BN66 - Round 2 (Court of Appeal)

[DonkeyRhubarb]

Montpelier case

Everything is in order with regards the papers, and we are just waiting for a decision on whether the hearing will be granted.

http://www.hmcourts-service.gov.uk/l...se_id=20100360

[normalbloke]

If you abide by the laws applicable at the time, then there should be no risk.

Thats what really p*sses me off. When I was in the scheme, nobody has yet proven I broke any law.... yet some arbitrary moral compass now appears to say I did...

[Vallah]

Thats what really p*sses me off. When I was in the scheme, nobody has yet proven I broke any law.... yet some arbitrary moral compass now appears to say I did...

You're right, it's completely arbitrary, and I would actually argue, immoral. Just because the HMRC isn't good enough at drafting legislation and closing loopholes, they're now trying to cover their arses with the retrospective action, and it just isn't on. Sooner or later it has to be corrected, because it's just blatantly wrong on every level.

[Emigre]

I agree. A person's right to organise their affairs as to minimise their tax liability is a fundamental one. While there is tax legislation, there will always be ways to pay less. Just because HMRC want everybody to pay full whack, it doesn't mean that we have to.

Lord Tomlin stated in Duke of Westminster (1936) 19 TC 490:

“Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”

Lord Clyde in Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754:
"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

I await the new legislation with interest. I assume they'll just be making loans from EBT's fully chargeable.

A loan is a loan. I struggle to see how even HMRC can recharacterise a loan as income. Just imagine Broon seeing his £167bn borrowings this year being recharacterised as income. Wow! No budget deficit and ok to go out and "borrow" some more. Just imagine if you had to pay income tax on your new mortgage?

Even if HMRC were to restrict the rules to only those loans from EBTs, the EBT would be showing a debtor and yet the recipient would not be seeing the EBT as a creditor. Further, just imagine if he brings that rule in from April 2011 and you decide to make a repayment of some/all of the loan - if its income coming one way, it must be relievable going the other way, what a great offset against 2011/12 income...

[Morlock]

Going Limited

Oh, and another question.

In what seems to be the ever increasingly unlikely event of the Conservatives winning the election; will this help our cause in anyway? or whould they still continue to pursue us with their time machine?

For me the whole offshore experience has been a failed experiment. I really should have known better than to let somebody else manage my financial affairs (my Granddad told me this a long time ago, and this is one of the few occasions when I didn't heed his advice (damn!)). What irks me most is that it's clear from the Huitson case that HMRC investigations were underway for some significant time before I joined the original Montpelier scheme - and this was not disclosed to me by Montpelier when I joined. I've also been uncomfortable with their loans scheme since it was introduced post-BN66, and the Huitson judgement has tipped the balance: it's clear that with the country's finances being in such a parlous state, HMRC and all 3 major political parties are simply not going to allow tax avoidance schemes to go unchallenged. Even so, this would be more or less manageable as long as the tax inspectors are simply playing catch up, i.e. closing down loopholes each time they are found to be exploited, however the killer blow is the clear willingness of the authorities to apply retrospective measures. Even if they fail with Huitson on a point of law, they will no doubt attempt to change the law to prevent similar failures in court in future. For me the financial attraction of the offshore arrangement is now firmly outweighed by the uncertainties that go with it. As a result, I have decided to revert to Limited Company status, and hopefully be able to convince the tax man that I'm outside IR35 (yes, it's possible - you can submit a contract, explain your circumstances, and get a clear ruling). Even if I'm challenged on that and fall outside IR35, at least I will have certainty in my future finances and be in control of my own destiny again. Folks, this is not a capitulation on my part - I hope the Huitson case goes our way, and the degree of contempt I have for the architects of BN66 simply cannot be put into words - it's more an exercise in risk management, and I definitely feel the need to reduce my exposure.

[malvolio]

Just to be clear, HMRC are not taxing the loan, they are taxing the benefit they believe you have got from having the loan money available.

HTH

[Emigre]

As a result, I have decided to revert to Limited Company status, and hopefully be able to convince the tax man that I'm outside IR35 (yes, it's possible - you can submit a contract, explain your circumstances, and get a clear ruling). Even if I'm challenged on that and fall outside IR35, at least I will have certainty in my future finances and be in control of my own destiny again.

