Talent Resource Management

[MPwannadecentincome]

http://www.hmrc.gov.uk/employers/ebi...2/loans-03.htm

According HMRC "employees" are liable to pay class 1 NIC and not PAYE on loans written off by the employer

If you write the loan off now and submit a tax return in april 09 expect 10 pay in Jan 2010 . Calculate how much you will owe and get saving!

Also you wont get int trouble for not declaring the loan in previous years becuase its a non-qualifying loan as we have been paying interest above the standard rate.

Its a complex minefield and this is probably what keeps HMRC investigators and tax lawyers in employment - the above reference to a written off loan off course relates to a loan from an employer, its still not clear whether a loan from a "independant" trust counts as this.

[richt5a]

Another recipient of Redding Letters

Greetings All,
I've been working through Payscheme/Batchworth for just coming up to 3 years and have also received 3 letters from Redding.

I received the first one and e-mailed a whole load of questions, pretty much on every point in the agreement, to Jill Smart at The FortGroup on 1st August and did get a very prompt reply back to say "Many thanks for your e-mail which I have passed on for a full response. I would as that you please be patient as due to the volume of enquiries, the expected response time is around 14 days". I haven't had a reply but in the meantime I have had a further 2 letters re loans for subsequent years.

Like everyone else am feeling nervous and am also keen to join up with Jon C and the team to share more news/experiences/plans etc.

**** MODS **** As you can see I am a newbie but would appreciate the option to PM please to join the crew, Many Thanks!

<mod note>PM use enabled</mod note>

[u9k82]

The plain Fact

There are some of us here who used this scheme knowingly , there are some of us here who believed they were compliant and believed the sales pitch

However are all in the same boat

I've spoken to several tax experts and the message is the same

If you delcare the loan you are going to pay Tax and NI on the outstanding amount and it will be treated as earnings for that year you declare it.

The fact is IF TRM is operating legally through some loophole . A law will be passed and at some point the scheme will be closed down .The scheme states that it is legal - it may be! . But what if the law changes! the tax man will come knocking .They will close down TRM and get a list of all its past users.

So its not a matter of IF we will have to pay its a matter of when! approaching the HMRC is always better than being investigated.

As the loans are bona fide employee loans and we a re paying interest , not tax is due until the loan is repaid or written off or the scheme is closed down.

To quote my girlfriend " Pull yourself together you actually owe these taxes anyway its not as if your expected to pay anything you dont owe!"

Options to consider

1) Get TRM to write off the whole loan and declare this to HMRC in april 09 for payment due in Jan 2010 - Start saving expect to pay at least 40 -50 % of the total loan amount based on if you leave TRM and go running to a compliant umbrella therefore using your 36000 allowance taxable at 20 % (it 40 % tax for high earners and the loan will get added to this years earnings , tipping you over that 36000 limit)

2) Explore the possibility that TRM is a "closed" company . IF you can prove that TRM is a "closed" company and you are a "participator" then when the loan is written off it will be treated as if you have recieved a dividend for that amount - start saving but only expect to pay 25% tax on dividends (35 % for higher bracket net 10 % tax allowance)

3) Try and get TRM to write the loan off in chuncks By doing this you can pay off chunks of the tax owing over how many years you want . say your loan is 60k . you may choose to write off 20k in 2008 , 20 k in 2009 and 20k in 2010. Therefore same rules aplly as in option 1 but it will be roughly 10 per year owing from Jan 2010 . This may be one option of avoiding bankruptcy. If the scheme is closed down 2 years into your 3 year plan then all has gone to plan and you still will owe the final third

4) Ask for Time to Pay There is a scheme with HMRC where they give you payment options and time to pay the monies outstanding. I would suggest combining this option yearly with option three above you will pay interest but its another way of keeping your head above water

5) Work and live Abroad for two or three years If you living in a foriegn country you pay tax in that country . You can still declare the loans as earning in the uk . If you declare the loan in 2009 and the loan is 30k If your out of the country from april to april and then declare the loan as earnings in the uk on a tax return that 30k will be classed as earnings for that year and you will be under the 36000 earnings limit therefore liable to 20% tax and NI , OR be away for two or three years and combine this option with writing it off in chunks

6) Bury your head in the sand and hope HMRC forget about potential millions Ha ha wake up!

