BN66 - Time to fight back (Chapter 3)

[Toocan]

does anyone think it possible that our friends at HMRC have a bigger plan than just retrospectively attacking the DTA schemes? Is it possible they will also 'clarify' rules around the writing off / forgiving of loans?

If HMRC were to get away with this retrospective legislation then they will try to use it in every case where they smell cash. If that were to happen then perhaps the calls for a British constitution would become deafening. Ultimately the powers of government would be limited more than they are now. That’s what I call an own goal. It would take time though.

I don’t think they will succeed – at least not without retrospectively changing both the Human Rights Act and the European Communities Act.

I looked into the loan schemes but didn’t feel comfortable with any of those I looked at. The most obvious attack on these schemes would be on the UK “agency” company. But then that was also the most obvious attack on the MTM scheme – and they didn’t take it. The loan schemes put the end client in the firing line – though they don’t appear to have realised that – yet. I felt really uncomfortable that the loan was ongoing and therefore no retrospective legislation would be needed to make them (or the interest on them) taxable. That would be difficult to do though.

Thinking about it, I would say it’s a fair guess that most of us only ever become involved in these schemes because of the unfair IR35 legislation. HMRC thought they would get an extra 10% or so in tax from IR35 – but in fact they have lost almost all of the IR35 cases and the cost of implementing the legislation probably outweighs any extra tax collected. In the case of people who move from LtdCo to offshore scheme – HMRC has lost ALL of the tax revenue.

If the loan schemes do unwind on the big clients, the big clients who “worked with the government” on IR35 then there would be some poetic justice there.

It would be welcome if a future government were to repeal IR35 – however I fear this is a genie in a bottle situation. HMRC let the genie out.

[Toocan]

I have just come out of the woodwork. I

...
Not wanting anyone to feel like I dont want to pay my share but feeling mighty miffed morally that this change could be made retrospective. My wife is ironically a corporate tax director of a 'big 4' and can't believe the have got away with it and is getting her pals in the UK to do some more digging!

Welcome Friend.

They haven't got away with it yet.

And what is more, Mr B understands that he has not gotten away with it - there would have been no "news letter" if he though otherwise.

[BrilloPad]

If local offices are not doing what their told then that is an interesting situation.

The letters that I have received from my local office are of a completely different tone to those from Mr B’s office. Let me put it this way, I have no complaint against my local office.

It's the local offices who are cocking up. It's cos of them that people are having distraint proceedings issued against them. Local Office not telling their collection colleagues what is going on and not following the CN proceedures.... ie - ticking the box on the screen to ensure Collections do not begin proceedings.

Most local offices have no idea what the enquiry is all about.... they are simply following instructions from Special Civil Investiations.... or not as the case, actually appears

[BrilloPad]

I have just come out of the woodwork. I was in the scheme for the 2004/05 and 2005/06 years. While I always understood there was a risk I considered the following as additional protection over and above the scheme itself:
- I would actually need to be selected for investigation - now done
- the scheme / loophole would eventually be closed down (meaning tax periods until it was closed would effectively be ok) - this is now shafted by the retrospective change
- in the event it did all go bottoms up I would have returned overseas making recovery more difficult - now shafted by changes to DTA (see below)

I have received notice of investigation but to be honest the rest is a bit of a blur. I moved 'home' from the UK two years ago. Unfortunately I was a little too honest and gave the HRMC a new overseas address to forward mail. I haven't lived there at all (but am now aware of them sending me mail - tempted to get it returned as 'unknown at address') so I haven't received any direct corrospondance. HRMC have recently entered a new DTA allowing them to request the local tax authorities to collect tax on their behalf. Just trying to work out how hard I should try to just 'disappear'???

Not wanting anyone to feel like I dont want to pay my share but feeling mighty miffed morally that this change could be made retrospective. My wife is ironically a corporate tax director of a 'big 4' and can't believe the have got away with it and is getting her pals in the UK to do some more digging!

Welcome to the thread!

Be careful what you threaten on this thread - it is being watched. Luckily you are already abroad or you could get assets frozen etc.

I would love to hear what your wife can dig up. Someone else (who used to work for big 4) knew someone who overheard a phone call(!) where the government told them to close down their schemes quietly - or lose all government contracts!

I do wish one of the big 4 clients would appear on here - I would love to know if the big 4 paid their tax on their behalf or if they were left to dangle.....

[ASB]

does anyone think it possible that our friends at HMRC have a bigger plan than just retrospectively attacking the DTA schemes? Is it possible they will also 'clarify' rules around the writing off / forgiving of loans? I havent seen any talk about this and colleagues who use the loan schemes are vey confident about their position, but I dont have the risk appetite any longer to go down that route.
If MP lose our appeals process (which i sincerely hope they dont), it wouldnt surprise me if this was HMRC's next approach to getting funding to recapitalise the banks.
fwiw I no longer use MP but have gone Ltd and am awaiting my CN. it wont bankrupt me but the rainy day fund will be gone.

