Loans from EBTs and other Trusts

[horrada]

First, establish which years are in question. Do this by asking HMRC, in writing, which years are open. This may take 6 to 8 weeks.

Second, search for whatever papers you have on sums received and paid from the years you were involved. If you have gaps (sort them by date) and the contracting outfit is still around, ask them for the missing pieces.

Third, if you decide not to go for an offer (see below) a case going to tribunal (and/or higher) is usually done on a "test case" basis. It is unlikely to be your case and more likely to be somebody already deep into discussion with HMRC. It is very probable that one of the still extant promoters of such schemes will be preparing a test case perhaps on an anonymous basis. You will not need representation at such a hearing.

Fourth, be very clear about the terms of the offer. It seems at the moment that the offer is somewhat hazy and the analysis flawed. By all means enquire about its terms but don't accept it if you don't understand it. If you do take the offer, you are excluded from the litigation result, good or bad.

Fifth, get decent advice. Do not rely upon this forum, your mates still contracting, the guy in the pub, a website of "experts". There is no substitute for a qualified professional looking at the material you can gather together and giving you an objective opinion. This may seem expensive at the time but is invariably worth it.

(I'm not volunteering by the way.)

How is it tax avoidance if I receive the same amount for monies by paying tax via a LTD company or buy using this scheme. Most people who joined this schemes under £100,000 a year did more for convenience than saving any tax.

[malvolio]

How is it tax avoidance if I receive the same amount for monies by paying tax via a LTD company or buy using this scheme. Most people who joined this schemes under £100,000 a year did more for convenience than saving any tax.

You're assuming the tax was paid on your behalf.

[Rob79]

How is it tax avoidance if I receive the same amount for monies by paying tax via a LTD company or buy using this scheme. Most people who joined this schemes under £100,000 a year did more for convenience than saving any tax.

Tax avoidance is not measured by comparing one method of receiving income and paying tax, with another. There is no mythical benchmark out there and thus no measure that says "if you pay less then this its avoidance and if you pay more, then you're foolish".

Instead, look at what you have received and the means by which you are alleged to have received it. If HMRC and a Court think that you've received money as remuneration but you've treated it as a loan, then it's potentially avoidance.

Such avoidance can be perfectly legal. If it is and there is no other law or legal doctrine that says otherwise, the money is yours and your reputation untarnished.

If the amount you have received is however deemed to be something other than you claim by operation of other laws or judge led rules, then it's possible that you have avoided paying tax legally due to HMG. Can still be perfectly legal just analysed incorrectly.

There is not (or should not be) any moral or ethical component. There is only your legal interpretation versus that of another.

In theory at least, we are all equal before the law. In practice ... I have not the time to write the necessary philosophical essay.

[jbryce]

chasing my tail

Tax avoidance is not measured by comparing one method of receiving income and paying tax, with another. There is no mythical benchmark out there and thus no measure that says "if you pay less then this its avoidance and if you pay more, then you're foolish".

Instead, look at what you have received and the means by which you are alleged to have received it. If HMRC and a Court think that you've received money as remuneration but you've treated it as a loan, then it's potentially avoidance.

Such avoidance can be perfectly legal. If it is and there is no other law or legal doctrine that says otherwise, the money is yours and your reputation untarnished.

If the amount you have received is however deemed to be something other than you claim by operation of other laws or judge led rules, then it's possible that you have avoided paying tax legally due to HMG. Can still be perfectly legal just analysed incorrectly.

There is not (or should not be) any moral or ethical component. There is only your legal interpretation versus that of another.

In theory at least, we are all equal before the law. In practice ... I have not the time to write the necessary philosophical essay.

...HMG needs to collect taxes effectively to function. However they need an effective tax system to ensure they can do that. The UK tax regime is bonkers and allows for totally legal avoidance. EBTs are, probably, an example of legal avoidance.

Note that HMRC has not, as yet, beaten a contractor EBT scheme at an FTT. The best they can manage is Boyle - which has no resemblance to many of the schemes under discussion here.

APNs changes things - but at some point HMRC will have to take these to court and, once they start losing, there will be questions around the expense of continually losing in court as well as the damage to their (nonsense) 80% win rate.

So settle? No.

[malvolio]

...HMG needs to collect taxes effectively to function. However they need an effective tax system to ensure they can do that. The UK tax regime is bonkers and allows for totally legal avoidance. EBTs are, probably, an example of legal avoidance.

Note that HMRC has not, as yet, beaten a contractor EBT scheme at an FTT. The best they can manage is Boyle - which has no resemblance to many of the schemes under discussion here.

APNs changes things - but at some point HMRC will have to take these to court and, once they start losing, there will be questions around the expense of continually losing in court as well as the damage to their (nonsense) 80% win rate.

So settle? No.

"Legal Avoidance" implies "Illegal Avoidance" - and there's not such thing. Don't buy into HMG's politicalisation of the issue.

However don't be so sure HMRC will lose in court. EBTs are legal and have a purpose (primarily, but not exclusively, to prevent employees paying double tax on retirement income and similarly deferred income). What's at dispute is people's ability to use them in the way they have been and, if that's OK, then have they gained a material advantage from such use. (HMRC's view is that since most are complaining they don't have the money to pay the tax demanded, it's fairly safe to assume it's been spent which rather implies a material advantage has been gained, which is why they think the tax is due)

And don't ignore Ramsay; that is also potentially applicable.

The only thing you can be certain about is that there's a long way to go yet.

