Loans from EBTs and other Trusts

[convict]

^Not sure if serious?

[cojak]

^Not sure if serious?

I hope not...

[Rob79]

If we were to repay the loans to the trust what then? No denying it would be difficult but presumably the tax liability disappears. We could then speak to the trust to see if they have any work they need doing and agree a reasonable rate and vehicle to charge them? Or is this too simplistic?

The Ramsay doctrine that HMRC are trying to persuade the judge to apply essentially says that where steps have been inserted into transactions with little or no commercial purposes but with the intent of achieving a certain tax position, then those steps can be ignored. Instead analyse where you were before the alleged transaction and where you are post. Tax the economic result between the two.

If this argument is correct (not yet proven) then there is no loan and repaying it makes no difference. Receiving further funds from the trust/provider, creates more taxable income.

[malvolio]

The Ramsay doctrine that HMRC are trying to persuade the judge to apply essentially says that where steps have been inserted into transactions with little or no commercial purposes but with the intent of achieving a certain tax position, then those steps can be ignored. Instead analyse where you were before the alleged transaction and where you are post. Tax the economic result between the two.

If this argument is correct (not yet proven) then there is no loan and repaying it makes no difference. Receiving further funds from the trust/provider, creates more taxable income.

Precisely. And that is why the state of a properly constructed EBT is largely irrelevant as a defence (if you're using a wrongly constructed one - not that you will know that of course - or something that is not an EBT, then you have a whole other problem).

Plus Ramsay has precedent and will be supported.

[LisaContractorUmbrella]

Precisely. And that is why the state of a properly constructed EBT is largely irrelevant as a defence (if you're using a wrongly constructed one - not that you will know that of course - or something that is not an EBT, then you have a whole other problem).

Plus Ramsay has precedent and will be supported.

Just to clarify - are you saying that the arrangement can be water tight on paper but if it has been entered into for no other purpose that to avoid tax that will be no defense?

[Rob79]

Just to clarify - are you saying that the arrangement can be water tight on paper but if it has been entered into for no other purpose that to avoid tax that will be no defense?

The Ramsay doctrine as supported by more recent decisions in Tower MCashback and Acornwood at the Tax Tribunals says that steps which have no commercial purpose can be ignored.

The question arises of what is a commercial purpose.

In the Rangers case, the Court has so far held that the payment from "employer" to trust and the "loan" from trust to individual do have commercial purpose and cannot therefore be ignored. At the moment therefore the Ramsay principle has not been proven.

The Acornwood case (sometimes referred to as the Icebreaker case) is especially interesting. There was a full suite of documents that allegedly showed the partnership acquiring assets, agreeing to exploit them, disposing of them in some cases and generally dealing with administration and other "commercial" activities. The judge (the senior judge of the First Tier Tribunal panel) took 18 months to think about the position and then said that because the scheme was primarily for tax avoidance ("and everybody understood that") then all those agreements could be ignored.

He used the latest iteration of the Ramsay doctrine which is that you have to extract the facts and then apply the law to those facts in a purposive manner and the case does have some interesting summary of how the doctrine has evolved, but the result is the same.

So, long answer to short question.

Short answer to short question = yes.

[Nissan07]

Is there any practical advice that the more experienced can offer. I received my letter last weekend and not even sure where to start. Been out of the contracting game for a few years now.

I have spoken to an accountant who will advise of my potential liability if i provide amounts.....youch! I understand the 6 year rule may not apply as some sort of enquiry was made years back (which I do vaguely recall) and was dealt with by the umbrella which means HMRC could go back all years.

If I don't accept their offer and it goes to tribunal, am I represented by an accountant or do i require legal representation.

Excuse the simplistic questions but I cannot find this information anywhere

[Rob79]

Is there any practical advice that the more experienced can offer. I received my letter last weekend and not even sure where to start. Been out of the contracting game for a few years now.

I have spoken to an accountant who will advise of my potential liability if i provide amounts.....youch! I understand the 6 year rule may not apply as some sort of enquiry was made years back (which I do vaguely recall) and was dealt with by the umbrella which means HMRC could go back all years.

If I don't accept their offer and it goes to tribunal, am I represented by an accountant or do i require legal representation.

Excuse the simplistic questions but I cannot find this information anywhere

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.)

[LisaContractorUmbrella]

The Ramsay doctrine as supported by more recent decisions in Tower MCashback and Acornwood at the Tax Tribunals says that steps which have no commercial purpose can be ignored.

The question arises of what is a commercial purpose.

In the Rangers case, the Court has so far held that the payment from "employer" to trust and the "loan" from trust to individual do have commercial purpose and cannot therefore be ignored. At the moment therefore the Ramsay principle has not been proven.

The Acornwood case (sometimes referred to as the Icebreaker case) is especially interesting. There was a full suite of documents that allegedly showed the partnership acquiring assets, agreeing to exploit them, disposing of them in some cases and generally dealing with administration and other "commercial" activities. The judge (the senior judge of the First Tier Tribunal panel) took 18 months to think about the position and then said that because the scheme was primarily for tax avoidance ("and everybody understood that") then all those agreements could be ignored.

He used the latest iteration of the Ramsay doctrine which is that you have to extract the facts and then apply the law to those facts in a purposive manner and the case does have some interesting summary of how the doctrine has evolved, but the result is the same.

So, long answer to short question.

Short answer to short question = yes.

Thanks - that was my understanding but I wasn't sure that was the point Mal was making

[cojak]

Is there any practical advice that the more experienced can offer. I received my letter last weekend and not even sure where to start. Been out of the contracting game for a few years now.

I have spoken to an accountant who will advise of my potential liability if i provide amounts.....youch! I understand the 6 year rule may not apply as some sort of enquiry was made years back (which I do vaguely recall) and was dealt with by the umbrella which means HMRC could go back all years.

If I don't accept their offer and it goes to tribunal, am I represented by an accountant or do i require legal representation.

Excuse the simplistic questions but I cannot find this information anywhere

This thread debates general issues regarding EBT's. I'll copy your post into the HMRC Enquiries thread.