament, should also share some of the blame.
Were people 'morally reprehensible' to buy such contrived schemes? In most cases yes and in the others I would say deeply uncurious - though in fairness back in the early 2000's when many started it would have been seen as normal practice in many parts of society and likely the Rangers case would have been decided in the taxpayers favour had it progressed at a credible pace through the courts - it is only the last 10-15 years that perspectives have shifted decisively against such contrived avoidance.
As for sympathy, it is in short supply all round, the inspectors who failed to open the schemes? The HMRC lawyers who argued an incorrect case all the way to the Supreme Court and were then rescued from their incompetence by a decision that accepted a case they hadn't argued? The HMRC settlements teams who ran opportunities on a 'have our cake and eat it to' basis that didn't cater for OMB's and just repeated the same failed approach time and again instead of trying something that might work? The HMRC officers who forgot to mention any of this when advising Parliament on the first iteration of the loan scheme? But sympathy misses the point, the legal system, by its nature, must deal with the reprehensible and frankly evil among us - and yet it must still do so openly, fairly, and on a timely basis in order to be just - something it failed in this case for far too long.
The biggest issue with these loans are they haven't been repaid....which suggests they are good for collecting on. The claim is that the people who have utilised such schemes stayed within the prevailing laws at the time....the lack of sympathy comes from their failure to adhere to the less formal 'spirit' of the law....which is why I suspect so many fall silent as to the charge that this is a retrospective (which I dare say it is.....until you then factor in the case that the loans remain outstanding.....then it becomes a little less clear).
I dare some people have through no fault of their own have been embroiled in these schemes, for many others though the saying 'more money than sense' comes to mind. That said the African lottery would like to get a hold of that list of people in order advise them of their winnings....
Oh dear. There's such a wide range of people affected by this. Some (like my clients before I retired) were told it was very risky in the long term and that it might not go away for a very long time. Those who took up the schemes thus did so with eyes that should have been wide open. Others may well have joined in because it sounded like a jolly way to avoid tax as recommended by a mate and having never taken professional advice didn't think to do so. HMRC can't treat them differently so my thoughts are 1) HMRC must enforce tax law and collect taxes but 2) It doesn't help HMRC or anybody else to bankrupt people and or impoverish families, thus HMRC should be practical about how much it collects and the timing. 3) HMRC should provide a questionaire and declaration for completion and on the basis of the answers provided agree a settlement for ever.
I was struck by the final request ("We are asking the government to legislate to protect affected taxpayers from such ‘loan’ repayment demands by the creditor of record where the “loan” in question is also subject to tax as earnings.") On the face of it that engages Article 1 of Protocol 1 to the ECHR (Protection of property). It would be nice to know if the experts consider the justification is countering tax evasion (c.f. Hentrich v. France) or something else established or sui generis. And what, if any, compensation would be required.
I am one of the stupid ones that should have known better, I just accepted what my accountant suggested.
Yes, it seemed a little racer than the tax planning I had been doing, but I was assured it was vanilla, “QC” approved and HMRC accepted - what’s more it was what “sophisticated people” in my position should do.
However, what I didn’t know, was that my accountant (who I had been with for at least 10 years) was taking all sorts of kick backs from the promoter to put me (and my family) into this mess. Whist the accountant has been slapped round the wrist with a wet bus ticket the promoters of the trust are still going strong… I still get emails from them telling me everything is swell and surely that is just not cricket.
I don’t expect any sympathy as I acknowledge I went into my RT arrangement to minimise my tax (that said, I still paid a ton of tax). Albeit, I had been told that everything I was doing was accepted by HMRC. I didn’t knowingly sign up for the nightmare that the LC was to become.
It’s hard not to get the feeling that as soon as the middle classes or the little person began to be able to arrange their tax affairs in line with more affluent individuals/ families and companies, HMRC and the governments of the day felt they needed to crack down.
UK taxation seems overly complex to a lay persons and often contradictory. Why can some people set themselves up as a limited company/ why can a higher income rate individual get 40% contributions to their pensions/ even ISA’s etc… surely these can only be accessed by those with £££/ and huge multinationals allegedly pay minimal tax. UK tax is surely a strange fish.
Although it hurt - I have settled my affairs with HMRC, however, I feel deeply sorry for those who can’t settle… and by all accounts there are a lot of these. I personally have knowledge of the suicide of one of my colleagues who was wrapped up in the LC.
So despite what some of the previous comments say… No one in their right mind would have signed themselves or their families up for this… ergo, the mis-selling…
I would never have been anywhere near this if it wasn’t for my accountant - it just wasn’t on my radar until it was put under my nose and I am guessing a lot of others facing the LC have a similar tale to tell.
Really sorry to hear that, I never advised any of my clients to enter into these, and deterred the few clients who came to me having being contacted by promoters, but I did help a few people to clean up the mess and there were clearly some real bad apples out there selling these scams long after the Dextra case (2005) and Sempra case (2007) told the rest of us that this stuff was going on and that HMRC it.
I don't know why HMRC has singled out the EBT scheme users for such particularly unfair treatment, I understand them wanting the original PAYE (from employees) and IT (from owners) but the original loan charge design was deliberately punitive and even in its revised form it is excessive, as you say, there are worse schemes out there where HMRC has accepted it is out of time to collect, I can only think that they botched handling the scheme so badly that the amounts became too big for them to admit how badly they had dealt with it and instead felt it necessary to paint the users as demons deserving of fire and brimstone.
Not sure if other commentators read the THL case - accounting web 15 Oct 'some small comfort for tax scheme introducers' Knights and Townsend Harrison Limited [2021] EWHC (QB) but clearly some agents were selling these scams long after anyone credible was telling clients not to touch them with a bargepole, it is unfair that only the taxpayers are being hammered.
I'm intrigued that we have a 'heating installer' joining the fray - wow, good on you who ever you are!
Do you do heating on narrowboats?
If it burned we dealt with it, I think lorry cab heaters were our smallest appliances, however I am retired now with time on my hands to show my ignorance here!