Loan charge - do these people want sympathy?

[Bear]

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 think this is why more people are sore about it than the fact they pay more tax. Given a legal opportunity to reduce their tax burden if they could Im almost certain most people would take it. Ive seen people moan about others not paying their fair share of tax, then later in time, they have a family member pass away and get to inherit quite a bit of money and then onto the internet to see how they can somehow realise more of that money instead of having to pay the full inheritance tax.

 

[dowie]

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.

No I'd just argue that you're conflating completely different things... you've got to play some mental gymnastics there to call me naive for holding the opinion that people taking this loan arrangement were naive if they couldn't see the obvious risk with it... I mean it's not like we don't know the end result here either!

I've been self employed before and I know plenty of contractors, I also know of people who've not been contractors but have been involved in tax dodges such as this among other schemes... you're completely clueless if you couldn't see the obvious risk here so calling others naive is a bit rich! My friends firm once paid people in platinum sponge and later had a court case involving an offshore trust and dodgy loans... apparently later involved some essex birds who worked as hairdressers or similar (or worse just housewives) having to stand up in court and answer questions about how they could justify taking a 7 figure loan!

But anyway, for all you know I might be a tax barrister right?

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

Makes things easier for HMRC.

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?

They don't (and they haven't just waited years in some cases as others have already pointed out to you) it's useful though.

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.

OK so if it was all fine then I expect we'll see them winning some court cases right? Hmmm lets see what happens there...

Back in reality, nurses/low paid agency workers aside, the contractors, traders etc.. who took advantage of these schemes knew it was a dodge, knew they were paying way less tax on actual income than they should have been... there is an obvious risk there.

Perhaps they should have consulted a proper tax advisor in future if they're that naive and they'd have been told about the obvious risks of these schemes, it's their choice to not seek advice elsewhere (or in reality to take the obvious risk that, lets face it, they knew about but hoped they'd get away with).

 

[fezster]

No I'd just argue that you're conflating completely different things...

You say they're different. A person paying PAYE would say differently. They'd argue why does a Director with a PSC get to pay less tax than them.

I mean it's not like we don't know the end result here either!

Do we? Are you sure? HMRC went to court for years. Yes they had some successes. But ultimately, RFC 2015 gave them the "big win" - except it wasn't such a big win, because the courts found the employer liable, and HMRC realised they'd get very little return on their investment. Why else did they invent the Loan Charge?

Makes things easier for HMRC.

On that we agree.

OK so if it was all fine then I expect we'll see them winning some court cases right? Hmmm lets see what happens there...

We wont get the chance now. HMRC have taken a shortcut - and in the process, given themselves a second bite of the cherry for the thousands of cases where they were asleep at the wheel (for years).

Perhaps they should have consulted a proper tax advisor

Define proper here. All were ICAEW members. It doesnt get more proper than that (!).

 

[fezster]

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.

My point here was about legal / illegal. "Illegal" is criminality. I agree with you there are many grey areas in tax - but none of them amount to a crime. Your tax avoidance may not work, but you will not go to jail for it (and if you did go to jail, it wouldnt be avoidance, it would be evasion ... )

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.

I wholeheartedly agree with you on this. Make the tax system simpler. Except they wont - too many vested interests.

 

[Django x2]

Yeah, I think people are missing the point here - this wasn't tax avoidance. It was never legal to not declare your income to avoid paying tax on it

I'm not sure they are. This was tax avoidance, and his income was declared by the company managing his finances and taxes. This is (was) a perfectly legitimate, but perhaps morally ambiguous method of avoiding large tax bills. Now, having said that, I still have no sympathy for him, but the company offering said service should be just as accountable.

 

[fezster]

I think this is why more people are sore about it than the fact they pay more tax. Given a legal opportunity to reduce their tax burden if they could Im almost certain most people would take it. Ive seen people moan about others not paying their fair share of tax, then later in time, they have a family member pass away and get to inherit quite a bit of money and then onto the internet to see how they can somehow realise more of that money instead of having to pay the full inheritance tax.

