Technical Officer LITRG and Chartered Tax Adviser
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What to expect from the 2019 loan charge

15th Feb 2019
Technical Officer LITRG and Chartered Tax Adviser
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Meredith McCammond from the Low Incomes Tax Reform Group (LITRG) looks at some of the practicalities around how the loan charge will be applied when it comes into force on the 5 April 2019.

Those on low incomes realistically have two options:

  1. pay the loan charge; or
  2. try and voluntarily settle any income tax that they owe with HMRC before the loan charge comes into effect on 5 April 2019.

In December LITRG published an article exploring HMRC’s settlement option (which is likely to be in the best interests of most lower paid workers). However, time is running out for people to initiate the settlement process, so let’s consider what the loan charge option might look like instead.

Note HMRC’s guidance on how it will deal with loan charge cases in practice is evolving, so this article is based on LITRG’s current understanding of the position, which could change.

The basics

The loan charge means that HMRC will get a second chance to tax any ‘disguised remuneration’ loans made since 6 April 1999.

There are many complexities as to how this charge will be applied but basically, in the absence of any action taken to ‘settle’ beforehand, HMRC will treat an amount equal to the value of all outstanding loans as employment or self-employment income arising on 5 April 2019.

For employment-based schemes, the outstanding loans should be declared by employers (that are onshore and still in existence) via their RTI returns.

Individuals will be required to provide as much information as they can about the loans they have received to employers (both former and current), to make sure they are all captured – by 15 April 2019 at the latest.

We understand HMRC is in the process of writing to the taxpayers and employers it is aware of, to explain more around the notification requirements. 

The income tax, NIC and student loan repayment amounts due will fall to be paid by the employer on 22 April 2019, as the usual payment date for month 12 of 2018/19 (but will inevitably get passed on to the worker).  

Transfer of liability

Where the employer is offshore, or where the employer no longer exists, the individual taxpayer will be responsible for reporting the outstanding loans and paying the tax to HMRC via their 2018/19 tax return. They must also tell HMRC separately about the amount of their outstanding loans by 30 September 2019. We understand this is likely to be via an online form on GOV.UK.

HMRC will be running a compliance process to ensure that it has received the correct loan charge ‘returns’ from the people it expects to get them from.

In cases where the employer is onshore, and is still in existence but is unable to pay, HMRC will issue a formal bill to the employer in respect of the unpaid tax. Once this bill has been unpaid for 30 days, HMRC will try and collect the tax from the individual directly.

How much will be payable?

The amount of outstanding loans will be put together and taxed as employment income all in one year (2018/19), so the total will be taxed at the individual’s marginal tax rate. As the amount is assessed in one lump sum, it will benefit from only one years’ worth of allowances and tax bands.

In most cases, the loan charge will be payable in line with the normal tax return process – meaning any tax due will need to be paid by 31 January 2020. Provided any tax is paid by this date, there will be no interest or penalties. 

With regards to hardship, we are unaware of any special arrangements to be made available (eg five-year ‘no questions asked’ payment plans, similar to those offered during the settlement process).

However, at the very least, HMRC should deal with loan charge cases in line with their general debt strategy, which means that time to pay arrangements should be available and those vulnerable taxpayers should be given special consideration.

What else will the income count for?

As the loan charge will be considered an employment income, this may also trigger things like the high income child benefit charge, and stop parents from opening tax-free childcare accounts. In addition to triggering higher rates of tax and student loan repayments, it could also cause loss of the personal allowance.

Our understanding is that the loan charge should not be counted for tax credits and Universal Credit. Employers should enter the income in a specific RTI field – so that it is separated from any normal employment income, which will otherwise flow through to the tax credit/UC system.

Examples

To get a better understanding of what all this might mean for an individual, see the examples that LITRG put together, which examine likely loan charge figures across a number of different scenarios.

Although most people will be better off by settling with HMRC, in some cases where there is no open enquiry or tax assessment, they might be better off paying the loan charge.

