Loan charge - do these people want sympathy?

[Jokester]

*snip*

No, I'm confused why you're arguing that it was pudney that said something (about HMRC giving people letters), when it was fezster that said that and you even quoted him.

I agree with you though, there's been a lot of stuff said about people getting letters or that they declared they were taking loans as a form of income to HMRC (or where they really just declaring loans being taken to HMRC?). As you say, should be easy enough to produce evidence of this, if it exists, I've never seen evidence of it being shared.

 

[Psycho Sonny]

Not if they continue arguing with the wrong people

Also, I would argue that a judgement on VAT isn't really applicable to loan charges.

Unfortunately I don't know specific income tax judgements however the scenario is similar and it's the logic which is key.

There will be plenty of income tax case law to support this specific scenario however a specialist in income tax would be able to rattle them off.

 

[Psycho Sonny]

No, I'm confused why you're arguing that it was pudney that said something (about HMRC giving people letters), when it was fezster that said that and you even quoted him.

I agree with you though, there's been a lot of stuff said about people getting letters or that they declared they were taking loans as a form of income to HMRC (or where they really just declaring loans being taken to HMRC?). As you say, should be easy enough to produce evidence of this, if it exists, I've never seen evidence of it being shared.

Where did I say it was pudney?

I think you have gotten the wrong end of the stick there.

I quoted fester as he's failed to respond to two of my posts that tore his apart.

 

[Jokester]

Where did I say it was pudney?

I think you have gotten the wrong end of the stick there.

I quoted fester as he's failed to respond to two of my posts that tore his apart.

Ah yeah you're right, it's not you confusing me

 

[stockhausen]

I think you need to understand the difference between evasion and avoidance . . .

Actually, I do understand the difference.

However, tax avoidance by means of "exotic" interpretations of the law strikes me as being just within the law prohibiting evasion - it is reprehensible and immoral - still, who cares about morality where brass is involved?

 

[NVP]

Ah yeah you're right, it's not you confusing me

Put down the pipe

 

[Psycho Sonny]

Actually, I do understand the difference.

However, tax avoidance by means of "exotic" interpretations of the law strikes me as being just within the law prohibiting evasion - it is reprehensible and immoral - still, who cares about morality where brass is involved?

It's not normally an exotic interpretation.

It's normally a grey area which gets exploited or the line pushed further and further.

An exotic interpretation in my opinion would be evasion. As you aren't interpreting it as it was meant to be therefore you are going against the spirit of the law.

Also avoidance can be as simple as business structure.

I give you an example.

I decide to open up a takeaway selling kebabs. It does very well my turnover of £75k a year.

I see that I could utilise space better and open up an additional line selling pizzas at the other side of the shop with its own till and counter.

Pizzas start doing well and they also turnover £75k per year.

So my combined turnover is £150k

I need to register for vat and start paying vat now. But my accountant says run them as two seperate businesses. The business on the right is kebab business. The business on the left is a pizza business. Both are seperate businesses. They have their own tills and counters. Someone can come in just to order a pizza or a kebab.

That is evasion. As the two businesses aren't seperate in fact they share the same premises, they share the same stock room, they share the same deliveries, they share the same staff. None of these are seperate. It's a false seperation so that you don't have to hand over 20% vat.

The above is a simple explanation of evasion.

Now avoidance could be I'm a window cleaner. I earn £60k after costs per year. This is paid through self assessment so I fill out at the end of the year I earned £60k income.

I am then taxed on everything above my allowance. So after 12k it's 20% and then so on and so forth through each band.

So I'm paying NI, 20% on some income and then 40% above £50k.

The following year I decide to set up a limited company and become the director. I now pay myself £12,500 as an employee so no income tax due. My wife who was a housewife before with no income I decide to make her the secretary for the company and pay her £12,500 as an employee so she also pays zero income tax. But I'm getting £25k household income now completely tax free.

The other £35k I can leave in the company or take as a dividend and even split it between me and my wife if it goes over the threshold of £37,500 and the first £2k is tax free. So to take advantage of that I'll pay my wife a dividend of £2k and I'll pay myself a dividend of £33k and only pay 7.5% on £31k Vs 20% and 40% income tax before.

I've legally reduced my tax liability. I've avoided tax.

That's the clear distinction between the two.

 

[JKD]

For some NHS workers, using a loan charge arrangement was a condition of employment for them. Don’t see people jumping on the NHS key workers and labelling them as greedy capitalist pigs.

 

[stockhausen]

For some NHS workers, using a loan charge arrangement was a condition of employment for them. Don’t see people jumping on the NHS key workers and labelling them as greedy capitalist pigs.

As you say, it was "a condition of employment", not the NHS Workers' choice.

