Connected companies loan

[craigy1874]

What do you say to your clients about the close companies' gateway of the disguised remuneration rules?

What has disguised remuneration got to do with this?

[Iliketax]

What has disguised remuneration got to do with this?

Ask your accountant?

When you do, mention that ITCo lending money to PropertyCo is a relevant transaction that is not excluded, that PropertyCo is a relevant third person and when it buys a property it would seem it is paying a sum of money (a relevant step) to a relevant third person. If that is right (and the other conditions are satisfied) then ITCo has to pay PAYE/NIC when the property is bought.

[ChimpMaster]

Ask your accountant?

When you do, mention that ITCo lending money to PropertyCo is a relevant transaction that is not excluded, that PropertyCo is a relevant third person and when it buys a property it would seem it is paying a sum of money (a relevant step) to a relevant third person. If that is right (and the other conditions are satisfied) then ITCo has to pay PAYE/NIC when the property is bought.

I've asked one accountant and have a conference call with a firm of accountants tomorrow. I will raise this point, but only out of curiosity rather because I cannot see how the CCG rules fit my situation. So yes, I am speaking with actual accountants and those that deal with people/firms far bigger than me.

I am looking at an inter-company loan. It's as simple as that. No tax is being avoided or evaded; the funds remain within a business entity. I cannot for the life of me see why a loan from the IT Ltd into a Property SPV will force the IT Ltd to pay PAYE and NIC. There simply isn't any logic there.

In the picture you paint, full PAYE/NIC is due on the loan amount, when the SPV buys the property. So what happens when the SPV sells the property, repays the loan to the IT Co, and surplus funds are distributed to shareholders of the SPV? Is the distribution taxed - double taxation anyone?

I might have seen your point if, on the write off of the loan, there was some case for PAYE/NIC becoming due - but even then that is far fetched, because none of the funds would have left a business entity.

[Iliketax]

I've asked one accountant and have a conference call with a firm of accountants tomorrow. I will raise this point, but only out of curiosity rather because I cannot see how the CCG rules fit my situation. So yes, I am speaking with actual accountants and those that deal with people/firms far bigger than me.

Great. Let's hope they know what the CCG rules are all about as they are a bit niche.

I am looking at an inter-company loan. It's as simple as that. No tax is being avoided or evaded; the funds remain within a business entity.

Why don't you just take a dividend out or salary out then? Perhaps because there will be tax on that?

Why not just borrow personally for ITCo? Perhaps because there is s455 tax?

I've no idea what your facts are but both of these points (and others) are relevant to the CCG.

I cannot for the life of me see why a loan from the IT Ltd into a Property SPV will force the IT Ltd to pay PAYE and NIC. There simply isn't any logic there.

That won't. It's the PropertyCo buying the property that is the potential issue. It is a relevant third person. It is probably buying the property at your direction or request and so the person who it is buying the property from is a relevant person. The paying of the purchase price is a relevant step. Now relief may be available under s554Z8 if the property is being bought from you or "a person linked with" you. But strangely not if PropertyCo buys it from a random stanger. It may also not be available if your expecting to waive the loan.

In the picture you paint, full PAYE/NIC is due on the loan amount, when the SPV buys the property. So what happens when the SPV sells the property, repays the loan to the IT Co, and surplus funds are distributed to shareholders of the SPV? Is the distribution taxed - double taxation anyone?

Interesting question. You don't get the PAYE/NIC back. But there is a relieving provision for double tax in s554Z5. Whether it will apply will depend on your eventual facts. Explain to the accountants what the facts are going to be and they can guess at an answer for you.

I might have seen your point if, on the write off of the loan, there was some case for PAYE/NIC becoming due - but even then that is far fetched, because none of the funds would have left a business entity.

I think a lot of this is because HMRC are fed up of people trying to come up with 'clever' ideas to get around the disguised remuneration rules and so they have written legislation that is wide and doesn't fit together properly (e.g. tax if something is bought from a 'relevant person' who is not a person linked to you).

I'm not saying that these rules would apply to your facts. But I could equally imagine some facts where they are, especially if you are thinking about waiving the loan.

Oh, if you expect to waive the loan (or do waive the loan) there are other tax rules to think about. For example, Chapter 3B or Chapter 4 of Part 7 may well apply to your shares in PropertyCo, so creating more employment income tax. Ask the accountants about that too.

I'd love to hear how clued up they are on all this.

[ChimpMaster]

Great. Let's hope they know what the CCG rules are all about as they are a bit niche.

Well if chartered accountants and tax specialists don't know, then I doubt HMRC themselves know. And we all know that HMRC rarely understand the cr@p they often spew.

Why don't you just take a dividend out or salary out then? Perhaps because there will be tax on that?
Why not just borrow personally for ITCo? Perhaps because there is s455 tax?
I've no idea what your facts are but both of these points (and others) are relevant to the CCG.