For anyone interested, it's worth looking up Behavioural Insights. The phrase "fair share" is right from their playbook. It's about nudging people into doing what they decree as the right thing.

 

[fezster]

I'm not sure they are. This was tax avoidance, and his income was declared by the company managing his finances and taxes. This is (was) a perfectly legitimate, but perhaps morally ambiguous method of avoiding large tax bills. Now, having said that, I still have no sympathy for him, but the company offering said service should be just as accountable.

I remember a few years ago seeing a quote from the then Chancellor, Philip Hammond, on the Marr show. He described these schemes as "illegal tax avoidance". He was forced to retract his statement because tax avoidance is not illegal, tax evasion is! You'd expect better from a Chancellor of the Exchequer.

 

[dowie]

You say they're different. A person paying PAYE would say differently. They'd argue why does a Director with a PSC get to pay less tax than them.

I'm not particularly interested in what your made up PAYE person might say or not, it's not very relevant to anything here. Fact is you conflated very different things.

Do we? Are you sure?

Yes, I'm fairly sure we do know the end result here, I mean sure maybe someone can fight it out in court and demonstrate that this dodgy loan scheme wasn't in fact dodgy... seems doubtful though.

We wont get the chance now. HMRC have taken a shortcut - and in the process, given themselves a second bite of the cherry for the thousands of cases where they were asleep at the wheel (for years).

That isn't true, the onus is on people to pay up, that doesn't stop them from going to court.

Define proper here. All were ICAEW members. It doesnt get more proper than that (!).

When you sign a contract for something important do you:

A) Just sign it because it was created by a solicitor and "it doens't get more proper than that" ?

B) Hire your own solicitor and get some advice?

Anyway the profession you're looking for is a Chartered tax adviser... Do you have any examples of actual CIOT tax experts promoting these schemes?

IIRC @Pudney is a tax advisor of sorts... perhaps he can answer - if you were considering a tax avoidance scheme - would you:

A) Just run with it because the guy flogging it says some accountant who may or may not have been chartered and who doesn't work for you but is trying to sell a product/scheme, was involved etc..

B) Consult an actual Chartered tax advisor who specialises in..... tax advice, paid for by you for some independent advice... such as - is avoiding all this tax and taking "loans" I don't expect to pay back actually legit?

IMO There was nothing stopping anyone from consulting with a tax expert and asking for paying for their advice/getting their views before taking the plunge and going along with a scheme like this... at least then if they were really really dense and didn't already see the really obvious risk then someone could spell it out for them!

 

[fezster]

I'm not particularly interested in what your made up PAYE person might say or not, it's not very relevant to anything here. Fact is you conflated very different things.

Err.. ok. It's an example to your insistence that the 2 things are different. As a person on PAYE myself, I resent having to pay more tax than a person beside me operating as a PSC. Pretty much everyone I know thinks the same. Hardly made up - and doesnt require much imagination.

That isn't true, the onus is on people to pay up, that doesn't stop them from going to court.

No. Wrong. The Loan Charge is a charge due on all outstanding loan balances as of 5th April 2019. You don't get a chance to go to court.

IMO There was nothing stopping anyone from consulting with a tax expert and asking for paying for their advice/getting their views before taking the plunge and going along with a scheme like this... at least then if they were really really dense and didn't already see the really obvious risk then someone could spell it out for them!

I'm sorry, but you haven't a clue what you're talking about. These schemes were proliferating left, right and centre. Even seasoned tax advisors and chartered accountants were promoting them (with huge kickbacks for themselves).

 

[dowie]

Err.. ok. It's an example to your insistence that the 2 things are different. As a person on PAYE myself, I resent having to pay more tax than a person beside me operating as a PSC. Pretty much everyone I know thinks the same. Hardly made up - and doesnt require much imagination.

They are different... I'm not sure what some made up PAYE person has to do with this?

That someone might resent another person paying less tax doens't negate anything here, that is also different.

No. Wrong. The Loan Charge is a charge due on all outstanding loan balances as of 5th April 2019. You don't get a chance to go to court.

