The stuff you need to know about loan schemes......

[BlasterBates]

Note the following paragraph in the GAAR consultation document, that will probably make these schemes unviable.

"The Government welcomes comments on what the appropriate rule should be for arrangements that have been put in place before 1 April 2013"

In other words I suspect your loan or any outstanding loans will have to be written off before next year otherwise you may well find "your arrangements" will be taxed, under the GAAR rules.

[JennyMartins]

Wow, didn't think it would get this heated. With information read and what people have mentioned earlier in this thread the potential hassle of HMRC coming to get me these schemes are just not worth it, especially for an extra 10%.

Thanks for the clarification guys.

Now relax.

[ASB]

In other words I suspect your loan or any outstanding loans will have to be written off before next year otherwise you may well find "your arrangements" will be taxed, under the GAAR rules.

I think there is a significant risk that GAAR will effectively bring things into scope that currently exist, and this will in effect backdate the impact to the start of the arrangement without explicit retrospection.

There was one fairly recent example of this with changes to taxation on one form of trust - but I'm damned if I can remember what it was.

The wording in the GAAR does set down the intent quite clearly. It is that income generated by UK residents should be taxed in the UK. I personally entirely agree with this.

[Geoff, that is in no way a dig at your industry. I also firmly believe that a number of schemes DO do genuinely work. I also believe it is perfectly reasonable for people to be a bit (even quite a lot) creative in their use of the rules to achieve their objective. It is the responsibility of the legislature to legislate correctly and clearly in the first place]

Where it starts to get problematic is quite what is the right level. For example could somebody try and argue that operating through a company defeats the objective? Really that should should have been employment income shouldn't it (Instant IR35 for everybody perhaps?)

Another problem - and this I suspect will turn into a real concern - is that these provisions will in fact remove any requirement whatsoever for the legislature to be careful in what and how they legislate. Why bother when then can just say "but the intent was clear".

Ultimately this can only make our already complex and muddled tax law more muddled.

GAAR does come very close to arbitrary taxation and in my view doesn't sit particularly well with some of the provisions of ECHR.

[LisaContractorUmbrella]

I think there is a significant risk that GAAR will effectively bring things into scope that currently exist, and this will in effect backdate the impact to the start of the arrangement without explicit retrospection.

There was one fairly recent example of this with changes to taxation on one form of trust - but I'm damned if I can remember what it was.

The wording in the GAAR does set down the intent quite clearly. It is that income generated by UK residents should be taxed in the UK. I personally entirely agree with this.

[Geoff, that is in no way a dig at your industry. I also firmly believe that a number of schemes DO do genuinely work. I also believe it is perfectly reasonable for people to be a bit (even quite a lot) creative in their use of the rules to achieve their objective. It is the responsibility of the legislature to legislate correctly and clearly in the first place]

Where it starts to get problematic is quite what is the right level. For example could somebody try and argue that operating through a company defeats the objective? Really that should should have been employment income shouldn't it (Instant IR35 for everybody perhaps?)

Another problem - and this I suspect will turn into a real concern - is that these provisions will in fact remove any requirement whatsoever for the legislature to be careful in what and how they legislate. Why bother when then can just say "but the intent was clear".

Ultimately this can only make our already complex and muddled tax law more muddled.

GAAR does come very close to arbitrary taxation and in my view doesn't sit particularly well with some of the provisions of ECHR.

Excellent post and a very accurate summation IMHO

[geoff from contracta IOM]

I think there is a significant risk that GAAR will effectively bring things into scope that currently exist, and this will in effect backdate the impact to the start of the arrangement without explicit retrospection.

There was one fairly recent example of this with changes to taxation on one form of trust - but I'm damned if I can remember what it was.

The wording in the GAAR does set down the intent quite clearly. It is that income generated by UK residents should be taxed in the UK. I personally entirely agree with this.