For example, if the taxpayer was only in a loan scheme for a short period of time and their income is from one year only, they may pay less tax under the loan charge than if they settle, as interest/penalties will not be due. There is also the cash flow benefit of not having to pay until 31 January 2020.

However, there are other factors to consider; settlement could bring earlier certainty and a lower administrative burden, but anyone wanting to settle will need to be quick and get all their information to HMRC before 5 April 2019.

No closure

It is important to note that even if the taxpayer pays the loan charge, HMRC can continue with any open enquiry or assessment of earlier years. Although there should ultimately be no double taxation, if the amount agreed or assessed is higher, this can mean that the taxpayer ends up having to pay the higher amount. People need to weigh things up carefully.

Replies (64)

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By Trethi Teg
16th Feb 2019 12:11

I am more than a little surprised that an article which purports to update people on the 2019 loan charge doe snot mention the activity in Parliament to review the legislation and the fierce criticism which it has received from the House of Lords. Is the writer aware of these matters? If not why not and if she is then why does she choose to ignore it. Similarly a Judicial review has been launched which may have a sgnificant impact on the matter, if only on the matter of timing.

As it happens I make it my business to know what's going on with this subject. If others who advise on this had to rely on this article then they would be poorly served.

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Replying to Trethi Teg:
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By EnglishRose
18th Feb 2019 09:13

Because it is not law or rules - it is just hopes.

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By Justin Bryant
18th Feb 2019 14:12

Because presumably CIoT policy is not to criticise anti-avoidance legislation for fear of upsetting HMRC (on the contrary, as has been stated here before, CIoT have stated that EBT loan planning is aggressive tax avoidance, so you will not get any sympathy from them).

What you can really expect from the 2019 loan charge is suicides, other mental & physical health problems, divorce, family break-ups generally, bankruptcies and business failures generally etc. etc. etc. (not to mention lots of gloating self-righteousness from idiot trolls here).

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Replying to Justin Bryant:
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By meadowsaw227
18th Feb 2019 10:25

Presumably most of the people with these loans are reaping what they have sown.
I do not have a single client involved nor would I represent anybody who would entertain these schemes

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Replying to meadowsaw227:
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By Justin Bryant
18th Feb 2019 11:18

See what I mean?

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Replying to Justin Bryant:
By tonyaustin
18th Feb 2019 12:33

Why did these people accept loans that they could never afford to repay? If they believed they would never have to repay them, why did they believe that it really was a loan and so not taxable as earnings? After all, it was paid in return for services provided and was clearly money which they had earned.

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Replying to tonyaustin:
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By Justin Bryant
18th Feb 2019 12:52

What kind of an answer is that? Based on that logic we should tax everyone on all loans they cannot repay regardless. Also, Rangers says it's already taxable, so why tax it again? See KG's recent comments here on all that. He's a tax barrister & knows what he's talking about, whereas you clearly don't know what you are talking about.

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Replying to Justin Bryant:
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By TaxExpertandAmatuer
18th Feb 2019 16:37

Don't have to abuse if someone mentions a common sense statement

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By David12345
18th Feb 2019 10:41

An important point has been made with regard to this matter. The advice should be , for anyone who maybe affected , to write to their MP as the actions proposed by HMRC may amount to a breach of Human Rights. A significant number of the schemes that people innocently embarked upon as well established tax planning ( since 1999!) where promoted by long established professional practices, often using well remunerated ex HMRC employees to illustrate and market them. The ills didn’t stop there as it was stated that the schemes had tacit HMRC approval as they had been discussed with their former colleagues still in the employ of the HMRC.....some of whom may have subsequently boarded the gravy train . If any readers or clients are being threatened by action now is the time to make a resolute stand. Failure to do so will make tax planning , let alone life planning, impossible. Whatever next ...restrospectively changing stamp duty , IHT , Corporation/Income tax, VAT . Sadly people are committing suicide over this.

