Loan charge - do these people want sympathy?

[Jokester]

A simple question, which no HMRC representative or Govt minister has been able to answer.

It was done like that because it's not logistically possible to prosecute 50k odd people that were engaged in this. Basically the loan charge is HMRC giving people the chance to avoid that, whilst still settling the matter financially (and in a lot of cases, still quids in for people who were doing it from 1997 to 2010 have been let off the hook!)

The Tax Tribunal system is in agreement with HMRC here - and you're missing the point in most contractors cases, they were the RangersFC in your example as they were both company and employee.

 

[Pudney]

I can see now why you're getting so upset. Misinformation indeed.

HMRC saying an avoidance scheme "doesn't work" does not equate to "illegal". Get your facts straight. For someone who works professionally in this field for taxpayers, you lack every aspect of professionalism.



Thank you for proving my point.

1) I'm posting personally, not professionally.
2) I've never said they were "illegal". That terminology is mainly used in the tax avoidance market when trying to sell schemes.
2a) "legal" and "illegal" are used to muddy the water by salesman and taxpayers who weren't really aware what they were being sold was a scheme with a real risk of failure.
3) As you've found, I've already posted a 2001 example that HMRC didn't accept, clearly indicating 2017 wasn't the point in time their opinion changed.
4) I didn't even need to bring to your attention the 2010 disguised remuneration rules to counter the 2017 timeline.
4a) Those 2010 rules would also call into question whether any of the loan schemes actually worked since that year regardless of any previous legal analysis, further bringing into doubt your argument that they are still not "illegal" (to use your terminology). My terminology would be that since 2010 the majority of the schemes have been clearly ineffective.

I get particularly irritated by posts such as yours, created by someone who doesn't really understand the technical nature but has done a lot of reading behind it. Unfortunately you don't have the knowledge to critically analyse what you're being told, leading to some quite wild assumptions and unfounded views.

As for the 2017 laws. Simple reason is that it draws a line in the sand. It doesn't solve the underlying dispute, but it does move who gets to keep hold of the money during the dispute.

 

[fezster]

2) I've never said they were "illegal".

I beg to differ. At the very least, you implied they were "not legal":

"legal back then" is a common piece of misdirection
<snip>
Difference of opinion does not equate to legal.

2a) "legal" and "illegal" are used to muddy the water by salesman and taxpayers who weren't really aware what they were being sold was a scheme with a real risk of failure.

By your own argument, I would say you are trying to muddy the waters then. Refer to YOUR post where you use the words "not legal".

3) As you've found, I've already posted a 2001 example that HMRC didn't accept, clearly indicating 2017 wasn't the point in time their opinion changed.

I suggest you read my post again properly. There are 2 faults in what you've said:

1. Just because HMRC "didn't accept" something, doesnt make it wrong. It's their *opinion*.

2. 2017 isnt when they changed their opinion. 2015 is - post RFC. Because the RFC ruling made employers liable for the tax, so HMRC decided to use the 2019 Loan Charge to get the money from individuals (with the Royal Assent of the Finance Bill in 2017).

4) I didn't even need to bring to your attention the 2010 disguised remuneration rules to counter the 2017 timeline.

4a) Those 2010 rules would also call into question whether any of the loan schemes actually worked since that year regardless of any previous legal analysis, further bringing into doubt your argument that they are still not "illegal" (to use your terminology). My terminology would be that since 2010 the majority of the schemes have been clearly ineffective.

The 2010 disguised renumeration rules brought into doubt employed schemes, not self employed schemes. Again, it's a simple but pertinent point which I'll repeat (because you have not answered it):

If these arrangements never worked (as HMRC claim), why was it necessary to introduce a new law in 2017 to obtain the tax which was supposedly always due?

I get particularly irritated by posts such as yours, created by someone who doesn't really understand the technical nature but has done a lot of reading behind it. Unfortunately you don't have the knowledge to critically analyse what you're being told, leading to some quite wild assumptions and unfounded views.

Hilarious. You have no idea who I am, as I have no idea who you are. I wouldnt be so bold as to make claims of superior knowledge on this topic. For all you know, I could be a tax barrister.

