Settlement Opportunity

[Leebok]

Settlement Opportunity

I think the very opposite - IF lots of people had settled these ludicrous claims, APNs would have been issued by now.

Even with an APN through my letter box, for me it would be an 'all or nothing' position, nothing to lose other than a tribunal case.

I couldn't give a rat's arse about being named for being a user of one of these products that HMRC are now retrospectively having second thoughts about.

"Oh how I wish I could get back my book cost on some bad stock picks", or "I will reclaim from Lloyds Bank the 50 quid I spent on beer over the weekend", 20-20 vision hindsight and all of that.

I think this whole scaremongering/FUD/APN strategy will backfire monumentally, how on earth are HMRC going to be able to handle tens of thousands of contractors and companies they wrongly accuse of simply paying the tax they had to?

Let's say 10% pay up following an APN, or even 50%, the admin burden, resurrection of year old cases, it will all simply undermine HMRC's FUD strategy.

Cost/benefit of pursuing contractors on tiny three digit day rates makes no financial sense.

I received a letter from HMRC today in relation to an earlier letter from December regarding IHT on payments received and a settlement offer. The letter says there is insufficient details with involvement with Cherrylon to calculate if IHT is due or not. However, if the "Loans" are written off, or the "loans" become less or the "loans" become nil rate within 10 years I have to inform HMRC.

Are they admitting that these payments are in fact loans? It seem slike it to me, so what are they basing the setlement figure on? Its not IHT figures and it cant be income tax as they are "Loans" statet by HMRC.

[webberg]

I received a letter from HMRC today in relation to an earlier letter from December regarding IHT on payments received and a settlement offer. The letter says there is insufficient details with involvement with Cherrylon to calculate if IHT is due or not. However, if the "Loans" are written off, or the "loans" become less or the "loans" become nil rate within 10 years I have to inform HMRC.

Are they admitting that these payments are in fact loans? It seem slike it to me, so what are they basing the setlement figure on? Its not IHT figures and it cant be income tax as they are "Loans" statet by HMRC.

This is a basic contradiction at the heart of the HMRC view.

For IT purposes the analysis is that the payments may have the legal form of a loan but in economic reality are salary/income subject to tax and NIC. This is substance over form.

For IHT the opposite is said to be true, i.e. they are loans and therefore any wrote off/down is a distribution from a trust and that triggers an IHT charge. This is form over substance.

The decided cases on IT gives weight to the HMRC argument. There are some IHT cases that help (and some that hinder) the argument there.

The missing piece is whether the decided cases on IT can "trump" or in any way be relevant to the IHT argument. This is largely untested ground legally and an area that I'm not convinced HMRC wish to be aired in public, but may (stress "may" as in might, perhaps, possibly) be prepared to discuss in a settlement. Again untested ground.

It's not clear whether the various action groups have raised this issue (I'd hope they have) and if so have a response but I'd suggest you contact them and ask.

[DonkeyRhubarb]

For IT purposes the analysis is that the payments may have the legal form of a loan but in economic reality are salary/income subject to tax and NIC. This is substance over form.

Whilst I agree they are treating the loans as taxable income, I haven't heard of any assessments including NICs.

So they don't seem to be classing them as employment income (salary).

Strange that.

[DonkeyRhubarb]

Is it true, with most of these schemes, that people were employed by an offshore company (eg. Isle of Man) and received a small salary which the employer deducted tax and class 1 primary (employee) NICs through PAYE?

Presumably the employer paid class 1 secondary (employer) NICs on the small salary?

It is curious that HMRC are treating the loans as though they had nothing to do with this employment.

If the loans were disguised remuneration then, in addition to tax, there should be outstanding class 1 primary & secondary NICs.

[webberg]

Is it true, with most of these schemes, that people were employed by an offshore company (eg. Isle of Man) and received a small salary which the employer deducted tax and class 1 primary (employee) NICs through PAYE?

Presumably the employer paid class 1 secondary (employer) NICs on the small salary?

It is curious that HMRC are treating the loans as though they had nothing to do with this employment.

If the loans were disguised remuneration then, in addition to tax, there should be outstanding class 1 primary & secondary NICs.

I agree that the NIC position is a further anomaly.

The rather vague and illogical position of HMRC is that for IT purposes the "loans" are income but income from what?

For tax purposes, receipt of income is not sufficient to create a tax charge. That income has to be derived from activities regarded as a commercial activity or from an investment in physical or intangible assets in order to be taxable. In practice that breaks down to 1. income from employment (salary/benefits); 2. income from self employment (profits from a trade); 3. dividends/interest/similar (income from investment); 4 income from overseas that is equivalent to the previous; 5. miscellaneous income.

