Loans from EBTs and other Trusts

[DonkeyRhubarb]

It's not their fight - they make money from banking customers rather than from people who want to avoid paying tax that everybody else would be expected to pay.

You may have missed this but the scheme was for their own employees, who I imagine might not be best pleased with the outcome.

[AtW]

You may have missed this but the scheme was for their own employees, who I imagine might not be best pleased with the outcome.

I have not missed that - they should not have set it up in the first place: avoiding paying tax for the bank itself would be on top of their agenda for sure (maximising profits for shareholders), but they are certainly not in business of helping their staff to minimise personal taxation, it's not what their business is about and it just attracts bad PR and wrath of HMRC.

[DonkeyRhubarb]

I have not missed that - they should not have set it up in the first place: avoiding paying tax for the bank itself would be on top of their agenda for sure (maximising profits for shareholders), but they are certainly not in business of helping their staff to minimise personal taxation, it's not what their business is about and it just attracts bad PR and wrath of HMRC.

I'm sure the company had a vested interest.

It would have saved them a shed load of national insurance, and it may also have been a way to increase (net) employee remuneration without it costing them a penny.

[AtW]

It would have saved them a shed load of national insurance, and it may also have been a way to increase (net) employee remuneration without it costing them a penny.

Yes I am sure that's what they thought when getting into it, but ultimately they have far bigger fish to fry - it's a distraction to their business and all their employees who got sucked into it should have known better.

[TykeMerc]

It's not their fight - they make money from banking customers rather than from people who want to avoid paying tax that everybody else would be expected to pay.

That's not strictly speaking true, they will have benefited quite considerably by saving the Employers NI contributions which will have cut costs (or as it happens deferred them), as such they will have seen it as worthwhile until caught.

Tax "planning" by these patently artificial mechanics does strike me as being absurdly risky especially now with HMRC employing time travel techniques which the courts seem reasonably comfortable to support.

[AtW]

That's not strictly speaking true

Avoiding paying tax on employees isn't their core business, that's why I say it's not their fight and it's easier for them to just settle this, it's not like all employees will leave to another firm who'd use such tricks. Now if their business was taking a cut from all those taxes that were avoid then I'd expect them to fight it all the way or just go bust.

[DonkeyRhubarb]

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?

[BlasterBates]

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.

[DonkeyRhubarb]

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

Interest free loans are common place, albeit they are usually associated with purchasing something.

I don't think it will be that easy to characterise these loans as income.

By the way, I am not advocating use of these schemes, just wondering how the authorities are going to deal with them.

[BlasterBates]

Interest free loans are common place, albeit they are usually associated with purchasing something.

There is a specific business purpose. You can get a loan from your employer without being taxed as income. It seems that HMRC can distinguish between real loans and artificial loans.

Contractors (or the general public for that matter) have no problem distinguishing between disguised income and real loans, otherwise they wouldn't enter into these schemes. It would be naive to think that HMRC officials and judges in the tax courts wouldn't be able to.