Loan charge - do these people want sympathy?

[Dirk Diggler]

HMRC being able to retroactively amend the tax code 20 years into the past is enough to cause concern for a number of currently legitimate means of avoiding tax.

Regardless of the moral standpoint of what these contractors were doing, that is absolutely terrifying. HMRC cannot reasonably claim to have been unaware of the practice for two decades.

It's actually a refreshing approach and hopefully HMRC can catch up with every single one of them.

 

[Django x2]

Legally there is a big issue.

You are now venturing into barter transaction or deemed supplies.

You do work for X. You receive money from X for said work in the form of a loan. It's disguised renumeration.

If I borrow a calculator what's the supply and renumeration?

Did I supply you with work or a service when I borrowed your calculator? What's the Value of the calcultor? Did I give you the calculator back?

All of these things matter when you are identifying a situation and what actually happened.


I'll give you an example let's say you are a professional rally car driver. Let's say I own an oil company. You say I want to use your oil, give it to me for free and I will put a sticker on my car in return so you get advertising.

Do you think any tax is due in the above scenario? Yes it is because a product, service and work has exchanged hands between two registered companies even though no money has.

Basically you cannot say something is a loan when it's not in a business or work setting.

That is actually fraud and therefore illegal. So you are completely incorrect in your logic.

It's why politicians cannot accept gifts like a day out in the executive box from a private company, etc. Because that use has value and is seen as money or gift being given to them in the form of a perk.

Actually that's not the reason at all, it's bribery and corruption, and the latter of these two definitions is tenuous regarding the "loan charge" scheme.

Additionally, the rally example is flawed, because you can't monetise advertising revenue to a specific asset (or liability), so you cannot determine a taxable amount, therefore what tax is due? A minimal amount which would fall well within tax free allowances.

All you've safely done is highlight all the scenarios clever organisations went through to show that this was a perfectly legitimate (and I will reiterate my viewpoint; morally ambiguous) loophole.

If you lend me a calculator and subsequently settle the terms by stating work prior to the agreement is sufficient "repayment", that is perfectly acceptable.

 

[Kemik]

If you lend me a calculator and subsequently settle the terms by stating work prior to the agreement is sufficient "repayment", that is perfectly acceptable.

It's not if it looks artificial. Disguised remuneration/deemed dividend is a very common trait tax authorities look for. Some countries are so tight on it that even legitimate transactions with clear commercial reasoning can fall into the legislation.

 

[dowie]

Completely agree with the risk being if X loses - a massive disincentive for any of these people contemplating fighting.

However, I also remember reading that HMRC are deliberately avoiding taking any schemes to tribunal - sometimes for years on end. This racks up interest and penalties, thus disincentivising X further into taking this risk. There may be a way to force a case to go to tribunal, but it's not clear if HMRC need to oblige for it to happen in a timely manner.

Also, not declaring the Loan Charge correctly has punitive penalties attached to it. I dont have it to hand, but isn't it 100% or something? It's likely these penalties would become due way before the taxpayer gets his/her day in court.

So... they can appeal, they've got some risk but they can appeal.

Bottom line though is they (quite deliberately) took a risk in the first place, it should have been obvious that there was risk here however even if it wasn't then a competent tax advisor could have noted that HMRC does object to these schemes.... I think it is pretty silly to not take independent advice on something like this but in reality I know that people who have benefited from this (and other schemes) were well aware it was dodgy in the first place. People who are left in a sticky situation should have perhaps kept some liquid assets available.

I feel sorry for the agency workers/nurses who genuinely didn't know. Traders getting bonuses* via this sort of scheme or contractors on a hefty daily rate on the other hand should have known better. I know of one group of traders who had a court case over an offshore family trust making loans years ago, that HMRC has taken a dim view of these schemes isn't particularly new, it certainly didn't come out of the blue when the loan charge appeared, again a competent tax advisor could have explained that there was risk here.

Honestly big takeaway here should be independent advice! People brush it off but it can be worth it's weight in gold! Got a new employment contract/new employer... containing a non-compete or NDA etc.. go see an employment solicitor. Thinking about getting involved in a tax avoidance scheme, go consult a chartered tax advisor, independently!

*This is where a mate of mine worked, they had a big court case over "loans" years ago, this isn't anything new... obviously they were a big target back then due to historical tax avoidance too:

https://www.theguardian.com/business/2009/feb/18/rbs-metal-traders-bonuses

I know of another person who was caught out because he was a "second hand car dealer"... guy has never sold a second hand car in his life, he was an equities trader!

They knew full well there was risk there - you'd have to be naive to genuinely believe there was no risk from HMRC in taking a dodgy "loan" you're not going to repay or claiming to be a car dealer when you're clearly not. Perhaps some of the IT guys caught up in this were naive re: the risk of having to pay the tax owed relative to the traders who'd have seen/heard of multiple schemes over the years but I suspect a majoirty of IT contractors were aware too.