Every one of us will have their own threshold of pain as well as individual circumstances which will direct them towards their own decisions,

Most of us arrived on the DTA scheme as a result of the UNcertainty of IR35, the not knowing perhaps for many years whether you were in or out of IR35. We escaped that and found more certainty in the DTA, it was supported by leading tax counsel and had a reasonable chance of success. Even now, no one, other than HMRC of course, has said that it didn't work, quite to the contrary in fact. In other words we joined up because we felt we were doing something legally and more than that, transparently.

To me there is nothing transparent about being ltd any more. Lets be honest, you have a contract that you do your best to get shaped to be and managed to be outside IR35 but in reality you are sitting there just hoping that you are not the one selected for a random investigation or a PAYE review.

There is nothing certain or transparent about that. I feel more comfortable where I am confident that I have acted both honorably and within the law.

I understand you have different feelings and I wish you the best.

[Emigre]

Just to be clear, HMRC are not taxing the loan, they are taxing the benefit they believe you have got from having the loan money available.

HTH

But if I am self-employed, not PAYE, and get a loan from an EBT, there could be no BIK, surely?

[Morlock]

Limited vs Offshore

To me there is nothing transparent about being ltd any more. Lets be honest, you have a contract that you do your best to get shaped to be and managed to be outside IR35 but in reality you are sitting there just hoping that you are not the one selected for a random investigation or a PAYE review.

I agree. The differences are:
1) more contractors are using Limited Companies than are using offshore arrangements, hence the chances of being fingered are smaller;
2) IR35 is a known and current set of rules, not something which might be invented and applied retrospectively;
3) HMRC's success rate with IR35 cases is tiny;
4) a Limited Company is wholly under one's own control;
5) more and more client-side agencies are refusing to entertain offshore arrangements;
AND
6) the Huitson case revealed that Montpelier's arrangements were already being investigated at the time I joined their scheme and this was concealed from me, hence I no longer trust them (or anyone else!) to act in my best interest.

[Tax_shouldnt_be_taxing]

Which Way?

Folks,

I understand why anyone would think about their future direction. It's pretty clear that HMT / HMRC are using tactics that are more likely to put people off doing anything that they don't say in black and white up front is fine by them - namely, PAYE. That, I believe, is their interpretation of "fair share" whether we like it or not. Ltd is in principle fine, but don't try and move into non-PAYE territory unless you're certain that it's OK and I'm not sure you can be certain. For example, just because you have a contract with a "right of substitution" doesn't mean the end client is bound by that. And therefore, you may fall foul of IR35 even though you're contract does not suggest this.

Let's also be clear that there is a massive difference between transparent avoidance and everything else folks get up to, but that does not mean if HMRC take a dislike to it they won't persue it.

For one, knowing that HMRC had been looking into MontP for a few years when I joined made me feel more positive since it had been on their radar for quite a while. That is more assuring then them not knowing about it.

The fact remains that HMT / HMRC have more than 10,000 pages of tax legislation and most including HMRC don't understand how and when it can be applied. Hence, "principles-based legislation" and the diatribe in the JR.

So like it or not, the powers that be are happy to make taxation the new Global Warming. And they know, and we know, and they know that we know, that unless you have some rather extreme mechanisms, we are High Net Worth individuals in their eyes and will be stalked as a result.

Their angle is to make you feel as uncomfortable as they can even though you are honest and within the law as it is written. But as you are defying their 'do as we say' rules by not conforming to the many minnions who by default have no other option, then you are outside their rules of "fair". That is, you are not part of the mass program and should be reigned in as a result.

By all means go Ltd, but whilst you are treated for all intent as purpose like a billion quid corporate in terms of paperwork and Director obligations, you may find yourself being investigated as a self-employed Director for tax-purposes.

Yes I know folks running their Ltd's with no problem but are not making the tax savings that are possible because their is so much uncertainty in the IT sector as opposed to selling, say, carrots.

It is clear to see that this Government via their henchmen in HMRC don't wan't avoidance any more than evasion except where they say it is allowed (e.g. ISA's). That is what they want and they will do all they can to get it. And where the law won't permit them, principles will.