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By G Webber CTA
18th Feb 2019 10:53

A very clear and concise piece.

I would however mention a couple of additional points.

First, where the loans brought into charge in 2018/19 stem from a year that is under enquiry, HMRC is not able to decide if that enquiry should be abandoned. The enquiry has to be dealt with under the usual rules for such and although HMRC once in possession of the money may feel disinclined to spent time and resource on it, they have no choice.

Second, where the final amount due from the earlier years is more than the loan charge, you are correct that a credit system is in place. There are holes in the legislation there (and the concept of a new tax on a new source crediting tax from an old source is very odd) but you would hope common sense and decency would apply. (I predict now HMRC will try on a double charge).

Where however the loan charge is more than the tax from earlier years - THE DIFFERENCE IS NOT REFUNDABLE.

I've never come across a "tax" that is not refundable. That element seems more aligned with a penalty or surcharge for a failure to disclose or pay.

I suspect that many of the planned JR's will be looking at that.

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By Exfoliate
18th Feb 2019 13:15

What would happen if a company was set up and which then repaid those loans in cash on behalf of the employees in return for the trust investing back those funds in to the company ?

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Replying to Exfoliate:
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By G Webber CTA
18th Feb 2019 14:18

Think you'll find that this is an idea that was floated around 18 months ago and rejected by many advisers as falling foul of the anti avoidance rules in the loan charge.

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By Exfoliate
18th Feb 2019 13:19

The article doesn't state what would happen if the employee was now in 2018/19 no longer UK tax resident. How can you therefore operate a paye scheme on a non UK tax payer in 2018/19 ?

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By Exfoliate
18th Feb 2019 13:19

The article doesn't state what would happen if the employee was now in 2018/19 no longer UK tax resident. How can you therefore operate a paye scheme on a non UK tax payer in 2018/19 ?

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By Exfoliate
18th Feb 2019 13:19

The article doesn't state what would happen if the employee was now in 2018/19 no longer UK tax resident. How can you therefore operate a paye scheme on a non UK tax payer in 2018/19 ?

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Replying to Exfoliate:
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By G Webber CTA
18th Feb 2019 14:19

The loan charge is deemed to be a UK source of income and is therefore taxable in the UK, regardless of our resident status.

(Bit odd though as most loans came from non UK sources?)

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Replying to G Webber CTA:
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By PSTEN
18th Feb 2019 17:00

This brings some very interesting points into play. I have some clients who are not UK resident and have not been to the UK for a number of years, yet suddenly they are deemed to have received employment income and from a source that is not physically in the UK. The amount would not constitute income under any domestic law (AUS or NZ) and so I don't see how an overseas court would agree that such debt existed, particularly with the tax treatment of the original transaction still being questioned.

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Replying to PSTEN:
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By G Webber CTA
18th Feb 2019 17:05

I think you are conflating the tax situation and the loan obligations?

Happy to discuss but perhaps this is too far from the original article?

Email me at [email protected]

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Replying to G Webber CTA:
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By Exfoliate
19th Feb 2019 10:29

But what about the situation where the employee has worked for the company abroad for some or all of the years they were employed by the UK company and is in 2018/19 not a UK tax resident. How are HMRC going to deal with that scenario ?

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Replying to Exfoliate:
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By G Webber CTA
19th Feb 2019 10:41

So what is the situation you have in mind. Working for an offshore employer or a UK employer. Whilst you can do both simultaneously, you cannot do that for the same job.

Where the employer was overseas and the work was in the UK and the UK based engager paid money that HMRC considered was salary, then HMRC could direct the UK engager to make deductions equivalent to PAYE. Did they do that? Perhaps but certainly not often.

Otherwise HMRC happily admitted offshore employers into the PAYE scheme, took their money and had the opportunity to apply the rules in the PAYE Regulations.