 

[Psycho Sonny]

Very thorough summary, @Pudney. This was my understanding, but it's good to get validation from someone who works in this field.



Completely agree with the risk being if X loses - a massive disincentive for any of these people contemplating fighting.

However, I also remember reading that HMRC are deliberately avoiding taking any schemes to tribunal - sometimes for years on end. This racks up interest and penalties, thus disincentivising X further into taking this risk. There may be a way to force a case to go to tribunal, but it's not clear if HMRC need to oblige for it to happen in a timely manner.

Also, not declaring the Loan Charge correctly has punitive penalties attached to it. I dont have it to hand, but isn't it 100% or something? It's likely these penalties would become due way before the taxpayer gets his/her day in court.

HMRC don't need to take anything to tribunal.

You don't have a clue how it works.

HMRC make an assessment or they don't.

You take them to tribunal if you disagree. They don't take you to tribunal.

 

[Psycho Sonny]

Actually that's not the reason at all, it's bribery and corruption, and the latter of these two definitions is tenuous regarding the "loan charge" scheme.

Additionally, the rally example is flawed, because you can't monetise advertising revenue to a specific asset (or liability), so you cannot determine a taxable amount, therefore what tax is due? A minimal amount which would fall well within tax free allowances.

All you've safely done is highlight all the scenarios clever organisations went through to show that this was a perfectly legitimate (and I will reiterate my viewpoint; morally ambiguous) loophole.

If you lend me a calculator and subsequently settle the terms by stating work prior to the agreement is sufficient "repayment", that is perfectly acceptable.

Disguised renumeration as a non payable loan is illegal. No matter what you you try to spin it.

Also you can put a figure on the amount as you would take other cases where there hasn't been a barter transaction and see what they paid for similar advertisement, etc.

Anyway your original post was wrong and it's not only me who quoted and said so. Others agree that income disguised as loans isn't okay and it's not just a matter of the terms agreed especially if both parties have an agreement and contract in place where goods or services exchanged hands in order for the fake loan to be put into place.

 

[Django x2]

Disguised renumeration as a non payable loan is illegal. No matter what you you try to spin it.

Also you can put a figure on the amount as you would take other cases where there hasn't been a barter transaction and see what they paid for similar advertisement, etc.

Anyway your original post was wrong and it's not only me who quoted and said so. Others agree that income disguised as loans isn't okay and it's not just a matter of the terms agreed especially if both parties have an agreement and contract in place where goods or services exchanged hands in order for the fake loan to be put into place.

Again, no. Disguised remuneration (not renumeration) since 2017, at best since 2011, is, or is now classed as illegal. This is where the pitfalls of everything you are arguing against lie. You are using legislative terms that didn't exist 20, 10 or even 5 years ago, to base your arguments upon. If the legislation hadn't been passed in the Finance Act, no one would think anything of this other than a cool way to pay less tax, which is exactly what it was. A loophole, that has legislatively now been closed. It's exactly the same with IR35, another legislation which I suspect will be back dated, although it's much harder to prove.

 

[Jokester]

Again, no. Disguised remuneration (not renumeration) since 2017, at best since 2011, is, or is now classed as illegal. This is where the pitfalls of everything you are arguing against lie. You are using legislative terms that didn't exist 20, 10 or even 5 years ago, to base your arguments upon. If the legislation hadn't been passed in the Finance Act, no one would think anything of this other than a cool way to pay less tax, which is exactly what it was. A loophole, that has legislatively now been closed. It's exactly the same with IR35, another legislation which I suspect will be back dated, although it's much harder to prove.

The tribunal on EBTs found that disguising income as loans as far back as about 2001 weren't legitimate, it was the entire basis of HMRC v RFC, RFC had stopped using them by 2009 when they realised they were on shaky ground (as did other football clubs - many of them deciding to pay up when they realised their "mistake" and HMRC came calling).

Also IR35 has been on the go for coming up to 20 years as well - anyone disguising their employment as a LTD company can and many already have been subject to investigation and large tax bills. The changes to IR35 that have being delayed to next year are shifting the liability going forward to the employer, not the employee - though this could cause issues where employers decide legitamate contractors are inside IR35 because they are risk adverse or ill informed and force them to become PAYE. Potentially that could then put the contractor in the sights of HMRC for a tax investigation with all the hassle that goes with it, even if they are legit.

 

[fezster]

The word illegal being bandied about, showing a complete lack of understanding of this topic.

Don't believe me? From the horses mouth, as they say:

HMRC has always been of the view that these schemes do not achieve the tax advantages they say they do, a view confirmed by the Supreme Court. While it is not illegal to enter into a DR scheme, users are legally obliged to declare all of their taxable earnings – including earnings disguised as loans under the schemes – on their tax return.