The last category is a catch all. It's meant to capture anything from income from a hobby that becomes significant to car boot sales income to one off transactions that generate a profit.

Currently HMRC is spending huge resources in showing that film schemes are not trading BUT that the income derived is miscellaneous income and therefore taxable. Space is too short here to explain further but they are largely successful in this argument.

So I think HMRC will have to argue that the "loans" are miscellaneous income (no NIC) in order to be taxable.

That is potentially dangerous as one of the features of such income is its erratic and unpredictable nature. If it's shown that actually the income is salary, then there are time limits by which HMRC should have brought in an assessment (see other threads for discussion on these) and I suggest that in many cases these may have been missed.

One to watch (and perhaps question) carefully.

[DonkeyRhubarb]

If it's shown that actually the income is salary, then there are time limits by which HMRC should have brought in an assessment (see other threads for discussion on these) and I suggest that in many cases these may have been missed.

There is also the question of whether it should have come under PAYE.

There is no requirement for a company in the Isle of Man to operate PAYE, even though it's employees reside and work in the UK, but it's different if that company has a UK presence (subsidiary, agency).

By assessing the income in the way they currently are, HMRC are conceding a substantial amount of class 1 primary & secondary nics. You have to wonder why they are doing that.

[webberg]

There is also the question of whether it should have come under PAYE.

There is no requirement for a company in the Isle of Man to operate PAYE, even though it's employees reside and work in the UK, but it's different if that company has a UK presence (subsidiary, agency).

By assessing the income in the way they currently are, HMRC are conceding a substantial amount of class 1 primary & secondary nics. You have to wonder why they are doing that.

Indeed.

There are some circumstances where an UK resident in receipt of a salary (equivalent) has to operate their own PAYE scheme but that is usually only after HMRC has advised them to. There are also situations where an employee can be asked for the tax due under PAYE where the employer has deliberately failed to deduct and/or remit the tax. Again quite a specialist situation and normally confined to those employees in positions of power and influence.

Unfortunately I suspect that asking HMRC to explain the legal basis for their calculation of tax charge will result in "Our internal experts are comfortable with the analysis. We won't/can't change the offer. If you challenge it, we'll see you in Court".

This goes beyond individual product action groups and is perhaps deserving of a combined effort.

[webberg]

There is also the question of whether it should have come under PAYE.

There is no requirement for a company in the Isle of Man to operate PAYE, even though it's employees reside and work in the UK, but it's different if that company has a UK presence (subsidiary, agency).

By assessing the income in the way they currently are, HMRC are conceding a substantial amount of class 1 primary & secondary nics. You have to wonder why they are doing that.

https://www.gov.uk/government/upload...tion_FINAL.pdf

This looks like a stable door being closed when the sound of hooves has long since disappeared.

There is a whole tax technical area to be explored here dealing with why the income is taxable; who is taxable; have assessments been raised on the right people at the right time; discovery; etc. The Murray Group case is unlikely to shed much light on this as the argument there is all about Ramsay and salary disguised as loans (and has been lost by HMRC).

As I said perhaps all the action groups need to pool resources on this one?

[StrengthInNumbers]

HMRC's biggest strength will be broken if even 50% come together and contribute. I don't understand apart from a bunch what the remaining thousand are thinking and planning.

[webberg]

HMRC's biggest strength will be broken if even 50% come together and contribute. I don't understand apart from a bunch what the remaining thousand are thinking and planning.

Do not make an assumption that achieving a settlement with HMRC at a reasonable value (which varies from person to person) is a function of numbers alone.

Experience shows that HMRC is stubborn and (unreasonably) obstinate in devising and sticking to policy when it comes to tax avoidance. They have not caved in on film schemes where the "investors" number perhaps 10,000 or so, the average investment is north of £50k and many people have access to the very best legal and tax advice. Groups of lower value investors make no difference to the position HMRC has calculated as the agency considers that it has to "hold the line".

The right way to proceed is for a group to fund enough or the right specialists who have a workable idea that has weight and can be pursued with rigour against HMRC, if necessary supported by Tribunal appearances.

Large numbers of people all saying "it's unfair" with no legally valid alternative will make NO DIFFERENCE.

My personal view is that "strength in numbers" is a fallacy unless it's backed with legal and common sense.

Therein lies the dilemma.

Doing nothing and waiting for others to make a case risks no case coming together. The result being tax, interest and penalty at HMRC's calculation.

Joining a group and contributing risks money being spent for no better a result.

The only issue that's clear is that the problem is not going away and pretending it will is not sensible.