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Replying to G Webber CTA:
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By Exfoliate
20th Feb 2019 19:04

The article deals with the practicalities of the Loan Charge come 5/4/2019 and suggests in the examples that the company should now apply paye/nic regulations on an employee in the tax year 2018/19 as though they received those funds whilst being a UK tax resident. But if they have been absent from the UK for the whole year 2018/19 (even if the source of income was UK source) then they are not UK tax resident and the company does not have obligation to put that through it's payroll for paye/nic purposes. Thus there is no paye/nic for the company to pay. And if there is no paye for the company to pay then HMRC cannot seek to collect the paye element from the employee. Or am I missing the point?

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By G Webber CTA
18th Feb 2019 14:32

The mix of comments above is relatively typical of those we see when similar articles are presented in the national press.

They tend to fall into two types:

1. Surely people knew what was happening and can therefore not be surprised now to be bearing the consequences?

2. Why did they not get advice because all sensible accountants/tax advisers would have spotted the potential for trouble?

Based on the several thousand clients we have in this world and their stories, I'll answer the above.

First, many people did not know what was happening or had only the vaguest notions of the details - see below. Many were advised by employers and intermediaries that they had to use a particular arrangement for fear otherwise of the engagement being inside IR35, to the detriment, financially, of the end client. Many had the choice of "use this or no job". I say "many" and not all. Some individuals knew more and took advice or carefully read all the papers put their way.

Therefore secondly, why did EVERY accountant and tax adviser NOT say - stay away?

Here I speculate to a degree. However, many advisers read the QC opinions and the views of Big 4 accounting firms and decided that the schemes were aggressive perhaps, but not illegal. Sure, they played fast and loose with the rules - certainly after December 2010 - but nothing was illegal. They therefore advised their contracting clients on that basis.

Should they have been more careful and given risk warnings? Yes.

Did they? We have not seen one instance of such.

Some advisers (and members of the professional bodies) were active players in devising and marketing such schemes. Again, lack of risk warnings.

So in conclusion, some individuals were deliberately using tax avoidance - legally. Some were advised or persuaded or subtly pressured into using schemes and did not ask enough questions. Some were never aware of the connections between advisers and scheme designers and vendors. Some advisers - who have pocketed substantial fees - are now saying "we told you so" and never did.

Further, everybody in this chain of events from end clients, intermediaries, advisers, individuals benefited from these schemes for close on 20 years. Why then is it just the individuals now paying the price?

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Replying to G Webber CTA:
Dave Chaplin
By Dave Chaplin
18th Feb 2019 15:43

Spot on Graham. Only those ignorant of the facts and suckers for Government propaganda adopt the "surely they should have known" and "they deserve it" lines. They should try doing more research and coming to a more considered opinion.

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Replying to G Webber CTA:
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By TaxExpertandAmatuer
18th Feb 2019 16:46

Great work but consultancy like AML have promised 85% take home! not sure how many took the bait!
https://vimeo.com/79309058

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Replying to G Webber CTA:
By ireallyshouldknowthisbut
19th Feb 2019 09:39

@G Webber,

If you are drawing from your sample those who undertook the schemes as evidence of reckless advice in their promotion, you overlook that this is a self selecting sample.

There is a much wider body of people who did not undertake the schemes. I cant speak for others, but I refused to promote such schemes, despite considerable pressure from scheme promoters to do so. A few clients came to me with such things, but I advised them it was risky and none went ahead.

So I think you will find there are plenty of "told you so's" out there who are quite legitimate in saying "told you so" as we did indeed do just that and stay out of this market. The fundamental point that a loan is still a loan until its repaid seems to have escaped many advisors when the high levels of commissions on these things were being waved in their faces.

I do feel some considerable sympathy for people who were mis-sold these schemes, and do wonder if there ought to be liability for those who did the selling without proper warnings, however I tend to find scheme promoters disappear rather quickly.

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Replying to ireallyshouldknowthisbut:
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By G Webber CTA
19th Feb 2019 10:27

I accept that a "self selection" is inevitable as they are my client base.