The options above are just my thoughts and no way reflect the opinions of a tax expert

My personal line of attack ?

1) = 2+4 - Dividend tax with time to pay
2) = 3+4 - Writing off the loan in three equal chunkc over the next 3 years
3) = 1+4 - Take the bullet and declare in april 2009!
4) = 5+4 - Work abroad for a few years and write the loan of in chunks under the 36000 threshold
6) = Never gonna happen

First thing we need to do is to write to TRM and establish how they will write off the loan as stated , is it a dividend they will use , or just forgive the loan . We need to establish if they can be classed as a closed company.

It may be worth hiring a tax expert to do this digging and speak to TRM

[ASB]

2) Explore the possibility that TRM is a "closed" company . IF you can prove that TRM is a "closed" company and you are a "participator" then when the loan is written off it will be treated as if you have recieved a dividend for that amount - start saving but only expect to pay 25% tax on dividends (35 % for higher bracket net 10 % tax allowance)

The rules for whether something is a "closed" company or not are on HMRC website, I do not know how this applies to offshor entities, but seeing as how they are based in the CI it may well do. I think you are participator by virtue of the single share which some have mentioned they received.

In order for the writing off of the loan to be treated as a dividend rather than income it does seem to me that it must first attract a charge to corporation tax under which ever section of the companies act was mentioned in the link from pwc you posted. [This would then make the tax treatment of it the same as any other divi overall]. Unfortunately I can't see how this can happen.

Regarding your point 6 there is some chance. Promoters of these schemes do generally know what they are doing and get advice accordingly, so they probably beleive it is defendable. If you are in the position where your family has received loans rather than youself then it may be the case that you are OK - though this still leaves a question as to the CT treatment of the funds paid into the trust.

[Lon_CTR]

Thanks for the detailed overview, some useful options. I have one to add -

The loan can be converted to a depreciating currency. Overtime this currency will devalue the amount of loan element that you have and therefore will mean that you owe less associated tax.

When it depreciates to a pre agreed amount you then get the total paid to you as a dividend (bonus), pay the necessary tax and call it a day.

Naturally this will need to be agreed with TRM/Redding but is a legitimate method in removing yourself from the scheme.

There are some of us here who used this scheme knowingly , there are some of us here who believed they were compliant and believed the sales pitch

However are all in the same boat

I've spoken to several tax experts and the message is the same

If you delcare the loan you are going to pay Tax and NI on the outstanding amount and it will be treated as earnings for that year you declare it.

The fact is IF TRM is operating legally through some loophole . A law will be passed and at some point the scheme will be closed down .The scheme states that it is legal - it may be! . But what if the law changes! the tax man will come knocking .They will close down TRM and get a list of all its past users.

So its not a matter of IF we will have to pay its a matter of when! approaching the HMRC is always better than being investigated.

As the loans are bona fide employee loans and we a re paying interest , not tax is due until the loan is repaid or written off or the scheme is closed down.

To quote my girlfriend " Pull yourself together you actually owe these taxes anyway its not as if your expected to pay anything you dont owe!"

Options to consider

1) Get TRM to write off the whole loan and declare this to HMRC in april 09 for payment due in Jan 2010 - Start saving expect to pay at least 40 -50 % of the total loan amount based on if you leave TRM and go running to a compliant umbrella therefore using your 36000 allowance taxable at 20 % (it 40 % tax for high earners and the loan will get added to this years earnings , tipping you over that 36000 limit)

2) Explore the possibility that TRM is a "closed" company . IF you can prove that TRM is a "closed" company and you are a "participator" then when the loan is written off it will be treated as if you have recieved a dividend for that amount - start saving but only expect to pay 25% tax on dividends (35 % for higher bracket net 10 % tax allowance)

3) Try and get TRM to write the loan off in chuncks By doing this you can pay off chunks of the tax owing over how many years you want . say your loan is 60k . you may choose to write off 20k in 2008 , 20 k in 2009 and 20k in 2010. Therefore same rules aplly as in option 1 but it will be roughly 10 per year owing from Jan 2010 . This may be one option of avoiding bankruptcy. If the scheme is closed down 2 years into your 3 year plan then all has gone to plan and you still will owe the final third

