Loans from EBTs and other Trusts

[porrker]

Well there is a difference normal loans are paid back, there is collateral and a purpose associated and there is an interest rate. If you get a business loan from a bank they don't just give it to you, you have to provide a business plan to justify it.

If the loan is permanent or rolled over and no interest is paid, it could easily be defined as disguised income.

Certainly not worth the risk.

It's the same differentiation between a mortgage loan from your employer and an EBT loan. If you work for a bank and get a loan from them it isn't taxed as remuneration, where as an EBT loan from the same bank would be.

If you read the Finance Act under disguised renumeration there are conditions that your employer can provide you a loan and it not be considered renumeration. It is these exceptions that a lot of the offshore and loan companies use. Making it currently legal. It will be interesting come April 2013 when the GAAR is released.

Having spoken to my provider they have said that it will require changes to the Finance Act as the exceptions are currently explicit and GAAR or no GAAR that is the law. We shall have to wait and see....

[Vallah]

How could the Government legislate against self-employed loan schemes?

With the employed schemes it wasn't difficult because the loans were associated with an employer/employee relationship and could be classified as disguised remuneration.

However, with the self-employed schemes, the loans are no different to any other loan between party A and party B. How could you tax this kind of loan without affecting other loans?

One option open to HMRC would be to test whether people are genuinely self-employed BUT this would have to be done on a case by case basis since everyone's individual working arrangements will be different. With 3000+ users in these schemes this would be a logistical nightmare. It would be akin to undertaking 3000+ IR35 type investigations.

Am I missing something?

No, not really.

[bigguy]

Hi - I have a question the EBT loans, if one was of the inclination to settle with HMRC based on disguised remuneration, then I don't see how this would cancel any outstanding loans an individual may have with a trust. Would it still be up to the beneficiary to get any outstanding loan cancelled. Wouldn't be nice to settle with HMRC then be asked to pay the loan back - or is this not really feasible ?

[sal626]

Anything is feasible...but if HMRC stance is that loans are disguised renumeration and not loans, and then the loans are recalled...you could challenge HMRC stance. It can't be a loan AND income at the same time....has to be one or the other (as I understand).

The cases were EBTs have been sucessful, is where they have managed to prove that loans were indeed loans (Sempra, etc). And the ones where HMRC have been sucessful is where they have managed to prove loans were not loans (i.e. Rangers). I can't think of a case or precedence where it was a loan and also income.

This obviously is for the pre 9 Dec 2010 loans from EBT. Post 9 Dec 2010, the law has changed to say loans from EBTs incurr a tax charge...although I'm not sure if the law actually says they are "not loans".

[DonkeyRhubarb]

Hi - I have a question the EBT loans, if one was of the inclination to settle with HMRC based on disguised remuneration, then I don't see how this would cancel any outstanding loans an individual may have with a trust. Would it still be up to the beneficiary to get any outstanding loan cancelled. Wouldn't be nice to settle with HMRC then be asked to pay the loan back - or is this not really feasible ?

Is there any incentive to settle? Unless HMRC are offering concessions I can't see what the point would be.

Chances are they will quietly drop their enquiries into pre-Dec 2010 arrangements.

They've got more than enough on their plate with the thousands who are still using loan schemes which purport to get around the disguised remuneration rules.

[bigguy]

DR - I hope you are right about pre Dec 2010.

But in the case that this doesn't materialise, then the argument is Loan vs Income. If one was to set up a voluntary loan repayment (vlr) plan with the trustee's, say £500 per year (or other such value, almost acting as an insurance), then I would have thought HMRC would have a reasonably hard job of arguing this was income.

Any thoughts on this.

Regards

[slogger]

DR - I hope you are right about pre Dec 2010.

But in the case that this doesn't materialise, then the argument is Loan vs Income. If one was to set up a voluntary loan repayment (vlr) plan with the trustee's, say £500 per year (or other such value, almost acting as an insurance), then I would have thought HMRC would have a reasonably hard job of arguing this was income.

Any thoughts on this.

Regards

my main concern with these schemes is that they seem to me to be a sham, i.e. i think loans are meant to be discretionary, however off the record the providers of the schemes say you will receive 85.3% of your income back... so the reality of the underlying agreement has differed from whats written, also the providers wont commit to what they say verbally in writing ... again a sham.

now it would be hard for hmrc to prove this maybe, but i was too concerned that if I as a IT person could see it was a sham arrangement then hmrc at some point will look back and say the sam..

[DonkeyRhubarb]

DR - I hope you are right about pre Dec 2010.

Let me put it this way, if I was in your position I would just sit tight.

No matter what HMRC might say in public, I can't see them committing a lot of resources to chasing after schemes which Parliament has already introduced specifically targeted legislation to close down.

It's not like they haven't got enough schemes still running to deal with!

[sal626]

The cases were EBTs have been sucessful, is where they have managed to prove that loans were indeed loans (Sempra, etc). And the ones where HMRC have been sucessful is where they have managed to prove loans were not loans (i.e. Rangers). I can't think of a case or precedence where it was a loan and also income.

I stand corrected, apparently, HMRC haven't won the rangers case...

BBC News - Former Rangers Football Club wins Big Tax Case appeal

[DonkeyRhubarb]

HMRC backlog

I think they will have no choice but to abandon some enquiries.

HMRC criticised over £10.2bn backlog of 41,000 avoidance cases - New Model Adviser®