In 2017 Parliament passed legislation that required scheme users to declare their outstanding loan balance as income on their 2018 to 2019 tax returns, known as the ‘loan charge’.

Reference: https://www.gov.uk/government/publi...ssue-briefing-disguised-remuneration-on-loans

You are using legislative terms that didn't exist 20, 10 or even 5 years ago, to base your arguments upon.

Spot on. And a very important point, re retrospection (or retroactive - which is the same thing). The landscape was very different 10+ years ago.

It's pointless trying to argue the semantics of this topic with someone who doesnt even have a grasp of the fundamentals.

 

[Psycho Sonny]

The key part being

"users are legally obliged to declare all of their taxable earnings – including earnings disguised as loans under the schemes – on their tax return."

What do you think legally obliged means?

You are arguing semantics here. Clutching at straws.

People used the schemes and then didn't fulfil their legal obligations of declaring that income.

Therefore illegal.

It's not illegal to have a car accident. However it is illegal to do a hit and run. Arguing semantics when you have nothing left.

 

[stockhausen]

The key part being

"users are legally obliged to declare all of their taxable earnings – including earnings disguised as loans under the schemes – on their tax return."

What do you think legally obliged means?

You are arguing semantics here. Clutching at straws.

People used the schemes and then didn't fulfil their legal obligations of declaring that income.

Therefore illegal.

It's not illegal to have a car accident. However it is illegal to do a hit and run. Arguing semantics when you have nothing left.

Spot on

Having said that, I do find it odd that some selfish people seem completely to ignore the moral, ethical aspect when they advocate and attempt to justify tax dodging

 

[fezster]

The key part being

"users are legally obliged to declare all of their taxable earnings – including earnings disguised as loans under the schemes – on their tax return."

Wow. I dont know if you're being deliberately obtuse just because your pride is getting in the way. Despite me showing you in black and white, you persist.

The key part being

"users are legally obliged to declare all of their taxable earnings – including earnings disguised as loans under the schemes – on their tax return."

Two points:

1. This line you are quoting, wasn't written until post 2017 (maybe even post 2018). So to @Django x2's point, you are using terms which didnt exist pre-2010.

2. If a person used a DOTAS tax avoidance scheme, which was fully declared on their tax return. Do you think they still had to report their loans as income? They didn't. That's the whole point of a tax avoidance scheme. You have a "legitimate" reason for not declaring as income - therefore, it is not illegal, because you are lawfully using a mechanism to reduce your tax. Whether or not that mechanism eventually gets proven to have worked or not, is another matter. You may have to end up paying the tax. But it still wont make it illegal.

These are basics of tax! I'm done discussing any further with you.

 

[NVP]

I'm done discussing any further with you.

I doubt that....

 

[fezster]

I doubt that....

I tried to ignore for quite a number of posts - it just got too ridiculous, though. This time ..........

 

[Theophany]

I think there were two issues, getting evidence of who was actually involved with it and then getting the court judgements which both took years and years. The big break was RangersFC going into administration apparently as it unwittingly provided a treasure trove of paperwork into the use of EBTs in 2012, including the "side letters" demonstrating the schemes were an artificial contrivence. It was then not until 2017 (I think?) that the final court judgements were made, which agreed that these schemes were a deliberate attempt to avoid tax, rather than a simple error of misapplication of tax rules so allowed HMRC to go back 20 years if they wanted rather than the usual 6 years.

Footballers had been doing this for years, I remember it being widely reported in the late 00s and early 10s. I'll admit I am biased against HMRC and financial services regulators in general for a number of reasons, but I just don't buy that they couldn't reasonably have acted sooner.

It's actually a refreshing approach and hopefully HMRC can catch up with every single one of them.

I think you're conflating two different things. It is good that these people who have wilfully done wrong are taken to task from a moral perspective. However, it is scary that HMRC can retroactively apply tax rules to people who had legally acted within the rules and were professionally advised to do so.

An example that is a little too close to home for me; I save my client £250k in Inheritance Tax by using perfectly legal tax avoidance schemes. They subsequently die and their kids inherit a greater estate with less tax to pay. What happens in 10 years time if HMRC decide that the rules were not as strict as they want them to be now and go after those beneficiaries? Are they then forced to sell their family homes to pay the tax that was not due a decade prior but suddenly is now because the tax is being applied retroactively?

This - 100%. I've reached my limit of enthusiasm on this topic, but I will continue to follow the outcome, because further action from HMRC (especially around IR35 and retrospective legislation) should frighten any current or former contractor.

I'd go so far to say 'any taxpayer' not just contractors.