4) Ask for Time to Pay There is a scheme with HMRC where they give you payment options and time to pay the monies outstanding. I would suggest combining this option yearly with option three above you will pay interest but its another way of keeping your head above water

5) Work and live Abroad for two or three years If you living in a foriegn country you pay tax in that country . You can still declare the loans as earning in the uk . If you declare the loan in 2009 and the loan is 30k If your out of the country from april to april and then declare the loan as earnings in the uk on a tax return that 30k will be classed as earnings for that year and you will be under the 36000 earnings limit therefore liable to 20% tax and NI , OR be away for two or three years and combine this option with writing it off in chunks

6) Bury your head in the sand and hope HMRC forget about potential millions Ha ha wake up!

The options above are just my thoughts and no way reflect the opinions of a tax expert

My personal line of attack ?

1) = 2+4 - Dividend tax with time to pay
2) = 3+4 - Writing off the loan in three equal chunkc over the next 3 years
3) = 1+4 - Take the bullet and declare in april 2009!
4) = 5+4 - Work abroad for a few years and write the loan of in chunks under the 36000 threshold
6) = Never gonna happen

First thing we need to do is to write to TRM and establish how they will write off the loan as stated , is it a dividend they will use , or just forgive the loan . We need to establish if they can be classed as a closed company.

It may be worth hiring a tax expert to do this digging and speak to TRM

[ASB]

The loan can be converted to a depreciating currency. Overtime this currency will devalue the amount of loan element that you have and therefore will mean that you owe less associated tax.

But the tax treatment of loan in most currencys other that GBP, SFR and YEN has been changed to counteract this. Essentially the capital loss is viewed as artificial - i.e. it was the prime purpose of the transaction. However, if you can show that there was a real reason why you needed to borrow in say ZIM$ then this can work.

[catch22]

The rules for whether something is a "closed" company or not are on HMRC website, I do not know how this applies to offshor entities, but seeing as how they are based in the CI it may well do. I think you are participator by virtue of the single share which some have mentioned they received.

In order for the writing off of the loan to be treated as a dividend rather than income it does seem to me that it must first attract a charge to corporation tax under which ever section of the companies act was mentioned in the link from pwc you posted. [This would then make the tax treatment of it the same as any other divi overall]. Unfortunately I can't see how this can happen.

Regarding your point 6 there is some chance. Promoters of these schemes do generally know what they are doing and get advice accordingly, so they probably beleive it is defendable. If you are in the position where your family has received loans rather than youself then it may be the case that you are OK - though this still leaves a question as to the CT treatment of the funds paid into the trust.

The single share was dropped later on as legislation meant that dividends were no longer a valid way to pay, so they switched to a full loan structure with no dividend... As such, those who joined later (after April 2007?) won't have that share.

Presumably that means we have two different groups of people here - i.e. those with, and those of us without a share. I'm not sure how that affects the overall situation though.

[Lewis]

But the tax treatment of loan in most currencys other that GBP, SFR and YEN has been changed to counteract this. Essentially the capital loss is viewed as artificial - i.e. it was the prime purpose of the transaction. However, if you can show that there was a real reason why you needed to borrow in say ZIM$ then this can work.

Have you got an official link confirming this? I have a mate who I think is still getting foreign currency loans.

[dezze]

the tax treatment of loan in most currencys other that GBP, SFR and YEN has been changed to counteract this. Essentially the capital loss is viewed as artificial - i.e. it was the prime purpose of the transaction. However, if you can show that there was a real reason why you needed to borrow in say ZIM$ then this can work.

Do you know when this came into force?

[kiwioi]

re The plain Fact

Anyone have any idea how other loan schemes manage the loan interest once a participant stops contracting through them? Does it just build up, or is it somehow paid or written off each year?

Statement from the previous post got me thinking - "As the loans are bona fide employee loans and we a re paying interest , not tax is due until the loan is repaid or written off or the scheme is closed down."

But those of us who have left the TRM scheme have stopped paying interest (i.e. no more TRM 5% fee).

I had been assumming if the scheme was eventually challenged and closed I could just write if off as income for the tax year it got closed down.
Now thinking that hmrc could easily prove it wasnt a bonafide loan for the time after I left the scheme, and require it to be written off in the tax year I left the scheme - with associated interest, penalties etc.