I also accept that some professionals did as you say, i.e. warned against such schemes and their clients stayed well clear.

Equally, the promoting firms - who almost inevitably included in their employee ranks ACA, FCA, ACCA, FCCA, CTA qualified people, were very adept at persuading people that if their agent was negative, then an introduction to a more "positive" firm could be arranged.

I accept that their are some professionals who occupied the moral and ethical high ground when these schemes were in their heyday and today. However that high ground is undermined both then and now by a significant number of qualified professionals who were prepared to come down from those Elysian heights and provide the necessary advice - as I said - without adequate risk warnings.

I have in the past drawn criticism for saying that those professionals who have chosen to offer what was often scripted (by promoters) advice designed to persuade a non qualified client to use a scheme, have damaged the reputation of the whole profession. Worse, in my opinion, is that the professional bodies have shied away from acknowledging or dealing with such individuals and firms, many of whom continue to offer advice.

Is it correct to say that a professional who has offered poor advice in the past will have recognised that and changed her/his ways? Perhaps. Would it be more correct to say that where that poor advice can be evidenced and be supplied to what is meant to be a standards body, that body should take action? Absolutely it is.

If you have indeed taken the stand you say, then I salute your moral courage and your ability to put principle ahead of fee income.

Make no mistake however, your efforts have been undermined by the actions of those less prone to attacks of conscience and standards and that there is a significant population of well paid, well educated and now much wiser contractors (some 3m and counting) who view the accounting and tax professions with jaundiced eyes.

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 14:55

Do you draw any distinction between the pre 9 December 2010 position and post? Why does the government go out of its way to make specific legislation to stop loan structures if they believed that they never worked in the first place, despite at that time having lost a number of court cases and HMRC seemingly turning a blind eye by not even opening enquiries into the loan arrangements, and certainly not progressing many that they did open. Only at a later date after they have changed the law yet again do they ask people to make 'voluntary' payments equivalent to tax to masks their failings.

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Replying to PSTEN:
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By G Webber CTA
19th Feb 2019 15:15

Just because a law was introduced in December 2010 that specifically identifies the "mischief" and counters it, does not mean that under general principles, such arrangements worked prior to that date.

If you examine the key decision here, i.e. Rangers, you will see that the decision did not turn on the law in Part 7A ITEPA but rather on the employment income rules that predate these specific anti avoidance rules by a number of years.

I suspect that this is why Mel Stride is fond of saying that such arrangements are "defective", having been slapped for calling them "illegal".

If that is true then of course a self employed scheme (if it really was self employment) should be "safe" from adjustment. Fat chance of HMRC agreeing to that!

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 15:24

Sure but Rangers was decided a long time after 2010 and in the lower courts, HMRC had lost. Also, it was determined that the money was earnings prior to it having been paid into the trusts from which the loans were made, this is very different to a deemed relevant step arising on the 5 April 2019 on a loan to an individual from a trust, and really means that there is a double charge on the same money ( yes I know there are carve-outs to attempt to prevent this) .

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Replying to PSTEN:
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By G Webber CTA
19th Feb 2019 15:42

I think the flippant answer is "so what?".

The Supreme Court basically said that the law as they applied it was as it always should have been applied.

Consequently any case that was still open for adjustment has to follow the precedent in the Supreme Court.

The lower Court decisions in Sempra and Dextra were singled out in Rangers and held to be wrongly decided. The FTT decision (not a binding precedent) in Boyle found for HMRC.

It may seem unfair that a decision taken long after an event can impact the outcome of that event, but such is the nature of our legal system.

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 16:09

And this is the key problem with the loan charge and settlement opportunity, ' any case that was still open' which match the same facts obviously. HMRC are asking people to pay taxes or money on cases that they had not opened enquiries on, in many cases despite being aware of them through the DOTAS disclosures.

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Replying to PSTEN:
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By G Webber CTA
19th Feb 2019 16:20

The settlement opportunity is voluntary - no compulsion to take it.