 

[Psycho Sonny]

Wow. I dont know if you're being deliberately obtuse just because your pride is getting in the way. Despite me showing you in black and white, you persist.



Two points:

1. This line you are quoting, wasn't written until post 2017 (maybe even post 2018). So to @Django x2's point, you are using terms which didnt exist pre-2010.

2. If a person used a DOTAS tax avoidance scheme, which was fully declared on their tax return. Do you think they still had to report their loans as income? They didn't. That's the whole point of a tax avoidance scheme. You have a "legitimate" reason for not declaring as income - therefore, it is not illegal, because you are lawfully using a mechanism to reduce your tax. Whether or not that mechanism eventually gets proven to have worked or not, is another matter. You may have to end up paying the tax. But it still wont make it illegal.

These are basics of tax! I'm done discussing any further with you.

No you think you have a legitimate reason for not declaring income because you are operating an illegal scheme you deem legal or are operating within a grey area which goes against the spirit of the law.

So it was rightfully challenged.

That then went to court.

They found in favour of HMRC.

So it was found these schemes were illegal, not in 2017 but when they operated.

The above are facts.

They just introduced a mechanism in 2017 which made it easier for them to enforce because there was thousands of cases and instead of having all the minor differences be challenged they drew a line in the sand and said all found on the wrong side have to pay up or face the consequences.

To say that you could just make up an illegal scheme use that declare it and you didn't have to pay tax shows you have no understanding of tax or case law.

There will be people today not declaring income and getting away with it. Some will get caught and some won't.

Everyone has always had a legal obligation to declare all their income for tax purposes. Even if they used a scheme or not.

The key part is disguised renumeration. They were saying this isn't income it's a loan so therefore you cannot tax me on this money I have received because it's a loan.

Only an idiot would argue that was okay. Otherwise every time I do a job I'll say no don't pay me, give me a loan I never have to pay back instead. I'll declare all this income as loans and not pay tax.

Just because you declare something on a return doesn't mean you assessed yourself correctly or filled out the return correctly.

 

[Psycho Sonny]

Spot on

Having said that, I do find it odd that some selfish people seem completely to ignore the moral, ethical aspect when they advocate and attempt to justify tax dodging

The British public has always had a dim view if paying tax and HMRC and the tax man.

If you asked 100 folk in the street if they could pay less tax and have a high chance of getting away with it they would by an overall majority do it.

Hell you could literally go to any mechanic, self employed person and ask for a discount if you pay cash.

People in this country have no idea how expensive schools, hospitals, roads, public services and lighting is.

If fezster was hit by a car tomorrow it would cost tens of thousands to the NHS. Yet I bet he hasn't paid in that much over the past few years.

It may also cost the police thousands to find the guy who did it if they ran off. It may take years to go to court and then thousands to house that person in a prison.

People have no idea how the system works or the costs involved.

 

[fezster]

because you are operating an illegal scheme you deem legal

While it is not illegal to enter into a DR scheme

Reference: https://www.gov.uk/government/publi...ssue-briefing-disguised-remuneration-on-loans

Furthermore, while loan schemes are contrived tax avoidance vehicles that are open to be challenged by HMRC, they are not illegal to operate or participate in, as previously confirmed by the financial secretary to the Treasury, Jesse Norman.

Reference: https://www.computerweekly.com/news...ding-public-over-loan-scheme-promoter-arrests

The minister admitted during a session of the Lords Economic Affairs Committee on 16th July 2019 that promoters of contractor loan arrangements had done nothing illegal

Reference: https://www.hmrcloancharge.info/wp-...AG-Rebuttal-to-Jesse-Norman-Letter-to-MPs.pdf

 

[Psycho Sonny]

It's not illegal to enter. It's illegal not to declare that income within the scheme.

Happy? Therefore if you used the scheme and never declared that income that is illegal.

Again it's semantics.

If you use the scheme and don't declare that income that is illegal and always has been.


Again using a simple example so you understand.

It's not illegal to have a car accident. But it is if you are drunk, don't have insurance, driving license, etc.

So using the scheme is illegal if you aren't declaring the income for tax purposes.

 

[Dirk Diggler]

I think you're conflating two different things. It is good that these people who have wilfully done wrong are taken to task from a moral perspective. However, it is scary that HMRC can retroactively apply tax rules to people who had legally acted within the rules and were professionally advised to do so

I work beside these people and I know exactly what they've been getting up to. No sympathy here, as I said previously it's no better than benefits cheats.

As for "professionally advised", I've heard some right horror stories involving lazy, unscrupulous accountants. They know nothing will stick to them, which is a pity because it's a service being provided and the customer (tax dodgers) should have a route to claim something back via the crooked bean counter.

"HMRC have said that I owe them £1000's after an audit of the accounts you did for me"

Cuts to Randy sprawled naked on the rug...

We're sorry...?