Wrong - no one is stopping anyone from going to court.

I'm sorry, but you haven't a clue what you're talking about. These schemes were proliferating left, right and centre. Even seasoned tax advisors and chartered accountants were promoting them (with huge kickbacks for themselves).

In that case - do you have any examples of actual CIOT tax experts promoting these schemes to their clients? How widespread was this? Are you conflating independent advice with the people flogging these schemes having an accountant involved?

I suspect if anyone had bothered to do their due diligence or just consulted a tax advisor independently they'd be informed of the risks... You're just defending gullible idiots and people who knew the risk but got caught out.

 

[fezster]

They are different... I'm not sure what some made up PAYE person has to do with this?

That someone might resent another person paying less tax doens't negate anything here, that is also different.

You made the point that it was "ridiculous" to think someone lowering their tax bill could be seen as legitimate. I then pointed out other ways in which people lower their tax bills which may seem ridiculous to a person on PAYE. That's the context here (in case you forgot).

Wrong - no one is stopping anyone from going to court.

This is completely wrong. I'd like you to explain to me how one takes the underlying tax liability to court and not pay the Loan Charge? The 2 things are different - the loan charge needs to be paid regardless. Whether the underlying tax liability ever makes it to court or not is irrelevant.

In that case - do you have any examples of actual CIOT tax experts promoting these schemes to their clients? How widespread was this? Are you conflating independent advice with the people flogging these schemes having an accountant involved?

I suspect if anyone had bothered to do their due diligence or just consulted a tax advisor independently they'd be informed of the risks... You're just defending gullible idiots and people who knew the risk but got caught out.

I can give you countless ICAEW chartered accountants, as examples, typically used by self employed people. This is well known - you only need to spend 5 minutes googling to see that professionals were knee deep in this debacle, lining their pockets - yet none have been made culpable. Some have even been taken to court - the problem is, none of this was illegal. So no wrongdoing occurred. And they were careful to caveat their slick sales pitch with enough maybe's to make suing them very difficult (although I believe some are being sued - so let's see what happens).

There's also statute of limitations. Whilst HMRC saw fit to go back 20 years (until reigned in by the independent review into the Loan Charge - thus still allowing them to go back to 2010), the statute of limitations means a lot of accountants can no longer be taken to court.

 

[dowie]

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.

Should be regulated tbh... the tax advisors that disproportionately cause the most problems for HMRC are the ones that aren't members of professional bodies. If tax advice was a regulated activity and everyone had to be insured etc.. then we'd perhaps have fewer issues. No doubt you'd still get people trying stuff on, hiding things in trusts or companies offshore etc.. but you could reduce a lot of the low hanging fruit that would otherwise be into schemes like this.

 

[fezster]

Should be regulated tbh...

This, I agree with you on. There should also be some onus on accountants producing unaudited accounts - their advice typically dictates what goes into a tax return. They should share some of the responsibility if that advice turns out to be incorrect.

 

[dowie]

You made the point that it was "ridiculous" to think someone lowering their tax bill could be seen as legitimate. I then pointed out other ways in which people lower their tax bills which may seem ridiculous to a person on PAYE. That's the context here (in case you forgot).

Nope I've not claimed that it is ridiculous that simply lowering your tax bill can be legitimate - I suggest you re-read what I've posted and quote me if you're unsure. You're just making up context now... You've completely conflated different things here, that you seem to think they're equivalent might explain the mental block you seem to be having in failing to recognise that this sort of scheme was obviously risky (something literally any half decent tax advisor could have told you if consulted.)

This is completely wrong. I'd like you to explain to me how one takes the underlying tax liability to court and not pay the Loan Charge? The 2 things are different - the loan charge needs to be paid regardless. Whether the underlying tax liability ever makes it to court or not is irrelevant.

You don't need to pay the loan charge if you settle your tax bill. That doesn't negate your ability to go to court.