I'll let my arguments do the talking.

 

[Psycho Sonny]

Huh? Great argument there. Why not provide some concrete examples of where I'm wrong or provided misinformation?

Also, and this could be just how it's coming across, but why don't you lower your tone a little? There's little point in having a debate on something if you're going to use words like "liar". I have no skin in this game (other than being concerned about retro IR35) and Im able to see both sides of the argument. A little empathy in both directions wouldnt go astray.

If you do something to get around the spirit of the law by introducing steps which have no additional benefit other than to reduce tax then that is tax evasion.

They introduced steps additional steps into how they got paid for no other reason than to reduce their tax obligations.

So before employer paid employee through paye or whatever.

Then it changed to. Employer pays offshore company. Offshore company loans money to employee. Employee never pays back loan.

Therefore it can be deduced that they did this solely to get around income tax and that the loans are income as they are never expected to be paid back.

Therefore it was always against the spirit of the law. Therefore not okay to do.

There is a famous court case which I'm forgetting but it involved a dental practice or opticians along similar lines as well as another involving a car dealership along similar lines.

If you introduce additional steps, additional companies additional anything which has no commercial need other than to reduce tax. Then you can be assessed and penalties raised for that tax that went missing through those extra steps. There is case law to support this.

 

[fezster]

It was done like that because it's not logistically possible to prosecute 50k odd people that were engaged in this. Basically the loan charge is HMRC giving people the chance to avoid that, whilst still settling the matter financially (and in a lot of cases, still quids in for people who were doing it from 1997 to 2010 have been let off the hook!)

The Tax Tribunal system is in agreement with HMRC here - and you're missing the point in most contractors cases, they were the RangersFC in your example as they were both company and employee.

You dont have to prosecute anyone. This isnt a criminal trial. It's a tax dispute. And even then, only the scheme needs to be defeated in court. Not individuals. There is usually one lead case taken to tribunal and the ruling then applies to all. A lot of these arrangements were identical in their setup, so a GAAR ruling can allow similarly setup schemes to all be tackled using a single ruling.

Also, you are wrong in saying a lot of cases are still quids in. Whilst the Loan Charge may not apply pre-2010, existing tax law does. HMRC can use their existing powers to obtain the tax from them. It's ironic you would say many have been "let off the hook" - this implies the existing powers are/were not sufficient to obtain the tax due. Which is precisely the argument being made for saying the Loan Charge is retrospective in nature.

As for being RFC being both company and employee - the majority of those caught up in the Loan Charge used mass marketed schemes like AML. They were not £1000/day contractors. Many were on much more modest wages and used these arrangements for the ease of not having to run their own payroll. Many worked in the public sector, NHS and some even worked for HMRC! The minority were Ltd company and employee.

 

[fezster]

If you do something to get around the spirit of the law by introducing steps which have no additional benefit other than to reduce tax then that is tax evasion.

They introduced steps additional steps into how they got paid for no other reason than to reduce their tax obligations.

So before employer paid employee through paye or whatever.

Then it changed to. Employer pays offshore company. Offshore company loans money to employee. Employee never pays back loan.

Therefore it can be deduced that they did this solely to get around income tax and that the loans are income as they are never expected to be paid back.

Therefore it was always against the spirit of the law. Therefore not okay to do.

There is a famous court case which I'm forgetting but it involved a dental practice or opticians along similar lines as well as another involving a car dealership along similar lines.

If you introduce additional steps, additional companies additional anything which has no commercial need other than to reduce tax. Then you can be assessed and penalties raised for that tax that went missing through those extra steps. There is case law to support this.

Spot on. I agree with you. So answer this question:

If these arrangements never worked (as HMRC claim), why was it necessary to introduce a new law in 2017 to obtain the tax which was supposedly always due?

 

[happy_2008]

I read this article too and made for some interesting reading.

 

[Psycho Sonny]

Spot on. I agree with you. So answer this question:

I'm sorry but I don't work income tax or paye so have no idea what law you refer to.

Could you please post a link to official .gov.uk guidance on it?

However it's not my speciality therefore that question is best anwered by someone who specialises in that area as I don't really know how it works.