[jbryce]

"Legal Avoidance" implies "Illegal Avoidance" - and there's not such thing. Don't buy into HMG's politicalisation of the issue.

However don't be so sure HMRC will lose in court. EBTs are legal and have a purpose (primarily, but not exclusively, to prevent employees paying double tax on retirement income and similarly deferred income). What's at dispute is people's ability to use them in the way they have been and, if that's OK, then have they gained a material advantage from such use. (HMRC's view is that since most are complaining they don't have the money to pay the tax demanded, it's fairly safe to assume it's been spent which rather implies a material advantage has been gained, which is why they think the tax is due)

And don't ignore Ramsay; that is also potentially applicable.

The only thing you can be certain about is that there's a long way to go yet.

There certainly is a long way to go, however it's glib to assume that because HMRC don't like it they can win in court - they can't. Rangers proved that no matter how much they jump up and down and shake their tiny fists they will not always win. Ramsay was used by HMRC in the Rangers case and they haven't mentioned it in any of the correspondence I have received. The best they have is Boyle - which is pretty useless.

The game changer is APNs - a nightmare for HMRC, and FNs which may be a nightmare for them.

All I can relay is what my accountant is telling me. The settlement opportunity is an attempt by HMRC to minimise the amount of APNs they have to send out. They know it's a potential major headache.
A senior investigator has admitted to him that, at the moment, they would not use Boyle as the basis for an FN, however they are quite comfortable to mention it at every opportunity.

What really sucks is that, in reality, funding an effective EBT defense is going to take some real co-ordination.

All bo11ock5 really.

[centurian]

I haven't quite understood the "tax avoidance is legal" mantra in respect of schemes/measures which get defeated in court, or have a distinct possibility of being defeated.

Illegal | Define Illegal at Dictionary.com

1. forbidden by law or statute.
2. contrary to or forbidden by official rules, regulations, etc.:

In the strict sense, any tax avoidance scheme that ultimately gets defeated in court - is, by definition, illegal. If it was legal, why are you being forced to pay up. You must have broken some law/rule, perhaps not to a criminal extent, but something about the avoidance measure had to be illegal in order to lose in court.

[malvolio]

I haven't quite understood the "tax avoidance is legal" mantra in respect of schemes/measures which get defeated in court, or have a distinct possibility of being defeated.

Illegal | Define Illegal at Dictionary.com



In the strict sense, any tax avoidance scheme that ultimately gets defeated in court - is, by definition, illegal. If it was legal, why are you being forced to pay up. You must have broken some law/rule, perhaps not to a criminal extent, but something about the avoidance measure had to be illegal in order to lose in court.

Avoidance is legal: you can arrange your affairs to take best advantage of the various tax rules. What you can't do is use the tax rule in a way that it was not intended for such as claiming relief as a car dealer when you've never sold a car in your life. The law you would be breaking is the one about correctly declaring your taxable income, which is all wrapped up in the Finance Act.

[LandRover]

There certainly is a long way to go, however it's glib to assume that because HMRC don't like it they can win in court - they can't. Rangers proved that no matter how much they jump up and down and shake their tiny fists they will not always win. Ramsay was used by HMRC in the Rangers case and they haven't mentioned it in any of the correspondence I have received. The best they have is Boyle - which is pretty useless.

The game changer is APNs - a nightmare for HMRC, and FNs which may be a nightmare for them.

All I can relay is what my accountant is telling me. The settlement opportunity is an attempt by HMRC to minimise the amount of APNs they have to send out. They know it's a potential major headache.
A senior investigator has admitted to him that, at the moment, they would not use Boyle as the basis for an FN, however they are quite comfortable to mention it at every opportunity.

What really sucks is that, in reality, funding an effective EBT defense is going to take some real co-ordination.

All bo11ock5 really.

There will be EBT defence, I know of schemes having funds available and litigation is being planned.

As you stated, Ramsey was shot to pieces in Rangers EBT appeal, reading the judges remarks in summing up makes it clear Ramsey was rebuffed.

[Rob79]

There will be EBT defence, I know of schemes having funds available and litigation is being planned.

As you stated, Ramsey was shot to pieces in Rangers EBT appeal, reading the judges remarks in summing up makes it clear Ramsey was rebuffed.

I would agree with the posters here that - so far - the Ramsay doctrine has been resisted by the judges at First and Upper Tier's. A stiffer test will be Court of Appeal as that will be the first time that a purely legal interpretation will be tried before judges who are legally trained. The extension and application of Ramsay into the "purposive" tests is judge led dicta and as such other judges love to add their own spin and get their name in lights.

My reading of the case reported on Rangers is that the next appeal will run a slightly different angle with less emphasis upon trying to redesignate payments as something other than they are described in documents (Ramsay) and more on "what is the intention of the scheme looked at as a whole". A good (if very long) review of the interpretation there can be found in the Acornwood case. (148 pages of it).

Legal/illegal avoidance is a red herring. AN EBT that is found to be a conduit for remuneration can be perfectly legal and still be avoidance. The test comes where one person's interpretation of the law results in "A" whilst another's results in "B". Both perfectly legal but different results.

APN's in Court? There is no appeal against issue (other than administrative incompetence) and the only appeal is about penalties. Judicial review might be attempted but the hurdle is high. I do not subscribe to the thought in these forums that HMRC did not want APN. I think they did as a tool to settle outstanding issues and that the use of the notices will rapidly turn to misuse.