HMRC firing off some "warning shots"

[prozak]

Nobody would join up just having read the website info though. Some of our calls last well over an hour as everything is explained in great detail.

Wow. A whole hour on the phone?

How many contact every party involved including your legal opinion providers?

[malvolio]

I imagine it would well take longer to explain it to you Lisa.

OK, so let's try a simple question.

HMRC accept that most EBT shchemes are entirely lawful and there is no basis for closing them down since they do the job they are meant to do. However, HMRC are asking the users of such scehemes to explain exactly how and when the loans are to be repaid and what their intentions are to repay it at that time. If they can't get a clear and unambiguous answer, they will then treat is as a BIK and tax it on that basis.

So how do you advise your clients to answer. And sorry, but "the loan will never be repaid and so no tax is due" is not the right answer.

[Vallah]

OK, so let's try a simple question.

HMRC accept that most EBT shchemes are entirely lawful and there is no basis for closing them down since they do the job they are meant to do. However, HMRC are asking the users of such scehemes to explain exactly how and when the loans are to be repaid and what their intentions are to repay it at that time. If they can't get a clear and unambiguous answer, they will then treat is as a BIK and tax it on that basis.

Except that isn't the case at all, as the recent Rangers judgement shows. A loan is legally a loan, and not income.

[prozak]

Except that isn't the case at all, as the recent Rangers judgement shows. A loan is legally a loan, and not income.

So it WAS. EBT's don't work at present.

[NickNick]

Quite! In Hong Kong (I think) the higher the earnings, the lower the tax rate so you may pay say 30% for the first 100k but then 25% for the next 100k and so on - makes much more sense than our system of penalising people for success

Just in case no one else has said this further down, this isn't a good way to work for those on the lower end of the scale. A larger proportion of their income will go in tax. So if you earn 25K (UK average I believe) then 20% tax on that is 5K, a large chunk out of your take home, leaving you with 20K to live off. If you earn £100K then after that 20% you still have 80K to live off. Apologies if I'm not making the point clearly though.

[prozak]

Just in case no one else has said this further down, this isn't a good way to work for those on the lower end of the scale. A larger proportion of their income will go in tax. So if you earn 25K (UK average I believe) then 20% tax on that is 5K, a large chunk out of your take home, leaving you with 20K to live off. If you earn £100K then after that 20% you still have 80K to live off. Apologies if I'm not making the point clearly though.

Then the person who is earning 25k should work harder.

i don't think anyone struggled with the math or implications.

It is more about whether you are a left wing, big government, money wasting, anti-enterprise, commie bastard or a right thinking rationale human being.

[RasputinDude]

What's wrong with everyone paying the same proportion?

[The Spartan]

That maybe so, but the person on 100k is paying 4 times the amount of tax the person on 25K is paying and doesn't get any better services etc.

The main point is penalising people who earn more isn't the way forward, you're technically penalising someone for working hard

[malvolio]

Except that isn't the case at all, as the recent Rangers judgement shows. A loan is legally a loan, and not income.

And of course you ensure your clients declare it as such on their annual SA...

[Vallah]

So it WAS. EBT's don't work at present.

I'm well aware of that, thanks.