I can give you countless ICAEW chartered accountants, as examples, typically used by self employed people. This is well known - you only need to spend 5 minutes googling to see that professionals were knee deep in this debacle, lining their pockets - yet none have been made culpable. Some have even been taken to court - the problem is, none of this was illegal. So no wrongdoing occurred. And they were careful to caveat their slick sales pitch with enough maybe's to make suing them very difficult (although I believe some are being sued - so let's see what happens).

There's also statute of limitations. Whilst HMRC saw fit to go back 20 years (until reigned in by the independent review into the Loan Charge - thus still allowing them to go back to 2010), the statute of limitations means a lot of accountants can no longer be taken to court.

I didn't ask you for accountants I asked you for tax advisors... you know, people you'd go to to get advice on..... tax! And again I think you're conflating accountants involved in flogging the scheme rather than independent advisors telling clients this was a good idea!

It's a simple point - getting independent advice could have highlighted the obvious risks with a scheme like this. Pretty dumb of people not to seek it given the sums involved.

 

[fezster]

You don't need to pay the loan charge if you settle your tax bill. That doesn't negate your ability to go to court.

If you settle your tax bill, how do you intend to take it to tribunal?

 

[Psycho Sonny]

So much incorrect info.

If you don't agree with a tax assessment you can appeal it.

You can also ask for an independent review

You can go to tribunal.

If you lose you can appeal and go to upper tier tribunal after first tier.

After that you can go to ECJ, etc.


As for promoters and advisers they cannot be taken to court by HMRC because it's you that never paid the correct amount of tax. You should have been paying the tax under self assessment. The key words here are self assessment meaning you assess yourself. Get it wrong and it's your fault nobody elses.

What you could do is take them to court personally after HMRC assess you. However that's a matter for you and your advisers. I'd consult a lawyer in the first instance.

The fact is people never paid income tax that was clearly due. Majority of them knew they were paying far less than what was due. Rightfully so they have to pay it back.

The point that they had advisers telling them it was kosher doesn't make any difference. That's for you and your advisers to deal with seperately.

If you owe money under this. This is money you should have paid a long time ago. Essentially it's an open and shut case. Pay what you owe and move on.

 

[fezster]

If you don't agree with a tax assessment you can appeal it.

You can also ask for an independent review

You can go to tribunal.

If you lose you can appeal and go to upper tier tribunal after first tier.

After that you can go to ECJ, etc.

Again, complete naivety on how the Loan Charge works. Little point in having this debate, as you're clueless on the legislation. Once you've read it, then we'll discuss.

 

[Psycho Sonny]

If you settle your tax bill, how do you intend to take it to tribunal?

Why would you pay if you didn't agree? You would appeal then take to court.

 

[dowie]

If you settle your tax bill, how do you intend to take it to tribunal?

By doing just that, taking it to a tribunal...

https://www.gov.uk/tax-tribunal

You must usually pay upfront what HMRC says you owe. Make a hardship application if you cannot. Appeal to the tribunal if HMRC will not let you delay payment.[

I'm sure a tax advisor and/orlawyer could advise further though.

For all you know, I could be a tax barrister.

Seems doubtful.

 

[fezster]

Why would you pay if you didn't agree? You would appeal then take to court.

Ok, Im going to take a few mins to explain it. However, I suggest you read the legislation to get a proper grasp on it.

1. A uses a scheme in 2011 to avoid paying £40,000 in tax on an amount of £100,000.
2. HMRC open an enquiry into A and say he owes £40,000 in tax (no court has decided on this yet).
3. The LC19 legislation says that if A has a loan of £100,000 outstanding on 5th April 2019, he has to pay £40,000 as a "one off charge". If he pays this, they will waive the £40,000 they say he owes.
5. What does A do?

If he doesnt pay the £40,000 for LC19, he will lose by default in tribunal, because the legislation is clear that this "one-off charge" applies.

How does he take the underlying tax liability to tribunal with the barrel of the LC19 gun on him?

It's a masterful piece of legislation. It basically says - pay up now, regardless. Whether you win in court or not, we'll take the money anyway, thank you very much.