 

[fezster]

I'm sorry but I don't work income tax or paye so have no idea what law you refer to.

Could you please post a link to official .gov.uk guidance on it?

The 2019 Loan Charge. It received Royal Assent in the Finance Bill 2017. Can be found here:

https://commonslibrary.parliament.uk/research-briefings/cbp-8811/

It's what this thread is all about.

 

[Psycho Sonny]

The 2019 Loan Charge. It received Royal Assent in the Finance Bill 2017. Can be found here:

https://commonslibrary.parliament.uk/research-briefings/cbp-8811/

It's what this thread is all about.

That isn't a new law.

The introduction explains why it was introduced. It was to make it clearer as people were getting mixed up.

"Since the legislation establishing the Loan Charge was introduced, there have been many concerns as to its design and the financial difficulties facing taxpayers who used these schemes to either settle with HMRC or pay the Charge. In the 2020 Budget the Government confirmed it would implement a series of reforms to the Loan Charge, following the recommendations of an independent review"

It's essentially like a Windows update.

The law was already set this is to simply clear it up.

I've only read the intro. Like I say income tax isn't my speciality. But that's what I'm getting from the intro.

"In the 2016 Budget the Government confirmed that new schemes had emerged which attempted to sidestep the 2011 legislation often involving “individuals being paid in loans through structures such as offshore Employee Benefit Trusts”, and that it would introduce legislation to counter their use, including “a new charge on loans paid through DR schemes which have not been taxed and are still outstanding on 5 April 2019."

Essentially people were still trying to get around it so they updated it. That refers to legislation back in 2011 which people were still trying to circumvent.

Do you understand now why it was introduced? To stop others from seeing a hole they could still exploit.

 

[fezster]

That isn't a new law.

....

Like I say income tax isn't my speciality. But that's what I'm getting from the intro.

Then honestly, I'd recommend you read up on it first. It is a new law and it was given Royal Assent in the FB of 2017.

 

[Kenai]

So answer this question:

My understanding is that the legislation was 'necessary' so as to create a neat point of assessment, rather than trying to assess many many individual tax years, across many many individual tax payers (arguably it wasn't necessary so much as a significantly more streamlined and efficient way to deal with the issue, they could have gone after people regardless but in a much more time consuming and inefficient manner). The legislation was all about bundling the liability into one sum that could be more easily dealt with, rather than creating the liability in the first place. It's considerably more efficient to have one argument about overall tax due against outstanding loan amounts than it is to try and categorise what would have been due in individual years retrospectively.

 

[Psycho Sonny]

Then honestly, I'd recommend you read up on it first. It is a new law and it was given Royal Assent in the FB of 2017.

I have no teeth in this fight tbh.

You are best speaking with someone who has.

I have already explained the position.

If anything goes against the spirit of the law then it's evasion.

These people all knew they were evading tax. It costs money to administer these schemes. Therefore it was people earning quite a lot of money on them but paying very little in tax.

It's their responsibility and they should have contacted HMRC or an independent accountant or professional before agreeing to it.

I'm not going to argue semantics here. What they did went against the spirit of the law and they introduced steps solely to get around the spirit of the law.

 

[fezster]

I have no teeth in this fight tbh.

You are best speaking with someone who has.

Then why are you commenting on the thread?? You have an opinion, yet when given a counterargument to that opinion, you say you dont really know anything about this and to ask someone else. How bizarre...

If anything goes against the spirit of the law then it's evasion.

No. That is not the definition of tax evasion.

It's their responsibility and they should have contacted HMRC or an independent accountant or professional before agreeing to it.

If you knew anything about this topic before commenting on it, you'd know many did contact HMRC at the time and some even have letters from them saying all is ok. And pretty much everyone who used one of these arrangements consulted with an accountant, usually regulated by the ICAEW. And every scheme was backed by Queen's Counsel legal opinion (whether that was worth the paper it was written on is another matter).