The writing off of most loans is pretty well covered here.

http://www.hmrc.gov.uk/manuals/eimanual/EIM21743.htm

EBT type loans may well be different, though it's not actually been tested yet as far as I know. Becoming non resident can also trigger the tax charge. To me I think the whole loan thing loos a bit flaky, though I have no doubt that it used to work; hence the changes in legislation.

SO yes, I suspect loans are probably next in the firing line.

[BrilloPad]

The writing off of most loans is pretty well covered here.

http://www.hmrc.gov.uk/manuals/eimanual/EIM21743.htm

EBT type loans may well be different, though it's not actually been tested yet as far as I know. Becoming non resident can also trigger the tax charge. To me I think the whole loan thing loos a bit flaky, though I have no doubt that it used to work; hence the changes in legislation.

SO yes, I suspect loans are probably next in the firing line.

So it was fine until 2003?

And if the loan is not written off it is fine?

[ASB]

So it was fine until 2003?

And if the loan is not written off it is fine?

I believe so. If you were to write off a loan now that was granted pre 2003 then it would still attract the tax charge which one might say is retrospective, though I personally wouldn't.

If the loan is not written off it is fine. But the only other alternative is to pay it back. On the assumption that it remains outstanding until death if it is written off at this point it will still attract a tax charge (though there might be ways of mitigating this - we still generally tax the dead however). The alternative is repaying it out of the estate.

Of course I imagine your knowledge of how the EBT related benefits are taxed (or how and why the escape it) should be better than mine. The only loan schemes I looked at I think just deferred the tax rather than reducing the overall liabilities.

[Toocan]

Loan based schemes

EBT type loans may well be different, though it's not actually been tested yet as far as I know. Becoming non resident can also trigger the tax charge. To me I think the whole loan thing loos a bit flaky, though I have no doubt that it used to work; hence the changes in legislation.

SO yes, I suspect loans are probably next in the firing line.

Some of the better EBT loan schemes grant the loan out-with the employment – ie it is not a loan from an EBT and so side steps some of the legislation. I am aware of one scheme that is so confident that they make no declaration of the loan on the tax return. The justification for this is that it is not a benefit of employment. I checked this out and it does appear to be correct, however I still didn’t like the smell of it.

The loans are not written off until after death. This means that the value of the loan can be written against the assets of the estate and so reduce inheritance tax. For some this could result in “double tax relief” (ie you earn £100, pay no tax on £100 (but do pay fees) and get £100 off your estate size of IHT).

If the loan was written off before death then at that moment the value of the loan would become income and therefore be taxable at that point. For true (offshore) EBT schemes that would mean a tax change on the statutory rate of interest EACH YEAR plus income tax and (possibly) NI when the loan is written off before death.

I’ve just realised that if the loan was written off after death then it couldn’t be charged to employment taxes as you can’t “earn” income when your dead! (or can you )

As I said I have put this into the pile of “too good to be true” schemes.

In my analysis the loans would have to last in perpetuity to be 100% effective.

The really surprising aspect of the loan schemes is that almost all of the providers make the information on how they work freely available – there are no confidentially agreements to sign. I found the details of 7 of these schemes in a week. I had a few conversations and collected information. If I can do that, HMRC must be fully aware of these schemes. Yet they appear to be doing nothing about them!

I don’t think HMRC know the scale of loan based schemes as some of them do not have to be declared and the only change to the tax return is a low level of income.

Looking at loan based schemes from the other end, I think it might be that HMRC could only tax them by introducing a “loan tax”.

If HMRC had IR35 repealed they would save themselves a lot of trouble – we all know that services have to be paid for, and most of us don’t mind paying our bit. Message to HMRC: show us some respect, you get what you give.

[Toocan]

Some of the better EBT loan schemes grant the loan out-with the employment – ie it is not a loan from an EBT and so side steps some of the legislation. I am aware of one scheme that is so confident that they make no declaration of the loan on the tax return. The justification for this is that it is not a benefit of employment. I checked this out and it does appear to be correct, however I still didn’t like the smell of it.

Out of interest, has anyone used a loan based scheme. If so, have HMRC been sniffing around?

[BrilloPad]

Out of interest, has anyone used a loan based scheme. If so, have HMRC been sniffing around?

Anyone with montp after 8th March 2008 will have done so. Which includes me until 4th Nov 2008. AFAIK it will not be on the tax return! I was never asked permission to switch - I do wish I had been ASKED first. I would not have gone onto it. I am think of paying the tax due on this - so it does not hang over me for 10 years! I suppose I could get a CTD for that amount when I think about it......

Other loan schemes have been around years - amazing HMRC have not done something. Presumably it will be a "retrospective clarification"?