I accept that HMRC is applying what might be seen by some as intolerable pressure, but the fact remains it is voluntary.

I accept that the loan charge has been designed in the knowledge of how schemes worked and that its retrospective nature means that taxpayer protections and access to justice have been eroded because of this. The fault there lies at the feet of supine politicians who allowed the charge to be adopted and who are now also engaged in a backside covering, lip service exercise designed to salve their own conscience rather than help contractors.

We all know that HMRC has had information and has failed to act on it.

The counter will be that it was always open to contractors to push for settlement of enquiries years ago. Our earliest enquiry is some 17 years old. The client there could have got to Tribunal many years ago but unfortunately was misled by his scheme promoter that "everything was all right" and assumed silence was equivalent to no further action. (Something that - risking the ire of my professional colleagues - many agents, by omission and sometimes explicitly, contribted to.)

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 16:29

I agree with you about pushing HMRC to close enquires, which seems to be a route very few have gone down, even now its quite rare, I am in that process at present ( not a loan scheme) and HMRC did everything they could to get out of issuing a closure notice, including giving the undertaking to issue one if we withdrew our application, only for them to miss their own deadline and our application having to go back in, after which they did issue one that said the amount in dispute was taxable in one of three ways ( or more if they could think them up later) with no actual explanation as to why.

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 16:09

And this is the key problem with the loan charge and settlement opportunity, ' any case that was still open' which match the same facts obviously. HMRC are asking people to pay taxes or money on cases that they had not opened enquiries on, in many cases despite being aware of them through the DOTAS disclosures.

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 15:24

Sure but Rangers was decided a long time after 2010 and in the lower courts, HMRC had lost. Also, it was determined that the money was earnings prior to it having been paid into the trusts from which the loans were made, this is very different to a deemed relevant step arising on the 5 April 2019 on a loan to an individual from a trust, and really means that there is a double charge on the same money ( yes I know there are carve-outs to attempt to prevent this) .

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Replying to G Webber CTA:
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By PSTEN
19th Feb 2019 14:55

Do you draw any distinction between the pre 9 December 2010 position and post? Why does the government go out of its way to make specific legislation to stop loan structures if they believed that they never worked in the first place, despite at that time having lost a number of court cases and HMRC seemingly turning a blind eye by not even opening enquiries into the loan arrangements, and certainly not progressing many that they did open. Only at a later date after they have changed the law yet again do they ask people to make 'voluntary' payments equivalent to tax to masks their failings.

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Replying to G Webber CTA:
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By HLB
20th Feb 2019 08:15

Please let us not forget the decision makers in business who were fully informed and went ahead despite the risk warnings of the scheme promoters themselves and their own accountants.

I have seen engagement letters from promoters that contain very specific warnings that the advice given will in all likelihood be challenged by HMRC but still the risk was taken. Why? Are they idiots or can't they read?

No, they are business people, risk takers by nature who look at their P & Ls with a view to reducing expenditure, with tax being one of the largest lines of expenditure in many P & Ls.

To some, what is the difference between taking the risk of a tax strategy that might work or the risk of sourcing a component from a quality supplier in the UK compared to a possibly inferior product from abroad but at half the price?

There are those who went into these arrangements with their eyes wide open so please do not be too quick to blame the advisers!

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By justsotax
18th Feb 2019 16:39

of course the only 'fact' missing is the one which dictated that the net income they received into their account was substantially more than their usual post tax income when previously paid by way of salary.

If it looks too good to be true it usually is....

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Replying to justsotax:
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By G Webber CTA
18th Feb 2019 17:02

So you are offered a full time job with benefits and a post PAYE take home of around 65% of the gross salary - or -

You can do the same job but be at risk of immediate dismissal, no pension, no benefits, no sick pay but the end client says that if you use XYZ, not only is the job yours but you get to keep 85% of the same gross using a legal structure - or -

You can tell the client that you would like the 85% but as a diligent taxpayer, you can achieve this only by using a PSC or similar (around 75% efficient) and therefore need to increase the gross. The client is on record as saying "be aware that I have 20 people behind you willing to use the scheme that they/their agency recommend - so decide - job or no job".