The "greedy capitalist pigs" were likely to be the outsourcing agency. Recruitment Agencies come up with all sorts of ploys to minimise worker's rights and maximise the profit for themselves and the people who pay the bills - been there, seen that

 

[Surveyor]

The following year I decide to set up a limited company and become the director. I now pay myself £12,500 as an employee so no income tax due. My wife who was a housewife before with no income I decide to make her the secretary for the company and pay her £12,500 as an employee so she also pays zero income tax. But I'm getting £25k household income now completely tax free.

The other £35k I can leave in the company or take as a dividend and even split it between me and my wife if it goes over the threshold of £37,500 and the first £2k is tax free. So to take advantage of that I'll pay my wife a dividend of £2k and I'll pay myself a dividend of £33k and only pay 7.5% on £31k Vs 20% and 40% income tax before.

I've legally reduced my tax liability. I've avoided tax.

That's the clear distinction between the two.

That would depend on your wife doing work for the company to earn that £12,500.

If she's an employee in name only you've evaded tax.

 

[dowie]

They didn’t change the rule - they stopped people legitimately taking loans (ie money that was actually intended to be paid back) via these sorts of schemes, but disguising income as loans was always considered tax evasion. It’s why HMRC can go back 20 years if they want.

The waters are muddied though by some companies using these setups to actually pay staff, so people thought they were PAYE but the company was really just pocketing the tax money.

Yeah I think that is a small minority of cases where say some locum nurses or whatever have been screwed via some company that perhaps pocketed a load of the savings for themselves, some discretion is needed there. Typical case is more like some IT contractor on a nice fat daily rate or some trader earning a big bonus etc... and they know full well they're disguising income.

I saw fellow contractors using these arrangements for years and years on end, with no action from HMRC. There was no reason to suspect they were not ok.

Thats just ridiculous tbh... "Yeah you take a loan and you won't have to pay it back" - sounds legit...

There's a prevalent attitude in this country of "Im alright Jack".............. until you're not. By which time it's usually too late to act. I was initially smug when I heard about the Loan Charge 2019, but once I read up on it, it really opened up my eyes to the opportunism of HMRC and the misinformation which is spouted to try and turn people against each other.

The "I'm alright Jack" attitude here has come from the contractors in regards to the tax system.

Let's dispel some myths. Loan arrangements were NEVER illegal and are still NOT illegal.[...]

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?

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

Because it makes things easier re: enforcement. They can get in contact and arrange to pay the tax they already owe or they can take the loan charge....

No one is stopping them from paying back the loans if they no longer wish to be in a situation where they are the beneficiary of those loans!

 

[Psycho Sonny]

That would depend on your wife doing work for the company to earn that £12,500.

If she's an employee in name only you've evaded tax.

Would be very hard to prove that she didn't.

All you would need to do is give her some token job(s) to do. Like organise delivery of supplies such as buckets and window cleaner anything really. Basically minimum involvement really required and usually a housewife in this type of scenario you could easily find a token job for.

It wouldn't be worth resources progressing such a case even if it wasn't the case. However I do agree if they did nothing it's evasion but not easily proven.

In fact there is a real life example of token jobs being given to family members by a British billionaire. I cannot give details but they have gotten away with it for decades.

 

[SpeedFreak]

You certainly live up to your username.

Two words, Transfer Pricing. Pretty much the goto tax avoidance scheme for large corporations that is simply not an options for your local plumber or IT contractor. Governments do have options available to tackle this if they want to (WHT springs to mind) but lack the political will to push through with it.

Why shouldn't brand owners be paid a fair price for their assets? That's what TP achieves.

 

[fezster]

Thats just ridiculous tbh... "Yeah you take a loan and you won't have to pay it back" - sounds legit...

Are you or have you ever been self employed? I think I know the answer given your naivety here. There's lots of absurdities in the tax system which most PAYE employees would say are ridiculous:

1. A Ltd company can undergo a voluntary liquidation and utilise entrepreneurs relief to pay a smaller amount of tax (used to be much more beneficial than it is nowadays) than the equivalent income tax.

2. A director can pay him/herself dividends, at a lower rate of tax than the equivalent income tax + NIC.

You might argue - "Yeh, but those things have been around for decades". So have loan arrangements.

Because it makes things easier re: enforcement. They can get in contact and arrange to pay the tax they already owe or they can take the loan charge....

Makes things easier for who? HMRC already know who these people are. Many have open enquiries. I ask the same question yet again:

If the tax was always due, why have HMRC waited years, decades even, to try and collect it? Why do they need the 2019 Loan Charge?

Yes it makes things "easier" for HMRC because they failed to take any action for year after year after year. My example which you said was ridiculous above doesnt sound so ridiculous when you realise that taxpayers have statutory protections in law from HMRC - if HMRC fail to take action in that time, then it's too late for them to collect any tax. If HMRC allowed these schemes to proliferate for decades, it's not so ridiculous to assume that maybe they are ok (regardless of how ridiculously convoluted they are in terms of their setup).