Either of these options is terribly tax-inefficient, because the funds are not needed for a personal investment. But you know that already; you're just trolling now. And of course, a core reason for investing in a property SPV is due to another HMRC fantasy tax: section 24.

The other side to this is that if I take a dividend then I personally loan those funds to the SPV, then the SPV can pay out those funds to me over any number of years, tax free. Theoretically you could create a lifetime tax-free income this way (tax already have been paid on the source funds). Or perhaps HMRC would take issue with even such a simple and honest concept....

Interesting question. You don't get the PAYE/NIC back. But there is a relieving provision for double tax in s554Z5. Whether it will apply will depend on your eventual facts. Explain to the accountants what the facts are going to be and they can guess at an answer for you.

Well isn't that a shocker. HMRC takes PAYE/NIC from a Ltd Co and then doesn't confirm double tax relief in such a simple scenario. And what's with the 'guess' - isn't tax supposed to be 'certain'?

I think a lot of this is because HMRC are fed up of people trying to come up with 'clever' ideas to get around the disguised remuneration rules and so they have written legislation that is wide and doesn't fit together properly (e.g. tax if something is bought from a 'relevant person' who is not a person linked to you).

My business investment is nothing to do with disguising remuneration. There is nothing 'clever' about my plan; it's inherently very simple and advocated by 3 accountant firms I have spoken with. The only 2 points under query are whether the SPV should pay 3% interest to the IT Co, and if in the future a loan write-off is possible.

What if I wanted to invest in a restaurant, or another IT company, or a bikini modelling business. Same problem for HMRC? Would that be considered 'clever' tax avoision?

I'm not saying that these rules would apply to your facts. But I could equally imagine some facts where they are, especially if you are thinking about waiving the loan.

Oh, if you expect to waive the loan (or do waive the loan) there are other tax rules to think about. For example, Chapter 3B or Chapter 4 of Part 7 may well apply to your shares in PropertyCo, so creating more employment income tax. Ask the accountants about that too.

I'd love to hear how clued up they are on all this.

Appreciate your input on this.

As for being clued up, I very much doubt HMRC are clued up on any of this, which is why they write 'legislation that is wide and doesn't fit together properly' as you put it. That way they can make up the rules as they go along.

[craigy1874]

Sorry but there is no way buying a property through a limited company is disguised remuneration.

The property is owned by a legal entity and for it to end up in the name of the 'employee' they would have to buy it from the property company. You then have the issue of how to remove those funds from the property co.

You are taking the legislation you refer to wayyyyyyyyy too far!

[Iliketax]

Either of these options is terribly tax-inefficient, because the funds are not needed for a personal investment. But you know that already; you're just trolling now. And of course, a core reason for investing in a property SPV is due to another HMRC fantasy tax: section 24.

No, I'm not trolling. One of the conditions for the CCG to apply is:

there is a time in the relevant period when the main purpose,
or one of the main purposes, of operating, implementing,
maintaining or terminating the relevant arrangement so far
as it covers or relates to—

(i) the relevant transaction, and the relevant step so far
as related to the relevant transaction, or
(ii) the relevant step, and the relevant transaction so far
as related to the relevant step,

is the avoidance of income tax, national insurance
contributions, corporation tax or a charge to tax under section
455 of CTA 2010.

So it is relevant.

[Iliketax]

Sorry but there is no way buying a property through a limited company is disguised remuneration.

The property is owned by a legal entity and for it to end up in the name of the 'employee' they would have to buy it from the property company. You then have the issue of how to remove those funds from the property co.

You are taking the legislation you refer to wayyyyyyyyy too far!

Great. That's that one solved.

Out of interest, how do I know if I'm taking legislation wayyyyyyyyy too far?

[craigy1874]

Great. That's that one solved.

Out of interest, how do I know if I'm taking legislation wayyyyyyyyy too far?

When you are talking about disguised remuneration as a result of a company making an investment!

Ridiculous!

[ChimpMaster]

Sorry but there is no way buying a property through a limited company is disguised remuneration.

The property is owned by a legal entity and for it to end up in the name of the 'employee' they would have to buy it from the property company. You then have the issue of how to remove those funds from the property co.

You are taking the legislation you refer to wayyyyyyyyy too far!

Great. That's that one solved.

Out of interest, how do I know if I'm taking legislation wayyyyyyyyy too far?

I didn't realise there was a problem that needing solving here! Though you tried hard to manufacture one

Anyway, I have spoken to 2 different CAs and one has discussed with his tax specialist and the other firm is going to review further with their specialist tax team. However, neither firm sees any problem with the proposed plan of an inter-company loan being used to make a business property investment within a SPV.

One accountancy advised to charge interest, to keep the loan at "arm's length", even though the tax output is a zero sum advantage to HMRC.

Long term plan still needs to be thought out. Either the SPV repays the loan or the loan is written off (with apparently a majority shareholding needed in both companies to do so), but I need to make sure I do things the right way.