AM Limited COP8 HMRC Investigation Letter..

[DonkeyRhubarb]

Interestingly the AML guy told me they have made a few appeals so far which have been successful and none have been declined as of yet, i found that hard to believe and asked him to verify that and confirm over email, which he has done.

"successful" is almost certainly not the right word. He probably means HMRC accepted the appeals, and request to postpone tax, but this means nothing. The tax is still under dispute.

i forgot to ask about timeframes? I just feel like getting the correct numbers and settling with HMRC, but then if it's a 6-9 month window before this comes to a close then i dont mind risk paying that extra interest incase AML win there argument.

This will take a lot longer than 6-9 months to reach a resolution. Be prepared for several years.

[ASB]

You are being taxed on the full income i.e. also the fees paid to aml. So salary + loans x 15% = income x 35% = fictional amount owed.

I know, insanity.

But is it really insanity ? I have no idea of the settlements being offered, but I would expect that HMRC would be taking a view that the money paid to the management company was the income figure and they would be looking for tax on that total. It will make the marginal tax rate very harsh, that is certainly the case.

[DonkeyRhubarb]

But is it really insanity ? I have no idea of the settlements being offered, but I would expect that HMRC would be taking a view that the money paid to the management company was the income figure and they would be looking for tax on that total. It will make the marginal tax rate very harsh, that is certainly the case.

Contractors employed by umbrella companies aren't taxed on the company's fees, so why should people employed by an Isle of Man company be treated differently?

There is also a question of consistency. I know of other schemes where HMRC have only assessed the users on the monies they actually received.

So, to me, yes it is insane.

[EBTContractor]

But is it really insanity ? I have no idea of the settlements being offered, but I would expect that HMRC would be taking a view that the money paid to the management company was the income figure and they would be looking for tax on that total. It will make the marginal tax rate very harsh, that is certainly the case.

It is insane - you never received the money in the first place. It's pure insanity.

[mrmonkeyboy]

Contractors employed by umbrella companies aren't taxed on the company's fees, so why should people employed by an Isle of Man company be treated differently?

There is also a question of consistency. I know of other schemes where HMRC have only assessed the users on the monies they actually received.

So, to me, yes it is insane.

Is there proof of this that can be shared? even privately as this would be a good angle to raise some 'debate' with HMRC

[ASB]

Contractors employed by umbrella companies aren't taxed on the company's fees, so why should people employed by an Isle of Man company be treated differently?

There is also a question of consistency. I know of other schemes where HMRC have only assessed the users on the monies they actually received.

So, to me, yes it is insane.

Where people have been assessed on the monies received I assume that this is any loan element that was actually received since the salary element has already had relevant taxes paid. HMRC are seeking to receive tax on the salary and loan which on the face of it seems more reasonable (not necessarily justified of course).

However what about when the amounts paid into the trust differ from what is loaned to the participant? This could potentially be because folk didn't take all the funds they were "entitled" to, or because of charges levied by the trust ?

Whilst there are inconsistencies do these arise in different individuals treatments within the same scheme, or are there material differences in the schemes ? Certainly HMRC have a duty (discharged or otherwise) to treat people in the same way on the same facts.

edit: I probably didn't make it clear that where HMRC are trying to tax the entire amount paid to the management co I don't think that is reasonable, simply that I understand they may want to take that approach.

[webberg]

Where people have been assessed on the monies received I assume that this is any loan element that was actually received since the salary element has already had relevant taxes paid. HMRC are seeking to receive tax on the salary and loan which on the face of it seems more reasonable (not necessarily justified of course).

However what about when the amounts paid into the trust differ from what is loaned to the participant? This could potentially be because folk didn't take all the funds they were "entitled" to, or because of charges levied by the trust ?

Whilst there are inconsistencies do these arise in different individuals treatments within the same scheme, or are there material differences in the schemes ? Certainly HMRC have a duty (discharged or otherwise) to treat people in the same way on the same facts.

edit: I probably didn't make it clear that where HMRC are trying to tax the entire amount paid to the management co I don't think that is reasonable, simply that I understand they may want to take that approach.

HMRC's analysis (as far as I can tell from what little they will tell me about it) is that the "loans" amount to taxable income.

Quite what type of taxable income and taxable under what statute is unclear, but none the less taxable.

There are perhaps three choices here.

1. Employment income. If this is true, then the ability to deduct any expenses is limited by the rules there which require that such expenses are incurred wholly, exclusively and necessarily in the performance of the duties.

It's hard to see that a fee paid to a recruiter is an expense incurred in theperfromance of the duties. It may have put you in a position to perform the duties, but that is not the same.

2. Self employed income. Probably a better chance of claiming.

3. Miscellaneous income. Perhaps somewhere between the two.

[ASB]

HMRC's analysis (as far as I can tell from what little they will tell me about it) is that the "loans" amount to taxable income.

Quite what type of taxable income and taxable under what statute is unclear, but none the less taxable.

There are perhaps three choices here.

1. Employment income. If this is true, then the ability to deduct any expenses is limited by the rules there which require that such expenses are incurred wholly, exclusively and necessarily in the performance of the duties.

It's hard to see that a fee paid to a recruiter is an expense incurred in theperfromance of the duties. It may have put you in a position to perform the duties, but that is not the same.

2. Self employed income. Probably a better chance of claiming.

3. Miscellaneous income. Perhaps somewhere between the two.

If it is the loans then that is after most of the charges anyway. My understanding was that the scheme got paid (say) 100k. Paid a salary of 15k and then deducted its 15k and paid the remaining 70k into a trust which then made a 70k loan. So at least in this case there is only taxation threatened on monies actually received.

What it ends up taxable as (if anything) could potentially open up an NI minefield. If it is eventually taxable as either employment income of self employed income then NI would surely rear its ugly head at some point. Hopefully this won't occur. I haven't seen any mention of NI so hopefully it won't become an issue.

But even so is that the end of the scheme users problems ? None of the resolution affect what happens in terms of transactions. It doesn't actually become employment income or whatever, just taxed as such. The loans etc still exist with ongoing potential IHT and trust taxation issues. I would hope it doesn't lead to double taxation and can be releived against how it was originally taxed should this occur.

[DonkeyRhubarb]

Is there proof of this that can be shared? even privately as this would be a good angle to raise some 'debate' with HMRC

The %fee & salary component will vary but most schemes operated as follows.

UK Agency ~ £100k ~> IoM Promoter (-£10k fee) ~ £20k salary + £70k loan ~> User

As I understand it, for some schemes, HMRC are treating the £100k received by the promoter as taxable on the user.

They didn't do this with quite a few schemes I know about eg. deGraaf, Steed, Montpelier, Newquay. Only the £90k has been assessed as taxable.

[LandRover]

Then if HMRC are declaring that whole income paid to Scheme Provider is taxable, then is it not the responsibility(law) of the Scheme Provider to deduct tax & NI? That's in essence the latest finding from the Murray(Rangers) appeal, regardless of finer details, if the income was paid directly to the scheme provider then deduction of ALL taxes should have been made by them.

Also CLSO made a deduction of scheme fees, didn't this set a precedent too?