Normal taxpayer protections are 1 year, 4 years, 6 years and 20 years for evasion. Maybe psycho sunny can fill you in on evasion, as he seems to be an expert. Let me tell you what I know -

Im no expert on how these schemes work, but having been self employed for a very long time, I can tell you one thing which I know to be true.

Tax Evasion is:
Not paying the right tax when you know it is due..

No-one has ever been found guilty of evasion if they have taken professional advice. The premise is simple - if you've taken professional advice then you have a reasonable case to put forwards as to why the tax is not due. Therefore, it cannot be evasion. If it was bad advice, the adviser could be sued. I've yet to hear of any loan arrangement adviser having been successfully sued (though it may happen).

And all of the people who used these arrangements did so on the back of professional advice.

So again, it does make things "easier" for HMRC. Where they failed to take action within 6 years, they now get a second bite of the cherry. By their definition - "The Loan Charge is a new charge which becomes due in April 2019". That means HMRC now have a new 6 year window to claim the tax - and they have until April 2025 to act on it. Certainly makes things easier for them, I agree.

 

[Freddie1980]

Why shouldn't brand owners be paid a fair price for their assets? That's what TP achieves.

Transfer pricing is about reallocating costs over your global business. Done correctly you would have one or two central MGTI or HR centres and their costs rather then being born by the local country they are based in is allocated globally based on who they servicing. That's a legitimate way of redistribution of costs but others will use more creative ways to distribute profits to countries with a lower tax base.

 

[Dr House]

As you say, it was "a condition of employment", not the NHS Workers' choice.

It’s never a condition but the agencies push very hard for you to use them because they get large kickbacks.

these lone companies are basically paying no tax and pocketing 15 to 20% of your pay.

I do see why it’s tempting with the nee IR35 rules. On a income of 148k you only take home £79k.

If you have young children you also loose the 30h free child care which is worth around 15k pa of post tax money.

and income of 113 000 would give you a take home of £71 500.

so when you factor in the free child care if applicable you the less money in your pocket if you make 148k instead of £113.5k

 

[sparkymark75]

HMRC don't go after multi nationals because most of them are compliant as they have a legal duty and obligation to their shareholders and parent companies to be above board. In fact a lot of multi nationals are proud of being above board and use that as a selling point for shareholders.

I see this nonsense spouted often.

https://library.croneri.co.uk/btc

You will find HMRC do take large companies to court every single day. In fact it sets a precedent for tax law.

You do know HMRC has specific divisions to police specific sectors?

They have a division known as wealthy and mid size. Which only deals with wealthy individuals and medium sized businesses.

They also have a division known as large business. I'll give you one guess who that division polices.

It's always the same crap being spouted though. Stop going after the little man go after Google. Problem is that Google do everything above board and have the best specialists working for them earning hundreds of thousands of pounds per year. However the little man goes for the cheapest accountant he can find and guess what they tend to make easy to find mistakes.

That's not to say big companies don't make mistakes and when they do they are punished just like the rest.

How else do you explain the £135 billion brought in by large business in 18/19 that's through compliance work and wouldn't have been paid had it not been for their efforts?

https://www.google.com/url?sa=t&sou...FjAPegQIJxAC&usg=AOvVaw2qElTBU8SEiElUwKs1go2m

Do you think HMRC could have brought in £630 billion plus by just targeting John the plumber?

Don't be so ridiculous

They don't always go hard on big business.

https://www.thisismoney.co.uk/money/news/article-1704527/Taxman-let-Vodafone-off-6bn-bill.html

 

[Semple]

Makes things easier for who? HMRC already know who these people are. Many have open enquiries. I ask the same question yet again:

If the tax was always due, why have HMRC waited years, decades even, to try and collect it? Why do they need the 2019 Loan Charge?

I don't work in the industry so the following is just my opinion.

Even though loan charges were not "illegal" they were not "legal" either, which places them into a bit of a grey area. It still comes down to the principle though that individuals who used these types of schemes did so knowing that they were reducing their tax burden which is tax avoidance plain and simple, but because these schemes weren't "illegal" it couldn't be classed as tax evasion.

Having the 2019 loan charge probably gives HMRC more of a footing to go after these people compared to before. Either way i don't see how it makes any difference, and as a normal PAYE taxpayer, frankly i don't care. I feel these people have gotten away with reducing their tax burden for too long, and they should be held accountable for paying their fair share.

 

[fezster]

I don't work in the industry so the following is just my opinion.