All of my clients wish that they had not done what the end client and agency asked. Unfortunately they live in real time and do not have the luxury of hindsight.

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Replying to G Webber CTA:
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By justsotax
19th Feb 2019 10:42

I didn't need hindsight to be suspicious, I think your summary sufficiently indicates that this ain't straight forward... and that's just a few sentences.

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Replying to justsotax:
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By justsotax
19th Feb 2019 10:45

I wonder if any of these guys were suspicious when they were informed a top barrister said it was all legal and above board.

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Replying to justsotax:
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By G Webber CTA
19th Feb 2019 11:19

I wonder how many contractors would have been warned off if HMRC - in possession of DOTAS disclosures - actually did something with them in a reasonable time?

Instead, we have schemes disclosed in 2006, legislation in 2010, HMRC claiming that they have told "everybody" their view but that started in 2012.

If HMRC had the disclosure and asked the discloser for a list of users (within the law) and then contacted all the users, how many would have not only left that scheme but also never used another?

It is also very noticeable that when the DR rules first appeared in 2010, schemes disclosed fell off a cliff in terms of numbers.

I have seen the advice given to promoters as to why disclosure was not required - even though the schemes were clearly flouting ant avoidance law - all from professionally qualified people and firms. What I have not seen to any significant degree is HMRC challenging that decision.

We did ask about this via a FOI request. We had a swift response saying that it happens all the time. Great - can HMRC point to case references perhaps? Err- just the one. A case against a firm running what I would call a difference engine scheme - nothing to do with contractors.

One more example of how contractors are being sacrificed in order to hide HMRC blushes.

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Replying to justsotax:
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By G Webber CTA
19th Feb 2019 11:24

Not just barristers.

In some schemes Big 4 accounting firms letterhead appears on opinions saying everything is legal and above board.

I don't know how much you know about computers, but if you were offered a laptop that carries a brand name you recognise from a retailer who was part of a large group and backed by membership of several trade bodies, would you not rate it above a machine you buy from the shady bloke in the corner at the local pub?

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Replying to G Webber CTA:
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By justsotax
19th Feb 2019 16:19

depends how much cheaper it was - never heard the phrase - if it looks too good to be true it probably is....

maybe you need to carry your campaign to the big four rather than pushing the guilt onto those who probably didn't have anything to do with these schemes and didn't benefit from the big kick backs...just saying!

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Replying to justsotax:
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By G Webber CTA
19th Feb 2019 16:44

The majority of the evidence we have in our files from professionals saying that "this looks to be effective" is not from the Big 4 but from many smaller firms.

I'm not "pushing guilt". I'm saying that professional firms and individuals were active participants in the creation and sales process of these schemes and that they have largely escaped the approbation of HMRC or any accusation that they are culpable to a degree.

I am confident that I have evidence to support this.

I am bothered by the fact that many professionals, some with little knowledge of the events here and some perhaps with more, are prepared to view the part played by accountants and tax advisers through rose tinted glasses and hold clients - to whom we have a duty of care - wholly responsible.

You use the phrase "if it's too good to be true, it probably is". I agree that as a rule of thumb it works. Why then did accountants and tax advisers not say that to clients AT THE TIME?

A client looks to us as experts in both letter and spirit of the law and expects us to be up to date with judicial principle and application. They trust us. In some instances, in my opinion, that trust has been misplaced.

