Paid as a loan from a trust fund

[ASB]

At the end of the day, it's HMRC who would have to do the "convincing". They'd have to convince a court that it's not a lawful arrangement.

Not at all. It's not a question of whether it is or is not lawful, there is little doubt it is lawful. The question is simply one of the tax treatment. If it comes to light during an investigation then HMIT can simply assert it is employment related, then the taxpayer will need to convince the commissioners it isn't. I agree they will need some grounds though, but generate income for "companyA" of 100k and then get paid 5k from company A and "loaned" 90k from Company B is certainly going to give them grounds to look further.

[DonkeyRhubarb]

If it comes to light during an investigation then HMIT can simply assert it is employment related, then the taxpayer will need to convince the commissioners it isn't. I agree they will need some grounds though...

What you say would make perfect sense if it was a single taxpayer doing this but the stakes are far too high when it comes to organised schemes with many hundreds or thousands of users.

HMRC will be aware that the schemes have been approved by leading tax counsel, and they know they'll be pitted against formidable opposition.

If they do go to the commissioners then any decision could be appealed by either party via the High Court/Court of Appeal/Supreme Court.

This is probably why they bottled it with BN66.

[ASB]

What you say would make perfect sense if it was a single taxpayer doing this but the stakes are far too high when it comes to organised schemes with many hundreds or thousands of users.

HMRC will be aware that the schemes have been approved by leading tax counsel, and they know they'll be pitted against formidable opposition.

If they do go to the commissioners then any decision could be appealed by either party via the High Court/Court of Appeal/Supreme Court.

This is probably why they bottled it with BN66.

DR,

I think you are probably right. I wonder how many people when faced with a demand do simply pay up though.

In any event HMRC know they will be up against formidable opposition if the scheme provider is prepared to actually defend it. That is by no means certain. They also know that it is the provider (or users) counsel that has to prove it is within the rules, not HMIT who has to prove it is without.

I know it's not right, but it is the system.

[DonkeyRhubarb]

I wonder how many people when faced with a demand do simply pay up though.

If HMRC were counting on this with BN66 then they'll be very disappointed. Virtually everyone has appealed.

Whilst I'm obviously not happy about being caught up in BN66, at least we are with a promoter who is (a) still around and (b) prepared to defend the scheme all the way.

I don't envy people in some schemes where the promoter has disappeared in a puff of smoke leaving them completely in the lurch.

[malvolio]

More to the point, you have a multi-million pound business with significant reserves in hand. Someone with no jurisdiction over your activities asks you to repay a large amount of money on behalf of clients who are under their jurisdiction. You are a hard-nosed businessman, do you:

a) Immediately pay all monies claimed and promise to keep paying them in the future

b) launch a very expensive court case to prove the claimant to be wrong; if you lose, you still don't pay anything, of course, but you do earn money for the years the case is running

c) Stay hic militi concuspice, shut up shop, bank the profits and go into a new line of work.

Clearly the more honourable companies will take option (b). Most will take (c). I rather doubt any will ever go for (a)...

[sal626]

Might be worth people looking up Sempra. Not sure if this is finally concluded yet though.

Last I heard, was that SC ruled against HMRC in sempra on the point that “loans can be classified as income” – and HMRC did not appeal this.

[ASB]

Last I heard, was that SC ruled against HMRC in sempra on the point that “loans can be classified as income” – and HMRC did not appeal this.

That is my belief. You either looked or knew Think we've talked about it before. My understanding from the judgement is that the CT position might be unclear - ie the payments by the co into the trust might not be allowable for CT.

My point was simple. This sort of scheme can work, and can be proved to do so. There is no guarantee any individual scheme can work though. Without doubt, some do. The gov would not have needed to introduce very specific and targeted EBT legislation otherwise.

[sal626]

Yeah, might have discussed it….I heard from a tax advisor I know. Yes, some schemes do work, for now –i.e. it will not be easy for HMRC to defeat them in court. Sempra obviously was one, as HMRC decided even not to appeal. I personally think at some point there will be legislation to close these schemes down – the question then will be: Will HMRC attempt to apply it retrospectively?

I’m not sure what legislation has currently been introduced that closes these schemes now? Because looking in the marketplace, the number of scheme providers seems to be increasing….

[ASB]

Yeah, might have discussed it….I heard from a tax advisor I know. Yes, some schemes do work, for now –i.e. it will not be easy for HMRC to defeat them in court. Sempra obviously was one, as HMRC decided even not to appeal. I personally think at some point there will be legislation to close these schemes down – the question then will be: Will HMRC attempt to apply it retrospectively?

I’m not sure what legislation has currently been introduced that closes these schemes now? Because looking in the marketplace, the number of scheme providers seems to be increasing….

TBH a properly organised "scheme" will be difficult to close retrospectively - they don't to seem to fit in with the disclosure regime to me. By this I'm saying I think it will be difficult to apply the PMGs PRB from 2003 - they seem to be outside those rules.

AIUI with sempra - and I could be wrong - the current state is that the court decided there is no benefit to the individuals from the trust, it appears HMRC are not appealing that. However a second question seems to be whether the payments to the trust were allowable for CT purposes. This seems to still be open.

To me I don't "like" schemes. They are "morally" wrong. However it's not really different to how I have chosen to arrange my affairs. I have paid more in taxes in the last 20 years than most make in a lifetime (but I've only paid about half of what the the government think I should). I have been very fortunate in that with income sharing, large divis, retention in myco and ESC 16 I have achieved a retention of about 80%. It is extremely fortunate that I have been able to do that within a specific set of low risk rules - only IR35 to worry about.

So, to me, there was never any real mileage in schemes. However, were I IR35 caught I would have considered them.

I don't make the rules. But I sure as hell will be extremely cross if I play by them and somebody shouts "foul".

I simply don't like tax by terrorism. That, sadly, is where we are. The rule of law fundamentally requires certainty at the time of action.

[Maslins]

Because looking in the marketplace, the number of scheme providers seems to be increasing….

(drink speaking...excuse me)

Don't think that really proves anything. It's such a tempting market to go into.

Setup a website telling everyone they can keep 95% of their income, the other 5% being your fee.

Doesn't matter whether you've got any decent legal standing for what you're doing or not, you tell the individual to not disclose any income, you'll get a few naive people to sign up.

They don't file a return for 18 months or so, and HMRC won't raise an enquiry straight away.

During this time, the individual thinks the scheme is great, they get a few of their mates to sign up (especially as you give them £100-500 for each mate they sign up), and the scheme provider gets a nice big fee for doing nothing.

Enquiry only gets raised 3 years in, at which point you tell the individual it'll all be fine, they're confident, they've taken cash out for last 3 years with no issues.

After about 5 years it goes to court...or whatever, and scheme provider does a runner, having taken 4-5 years worth of fees from lots of people based on a scheme that had no substance to begin with.

Like I say, good market to be in...think I might go for it myself!n