Even though loan charges were not "illegal" they were not "legal" either, which places them into a bit of a grey area. It still comes down to the principle though that individuals who used these types of schemes did so knowing that they were reducing their tax burden which is tax avoidance plain and simple, but because these schemes weren't "illegal" it couldn't be classed as tax evasion.

Having the 2019 loan charge probably gives HMRC more of a footing to go after these people compared to before. Either way i don't see how it makes any difference, and as a normal PAYE taxpayer, frankly i don't care. I feel these people have gotten away with reducing their tax burden for too long, and they should be held accountable for paying their fair share.

If something is not "illegal", then it is legal. By definition. In matters of tax, it's unlikely anything would be illegal - unless there was a deliberate withholding of tax (i.e. evasion). I.e. there will not be any criminal penalties for a scheme which does not work. There may be financial penalties, interest, and of course the tax will be due. But criminality is a high burden, so there's little point in implying criminality to any of these arrangements (not saying you were). In any case, if criminality was occurring, then the scheme promoters would also be on the hook. Most of whom are wealthy individuals and have political connections, so (it seems at least) the radar is deliberately being kept away from them.

One part of me does tend to agree with your sentiment - why should these people be allowed to get away with paying less tax. However, another part of me says that every individual is entitled to reduce their tax burden. As a Ltd company contractor for many years, I certainly did so (by paying dividends instead of PAYE). Now I have been PAYE for a number of years, it does annoy me as well that others are able to pay less tax. But we all make a choice - and being self employed comes with it's own risks/rewards. The politics of envy is what HMRC rely upon when targetting a particular set of people. The one thing which we should all be mindful of - today it is them, tomorrow it could be me.

There are also a whole spectrum of people involved in using these arrangements. I don't know what the demographic is, but I do know innocent people have been duped or enticed into using them (rightly or wrongly). HMRC should shoulder some of this responsibility through their inaction over decades. Why is the only person paying the price the individual? It's the unfairness of a corrupt system which enrages me. It'd be easy to say they deserve it (maybe they do) - but there's lots of others involved who are getting off scot free. That I dont agree with.

 

[Semple]

If something is not "illegal", then it is legal. By definition. In matters of tax, it's unlikely anything would be illegal - unless there was a deliberate withholding of tax (i.e. evasion). I.e. there will not be any criminal penalties for a scheme which does not work. There may be financial penalties, interest, and of course the tax will be due. But criminality is a high burden, so there's little point in implying criminality to any of these arrangements (not saying you were). In any case, if criminality was occurring, then the scheme promoters would also be on the hook. Most of whom are wealthy individuals and have political connections, so (it seems at least) the radar is deliberately being kept away from them.

One part of me does tend to agree with your sentiment - why should these people be allowed to get away with paying less tax. However, another part of me says that every individual is entitled to reduce their tax burden. As a Ltd company contractor for many years, I certainly did so (by paying dividends instead of PAYE). Now I have been PAYE for a number of years, it does annoy me as well that others are able to pay less tax. But we all make a choice - and being self employed comes with it's own risks/rewards. The politics of envy is what HMRC rely upon when targetting a particular set of people. The one thing which we should all be mindful of - today it is them, tomorrow it could be me.

There are also a whole spectrum of people involved in using these arrangements. I don't know what the demographic is, but I do know innocent people have been duped or enticed into using them (rightly or wrongly). HMRC should shoulder some of this responsibility through their inaction over decades. Why is the only person paying the price the individual? It's the unfairness of a corrupt system which enrages me. It'd be easy to say they deserve it (maybe they do) - but there's lots of others involved who are getting off scot free. That I dont agree with.

I don't think things are quite as black and white as if it's not illegal it must be legal. There's a lot of grey area inbetween and laws are regularly being updated to make these grey areas more black and white. But i agree, and i did add in my opening post that the government should also hold the companies/individuals who set up these schemes to account. But i think as other posters pointed out, a lot of these companies set up and vanish in a short term, and it'll likely take considerably more resources to hunt down these individuals than going after the low-hanging fruit.

However, another part of me says that every individual is entitled to reduce their tax burden.

I think this is a big part of the problem is that the mindset of a lot of individuals is to get away with paying as little tax as possible. I would strongly hazard a guess to say that the majority of people have very few ways of minimising their tax burden, so it's not fair to expect them to pay a larger burden of their share than others. I was quite smug when the chancellor had announced the furlough scheme wasn't going to compensate directors dividend payments. There was quite a number of unhappy directors who'd been getting away with paying minimal tax via max personal allowance + dividends, and basically wanted their cake and to eat it.

The unfairness of a corrupt tax system enrages me too. In an ideal world everyone would pay their equal share, regardless of employed/self-employed, how they're paid, the opportunities to reduce an individuals tax burden would be equal to everyone. Unfortunately it's a very old complicated system, and there's too many rich and powerful people who have more to lose by moving towards a more equal version.