You've actually reminded me why I decided not to engage in this topic of conversation last time around. Trying to have a debate on a topic with lots of complexities and nuances with a forum full of people who have little idea other than the headlines they've read in a news article, is completely pointless. That's not a dig at anyone - it's just a reality. Not everyone has time to read in detail what the arguments behind this are and, unfortunately, that's what HMRC rely on to bully their way into getting what they want. Even MPs who voted on this legislation didnt understand it properly (as has been evidenced in numerous debates in Parliament).

 

[stockhausen]

. . .
If anything goes against the spirit of the law then it's evasion.
. . .

Tell that to Dominic Cummings!

I believe that tax "avoidance" by means of exotic interpretation of the law is not unusual in the UK. Successive Governments have been unwilling to address these cunning schemes, perhaps because they are exploited by "chums" but probably because specialist crooks are almost invariably one step ahead of legislators.

There is probably a reason why Britain is so popular with money launderers and people who rip off populations around the world and I don't think that it is something of which we should be very proud; ethics, morality and "fair play" are not regarded highly here.

Supporters of tax dodging always excuse themselves with the magic letters ISA - yeah, right

 

[fezster]

Tell that to Dominic Cummings!

I believe that tax "avoidance" by means of exotic interpretation of the law is not unusual in the UK. Successive Governments have been unwilling to address these cunning schemes, perhaps because they are exploited by "chums" but probably because specialist crooks are almost invariably one step ahead of legislators.

There is probably a reason why Britain is so popular with money launderers and people who rip off populations around the world and I don't think that it is something of which we should be very proud; ethics, morality and "fair play" are not regarded highly here.

Supporters of tax dodging always excuse themselves with the magic letters ISA - yeah, right

I actually agree with all you have said.

But govt should fix the law - not punish the small fry who dared to use the same schemes their rich friends had been using for decades. Moving goalposts is not the right approach - if we all stand idly by and allow one set of goalposts to be moved, the next ones to be moved may well affect us.

I honestly wouldnt be surprised if HMRC decide to go after IR35 retrospectively if they are allowed to get away with their current behaviour.

 

[NVP]

 

[Pudney]

I beg to differ. At the very least, you implied they were "not legal":

No, I used terminology specifically. If you decide to read more into it you do so at your own risk.

By your own argument, I would say you are trying to muddy the waters then. Refer to YOUR post where you use the words "not legal".

No, you are operating on an X or Y basis. Tax isn't X or Y. It is X or Y or numerous possibilities in between. But you just want it to be black and white, AKA "legal" or "not legal". Entirely the marketing ploy of these promoters who could quite happily say "this isn't illegal" but fail to mention their opinion drastically differs from HMRC and has never been tested in a court of law appropriately.

I suggest you read my post again properly. There are 2 faults in what you've said:

1. Just because HMRC "didn't accept" something, doesnt make it wrong. It's their *opinion*.

Of course it's their opinion. But that doesn't make your opinion right either.

It's a different sales pitch though to say "hey, look at this scheme, there's no real case law to support it and we know HMRC aren't keen on it so consider it a high risk option. But to date there's nothing that says we're technically wrong". Bit of a different presentation that.

2. 2017 isnt when they changed their opinion. 2015 is - post RFC. Because the RFC ruling made employers liable for the tax, so HMRC decided to use the 2019 Loan Charge to get the money from individuals (with the Royal Assent of the Finance Bill in 2017).

This is convoluted and a bit confusing. I have no real idea the point you are trying to get at. The RFC ruling meant that the initial step of transferring money to a trust didn't prevent it also being part of the taxable remuneration of the employee. The case was dealing with the simple fundamental question of whether the money was even taxable income.

The liability to pay wasn't part of the question if I recall correctly, which I may not as it's been a number of years since I read it.

The question of whose liability it is doesn't impact the fundamental question of whether a liability exists in the first place. Your point about the loan charge moving who pays it isn't even really correct. The loan charge at first instance applies to the employer who must report and pay the tax. If they don't then the employee has to. Hardly egregious when you consider they had the benefit of the money to begin with.