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By tayloralastair
18th Feb 2019 19:51

I read some of the comments above and I am startled by the naivety and lack of knowledge exercised by some of those posting above.
Over 10 years ago the retrospective tax legislation introduced by FA2008 was found to be effective after Huitson challenged it in respect of a tax avoidance scheme utilised in 2001. This case has been pursued through all the courts in the land and Europe and every time HMRC wins.
With this in mind I am amazed that any tax adviser of any credibility allows or even promotes any product carrying a DOTAS number to their clients. Ignoring the precedent of Huitson is indolent to the point of negligence and it brings our profession into disrepute.
There is a growing swell of political opinion that seeks to bring those who peddled these schemes to account for their culpability, and I can see grounds for such legislation- perhaps this can be enacted retrospectively too?
This view is not upholding 'the moral high ground': It is merely a desire to see those who ignore past precedent, who push clients and create these wholly artificial arrangements, who merrily take their commissions and sail off shrugging their shoulders when these schemes inevitably fail be admonished for their role in this debacle.
We have a responsibility to advise and guide clients who do not have our breadth of knowledge, not exploit them to earn pathetic commissions from marketed tax avoidance schemes. It is sad that some of the posters above are somewhat less than committed to this view.

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By David12345
19th Feb 2019 11:57

The real issue is that HMRC were fully aware as to what was happening and owed a strict duty of care to most clearly red flag this issue in a timely and clear manner. They didn’t and we’ve ended up with a multiple pile up complete with “injuries and deaths”.

Clients were recommended and accepted these schemes as part of “established” tax planning by members of the accounting profession in good faith . How ever would a client know as to which of those within the profession are the “good apples”and is the accounting profession now saying that these loans were miss sold ??

Consideration now needs to be given as to whether former HMRC officers should be allowed to advise on /promote tax schemes once outside the employ of the HMRC and as to whether legally they can consult with colleagues still in the employ of HMRC.

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By justsotax
19th Feb 2019 14:30

it is of course also true to suggest the vast majority of sellers were not accountancy firms...I realise that that is not convenient for your argument but is a factor to be considered.

I do not pretend to speak for all practices who are members here, but I would hazard a guess most have sympathy with these guys who were mis-sold tax schemes but at the same time most will have advised their clients against such schemes (not in hindsight but based upon the basic premise of the scheme).

If only you held the scheme providers to account like you seemingly want to hold all small accountancy practices to account. You need a better argument if you want practices who never did or would promote such schemes to support you, rather than attempting some sort of guilt trip.

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By G Webber CTA
19th Feb 2019 15:07

I'm not seeking to demonise small firms who may at best have seen few contractor clients nor seeking to criticise the many thousand of sensible advisers who either did or would have prevented their clients from entering schemes.

What we saw at the time (and today) is a number of niche practices and well known firms who specialised in contractor tax issues. Many started by dealing with IR 35 and later were forced to consider the impact of schemes being offered by firms who had in their ranks professional people and access to QC's etc.

Some of those niche firms did indeed turn away scheme promoters. Some did not and remained neutral in terms of advising their clients to use schemes. Some embraced with gusto the rise and rise of the schemes. Some became designers, vendors and advisers to such schemes and soon attracted many more contractors.

I'm not painting the accounting and tax professions as all bad. I'm saying that some professionals at the time the schemes were rife (and all the way to today) have shown less concern for their clients' welfare and prospects for HMRC enquiries than, in my opinion, they should have. By their actions however they have undermined the efforts of the honest and genuine professionals and fault lies - and continues to lie - with the institutes that regulate the sector as much as those individuals.

I would say that perhaps 75% of our clients did not seek a second opinion on the scheme offered, preferring to rely upon the material shown them by the scheme promoter. Foolish? In hindsight - yes.

The 25% of those who took the idea through a level of due diligence, including often the "trusted family accountant" all received an opinion that I suspect given where the law on negligence has moved to recently, would be seen as unacceptably weak today.

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By Exfoliate
19th Feb 2019 14:49

To weed out the 'good' advisors from the 'bad', I suppose we should ask those advisors if they used similar schemes to pay themselves. Those that did I don't have amajor problem with as they believed what they were doing and advising was right and legal. Those that didn't, well they have a big question to ask of themselves.

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