• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

BN66 and full empoyment status

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    #21
    Originally posted by BlasterBates View Post
    Is it really a loan if it never gets repayed?
    Nail.
    Head.
    "I can put any old tat in my sig, put quotes around it and attribute to someone of whom I've heard, to make it sound true."
    - Voltaire/Benjamin Franklin/Anne Frank...

    Comment


      #22
      Originally posted by RockTheBoat View Post
      not quite true as you are making a big assumption that it is written off at death. as it is a Loan (and thus the same as a mortgage, credit card debt etc), it would actually have the effect of reducing your estate before tax.

      and the bit about perceived benefit is laughable come on. that would be like them taxing you now for the potential capital gains that x investment that you made might make over the next 10 years. a loan is a loan, not income
      But this is not a loan in reality - it is an avoidance scheme that takes a large proportion of your earnings and calls them a loan. The situtation is totally and utterly artificial and this is HMR&C's objection. You do not work directly for the company giving you the loan, you do not earn you money working in the Isle of Man or Luxembourg etc; you work in the UK and you live in the UK and therefore you are subject to UK tax laws.
      Connect with me on LinkedIn

      Follow us on Twitter.

      ContractorUK Best Forum Advisor 2015

      Comment


        #23
        Originally posted by LisaContractorUmbrella View Post
        But this is not a loan in reality - it is an avoidance scheme that takes a large proportion of your earnings and calls them a loan. The situtation is totally and utterly artificial and this is HMR&C's objection. You do not work directly for the company giving you the loan, you do not earn you money working in the Isle of Man or Luxembourg etc; you work in the UK and you live in the UK and therefore you are subject to UK tax laws.

        That’s not what the Special commissioner ruled in Dextra and Sempra.

        How do you prove it's not a loan?

        Comment


          #24
          Originally posted by sal626 View Post
          That’s not what the Special commissioner ruled in Dextra and Sempra.

          How do you prove it's not a loan?
          But with Dextra and Sempra the loans were set up for employees of the company or family members of the owners i.e. there was a close relationship and the company benefited from the services of the employees. In the case of an artificial scheme the contractor gives no benefit to the company giving the loan other than the payment of a, usually very high, fee. In most cases the contractor and the scheme provider never even meet.

          Unfortunately it is still the case that exisiting legislation does not clarify HMR&C's intention towards avoidance schemes but IMHO anything which is blatantly artificial is likely to cause problems for contractors at some point down the line and with the advent of the application of retrospective tax legislation it will potentially be a very big and expensive problem.
          Connect with me on LinkedIn

          Follow us on Twitter.

          ContractorUK Best Forum Advisor 2015

          Comment


            #25
            Perhaps it is better to think of it this way. Are you doing anything that lowers your tax burden (forget about if it is legal or not, this only makes the difference between penalties and interest and interest on its own)? If you are, then you are in their scope. Then, to what degree is what your doing purely designed to lower the amount you pay in tax? To me, this is very sweeping, it covers a lot of territory. If you answer yes to 1 and 2, then as BB pointed out, you are at risk. HMRC will take a view as to whether or not what you are doing is artificial, not you or your advisors. Both now, and in the future you can be landed with an additional charge and interest backdated to whenever you began that action, if this ruling is allowed to stand. It's really that simple. And don't depend on tax returns being closed or 6 year rulings.

            Comment


              #26
              Firstly I personally wouldn't go for a loan based scheme or an any sort of artificial scheme because I don't like the risk. In any event future legislation could render it obsolete and retrospective. There are a number of lines of attack.

              As a general principle loan schemes CAN work. There was in fact specific legislation related to the construction of some schemes to render them ineffective. These were largely based on EBTS and onshore EBTS had rules changes related to the tax advantages of the settlor into the trust (essentially they were not allowable for CT purposes until such point as loans were actually repaid).

              Dextra and Sempra have been mentioned. Arguably schemes structure the way these were were sucessful. Though ultimately that is for the supreme court to decide should it ever get that far. Even then there is the possibility of appeal to any superior authority (potentially europe).

              Some point which may be relevant, and it depends upon how things are structured:-

              - Is the management of the trust (if any) within the remit of UK taxing authorities?

              - Who makes the loan? If it is made by an offshore trust can this be looked through?

              - If it is offshore what is the overall NI and tax position on any salary?

              - Is the loan an employment related loan? If so income tax is due if it is written off.

              - Does the loan cease to be an employment loan if the borrower leaves the employ of the firm? If it is not an employment related loan no tax is due on write off.

              - Does the loan cease to be an employment loan on death of the borrower?

              - If the loan is made via a trust what does the trust deed allow in terms of how the funds can/must be used when and if the loan is called in?

              - Is it possible that in any challenge the judiciary may take a purposive rather than literal view?

              - What case law is relied upon in support of the assertion that the scheme works?

              - Has it been tested against the scheme structure?

              - Has it been tested against other scheme structures and how was it applied?

              - What case law do HMRC rely upon in order to attack and how has this been applied in other cases?

              - What things may ones estate be able to do if the trust is wound up on death in order to remove the funds from the IHT net?

              - Should the scheme be declared with a registration number by the promoter?

              - If it is not disclosed where would the swinging penalties lie with the consumer or with the promoter?

              - Has the user declared it's use on their tax return?

              - How confident is a user that the glaring loophole which arguably means an employment related loan ceases to one at some point giving a potential tax advantage will remain open?

              If the scheme in question has been running for may years unchanged (or is based on somebody elses scheme) then it may be that it is either very vulnerable or simply doesn't work. If it's regularly updated then it is probably safer.

              If one is (legitimately) arranging ones affairs to convert income into either capital or something that is not income by "artificial" means then it is absolutely clear there is a substantial risk (and reward) in this. The fact that a conclusion of avoiding taxes would be maybe a bit odd doesn't mean that is the wrong conclusion. Whether it can be closed down prospectively or retrospectively is a different matter.

              Loan schemes can work. But generally they need to be tailored to the circumstances of the individual and targetted towards them and their overall objectives. This needs to be regularly review in light of constant changes to the FA, case law and general judicial principles as these change over time. The cost of this will often outweigh any benefit for all but the very rich.

              Comment

              Working...
              X