[Geoff, that is in no way a dig at your industry. I also firmly believe that a number of schemes DO do genuinely work. I also believe it is perfectly reasonable for people to be a bit (even quite a lot) creative in their use of the rules to achieve their objective. It is the responsibility of the legislature to legislate correctly and clearly in the first place]

Where it starts to get problematic is quite what is the right level. For example could somebody try and argue that operating through a company defeats the objective? Really that should should have been employment income shouldn't it (Instant IR35 for everybody perhaps?)

Another problem - and this I suspect will turn into a real concern - is that these provisions will in fact remove any requirement whatsoever for the legislature to be careful in what and how they legislate. Why bother when then can just say "but the intent was clear".

Ultimately this can only make our already complex and muddled tax law more muddled.

GAAR does come very close to arbitrary taxation and in my view doesn't sit particularly well with some of the provisions of ECHR.

I agree with you entirely ASB, the prognosis is not good for my industry as a whole but we are all big boys and knew that sooner or later HMRC would get their act together on the legislation they write. They haven't done that in this case as you say and have used a very broad brush because their fine work thus far has been terrible.

I share your fear that legislation of this type hands HMRC an extrodinary amount of power and they don't have the best of track records when it comes to abusing that power to cover for their inadequacies.

[ASB]

I guess, thinking a bit further, if we enacted GAAR legislation and coupled it with an advance clearance regime it might possibly be vaguely workable. Though I suspect the output from any clearance application would be "fail".

There is also the question of compliance cost.

I do have a slightly cynical view that the strategy - certainly for the small scale user - if simply to ensure that much greater risk is placed on a user and that the costs associated with either failure or ensuring compliance are such that they would exceed the tax saving on any sensible risked basis; thus people will simply "toe the line" by fear.

Taxation by terrorism :-)

This doesn't make for particularly comfortable reading.

GAAR: the overseas experience | Tax Journal

[geoff from contracta IOM]

I guess, thinking a bit further, if we enacted GAAR legislation and coupled it with an advance clearance regime it might possibly be vaguely workable. Though I suspect the output from any clearance application would be "fail".

There is also the question of compliance cost.

I do have a slightly cynical view that the strategy - certainly for the small scale user - if simply to ensure that much greater risk is placed on a user and that the costs associated with either failure or ensuring compliance are such that they would exceed the tax saving on any sensible risked basis; thus people will simply "toe the line" by fear.

Taxation by terrorism :-)

This doesn't make for particularly comfortable reading.

GAAR: the overseas experience | Tax Journal

Unfortunately if has been the policy of HMRC for some time to just make as much noise as possible on a subject with out presenting any firm evidence to support their stance. Take the use of SEBTs for example, they issued a press release about a year ago stating that in their opinion they do not work. We are still patiently waiting for them to elaborate on why they think they don't work and I suspect we will wait some time.
It has been taxation by press release for some time and as you rightly say is based on creating fear to get people to pay rather than having a solid legal argument. IR35 is a shining example of this.

[LisaContractorUmbrella]

Unfortunately if has been the policy of HMRC for some time to just make as much noise as possible on a subject with out presenting any firm evidence to support their stance. Take the use of SEBTs for example, they issued a press release about a year ago stating that in their opinion they do not work. We are still patiently waiting for them to elaborate on why they think they don't work and I suspect we will wait some time.
It has been taxation by press release for some time and as you rightly say is based on creating fear to get people to pay rather than having a solid legal argument. IR35 is a shining example of this.

I agree Geoff, I think this is exactly what is happening and the mindset of the general populace has been manipulated just enough to support the idea. You only have to look at the shareholders voting against pay rises for CEO's and the repeated use of the phrase 'fat cat' to realise the way this is all going. Any major changes that the treasury/HMRC make now will probably be accepted without too much fuss as they will be considered 'fair' in times of austerity; of course, ultimately they will cripple our economy but that doesn't seem to matter in the pursuit of 'fairness'.

[Emigre]

I agree Geoff

It must be Friday with the warring factions making up

[LisaContractorUmbrella]

It must be Friday with the warring factions making up

Just got that Friday Feeling