BIG GROUP

[Silverskin]

Do not get confused between

a. interest on overdue tax

b. Interest on loans

My note clearly said that where you have a tax liability arising from a closed year, HMRC is unable to charge interest on overdue tax, because there is no tax due. By settling you are making a voluntary payment, not a tax payment.

The ability of a lender to charge interest on an outstanding loan is a matter for the loan contract and HMRC has absolutely no influence on that.

The last iteration of the 2019 charge (before it was dropped from the Finance Act) did indicate that where a loan has provision for interest but it has not been paid, then the amount subject to the 2019 charge would be the principal plus the accrued interest. That said, the provisions were (probably) flawed and it was very unclear as to how the rule could be applied across many loan agreements which have a myriad of different ways of charging interest.

The key here though is a subject that I've been banging on about, ad nauseum.

HMRC has no power to amend, cancel, adjust, otherwise interfere with, the loan that exists between you and the lender.

Settling the tax does NOT make any difference to the loan terms.

Thanks. Apologies I didn't mean to give the impression that I was conflating these two aspects, my question was really only relating to point 1, interest on overdue tax.

So to be absolutely clear, if a loanee took a £50k EBT loan in the 1999-2000 tax year and HMRC have never enquired about that tax year (i.e. it is closed), the voluntary payment you refer to that the loanee might make to HMRC for that tax year as part of settling these EBT loans would only be the additional tax due in the 1999-2000 year where a further 50k has been declared as income. Critically no additional interest for late tax payment would be applied.

Can you confirm I've interpretted this correctly?

Thanks

[webberg]

I would agree with your interpretation.

Taking that to another level however, if you have a closed year and therefore no interest on overdue tax, you need to consider carefully what the effective tax rates would be in the earlier year against the 2018/19 year.

This requires a degree of guesswork on the 18/19 income of course, but many people are directors of their own companies and as such able to control to a degree income in any one year by accelerating into previous years some money to live on and delaying some to a later year?

[Silverskin]

I would agree with your interpretation.

Taking that to another level however, if you have a closed year and therefore no interest on overdue tax, you need to consider carefully what the effective tax rates would be in the earlier year against the 2018/19 year.

This requires a degree of guesswork on the 18/19 income of course, but many people are directors of their own companies and as such able to control to a degree income in any one year by accelerating into previous years some money to live on and delaying some to a later year?

That's brilliant, thanks Webberg. Yes so I guess if you have un-utilised income at a lesser tax rate in those previous years there is perhaps sense in settling those years assuming the 2018/19 charge sees you into a higher tax bracket. Presumably if settling, the rate at which you are taxed is that which HMRC had set for that tax year?

Expanding a it a little further, let's say you have 4 years worth of loans (99/00, 00/01, 01/02, 02/03), 2 loans for closed years and 2 years open. Presumably in simple terms (i.e. with assumptions) there could well be logic in settling the closed years and leaving the open years to the loan charge in order to avoid the accrued interest from that year to today?

[Sidco]

U

I would agree with your interpretation.

Taking that to another level however, if you have a closed year and therefore no interest on overdue tax, you need to consider carefully what the effective tax rates would be in the earlier year against the 2018/19 year.

This requires a degree of guesswork on the 18/19 income of course, but many people are directors of their own companies and as such able to control to a degree income in any one year by accelerating into previous years some money to live on and delaying some to a later year?

Years where you have not submitted a selfassement tax returns beacuse you were told by HMRC (as they saw nothing is has changed in previous returns) not to submit any unless your situation changes, will those years will be considered as closed years?

[webberg]

U

Years where you have not submitted a selfassement tax returns beacuse you were told by HMRC (as they saw nothing is has changed in previous returns) not to submit any unless your situation changes, will those years will be considered as closed years?

Not necessarily.

The usual letter from HMRC saying "no more returns please", comes with a caveat "unless your circumstances change".

HMRC will almost certainly argue that use of what they deem a tax avoidance scheme (even if you did not think it was) would fit the caveat and therefore your legal obligation was to submit a return.

Returns can be submitted up to 4 years after the year end. After that there is no mechanism for submitting returns.

HMRC can assess via a discovery assessment at 4, 6 or 20 years after the year end. The rules here are complicated but broadly we can say that a 4 year assessment is where HMRC has missed you but had information; 6 years is where you are deemed to have hidden something; 20 years is fraud. (I've seen just 2 of those in 40 years).

It would not surprise me in the slightest to see some 6 year discovery assessments appearing any day soon.

I think therefore to be safe, in making plans be cautious and count 2011/12 as potentially open until at least 5/4/18.

[Silverskin]

Expanding a it a little further, let's say you have 4 years worth of loans (99/00, 00/01, 01/02, 02/03), 2 loans for closed years and 2 years open. Presumably in simple terms (i.e. with assumptions) there could well be logic in settling the closed years and leaving the open years to the loan charge in order to avoid the accrued interest from that year to today?

Anyone able to confirm that this approach is a viable one given the scenario described? I'm a bit late to the EBT party so apologies if I'm behind the curve.

[webberg]

There is no substitute for running the numbers.

BG has a calculator tool (courtesy of its members) and that has proven itself time and time again.

[Silverskin]

There is no substitute for running the numbers.

BG has a calculator tool (courtesy of its members) and that has proven itself time and time again.

Absolutely, I was just asking whether it's a potentially feasible/logical approach to settle closed years and let open years ride to the loan charge (thereby avoiding accrued interest). Naturally if that weren't to prove beneficial in terms of reducing one's tax liability then it's unlikely to be a useful option.

However from your reply it sounds like it is an option at least. How does one work that out with HMRC though. You ring up and say you want to settle for your open years but leave your closed years to the loan charge? Is it really that straightforward?!

[webberg]

Absolutely, I was just asking whether it's a potentially feasible/logical approach to settle closed years and let open years ride to the loan charge (thereby avoiding accrued interest). Naturally if that weren't to prove beneficial in terms of reducing one's tax liability then it's unlikely to be a useful option.

However from your reply it sounds like it is an option at least. How does one work that out with HMRC though. You ring up and say you want to settle for your open years but leave your closed years to the loan charge? Is it really that straightforward?!

Usually it's not an option. HMRC settlement is all or nothing, i.e. all years or no years.

I've asked about doing a split as you suggest and have been refused.

However if you don't ask you don't get, so give it a go.

[Bobo]

Loan Clarity

Hi All

Please can you assist me in answering what may appear to be basic questions.

I was with AML for just over a year, irrespective of how I end up settling with HMRC:

1) Do I still have a loan that I need to PAY AML or anyone else back at any point?
2) When applying for a mortgage or other loans, do I need to stipulate that I have a loan with AML?

Thanks in advance