I have whiffs of you being aware of the following case, although I assume you're not up to date nor aware of the particular arguments failure at the FTT:

https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07884.html

The 2010 disguised renumeration rules brought into doubt employed schemes, not self employed schemes. Again, it's a simple but pertinent point which I'll repeat (because you have not answered it):

The 2017 changes weren't really needed prior to 2017 as the use of self-employed status to circumvent the laws wasn't really used. Most people were happy with the Personal Companies/Umbrellas and using EBTs or whatever to avoid tax. The rise of self-employed schemes only really started to be heavily market in the late teens from my experience. HMRC is many things, one of the things that probably won't be too controversial is that they're a fairly reactive organisation.

Hilarious. You have no idea who I am, as I have no idea who you are. I wouldnt be so bold as to make claims of superior knowledge on this topic. For all you know, I could be a tax barrister.

I'll let my arguments do the talking.

Are you a tax barrister? If so why am I having to explain the nuances of tax to you? Why am I even having to point out the glaring holes in your argument, if you are apparently a tax barrister?

I'll just remind you of this as well:

though, not because Im smart, savvy or more well informed - but moreso by luck and circumstance

If you are apparently a tax barrister why weren't you "more well informed"?

 

[Psycho Sonny]

Then why are you commenting on the thread?? You have an opinion, yet when given a counterargument to that opinion, you say you dont really know anything about this and to ask someone else. How bizarre...




No. That is not the definition of tax evasion.



If you knew anything about this topic before commenting on it, you'd know many did contact HMRC at the time and some even have letters from them saying all is ok. And pretty much everyone who used one of these arrangements consulted with an accountant, usually regulated by the ICAEW. And every scheme was backed by Queen's Counsel legal opinion (whether that was worth the paper it was written on is another matter).

You've actually reminded me why I decided not to engage in this topic of conversation last time around. Trying to have a debate on a topic with lots of complexities and nuances with a forum full of people who have little idea other than the headlines they've read in a news article, is completely pointless. That's not a dig at anyone - it's just a reality. Not everyone has time to read in detail what the arguments behind this are and, unfortunately, that's what HMRC rely on to bully their way into getting what they want. Even MPs who voted on this legislation didnt understand it properly (as has been evidenced in numerous debates in Parliament).

I've layed out my position.

I've also pointed out there is case law to support my position.

The people who did approach HMRC I would like to see these letters. As HMRC won't give a position rather they point you to the legislation and say police yourself. If you get it wrong and we find out then we will come after you.

They will never write a position within a letter for this reason that people will then take that letter and then use that decision for other similar decisions which are completely or marginally different.

So HMRC policy is point to the official guidance and police yourself.

If you go to HMRC with a question they will point you to the guidance. They will never in writing say yes what you are doing is correct because they don't know the full position, they don't know all the facts and your set up. They don't know what you are telling them and what you are not telling them is how it is. So I'd say the letters these people have are ones that hold zero merit in your argument.

So as I said before you need to speak with a specialist in income tax. They will be able to point out the correct guidance, case law, legislation, etc.

It is what it is. You police yourself and if you get it wrong and are found out then you get hit for it.

If you don't like that then tough that's how it works. I don't specialise in income tax but I know enough to know what you are suggesting is wrong.

 

[fezster]

Are you a tax barrister?

You've missed the point entirely. It's your arrogance that I was pointing out - you've no idea who someone on the other side of a forum is, yet you presume to know more than them?

If so why am I having to explain the nuances of tax to you? Why am I even having to point out the glaring holes in your argument, if you are apparently a tax barrister?

So far, you've not pointed out anything to me (or did I miss it?).

All you seem to do is simply refute your own arguments. Here's one example:

Pudney:
3) As you've found, I've already posted a 2001 example that HMRC didn't accept, clearly indicating 2017 wasn't the point in time their opinion changed.

fezster:
1. Just because HMRC "didn't accept" something, doesnt make it wrong. It's their *opinion*.

Pudney:
Of course it's their opinion. But that doesn't make your opinion right either.

So you agree with me that their opinion meant diddly squat back in 2001 (the very argument you put forward to explain why HMRC are right with their implementation of The Loan Charge).

This is convoluted and a bit confusing.

Only to somebody who knows very little about this topic. Or worse, knows about it, but doesn't understand the catastrophic impact of these nuances.