Originally posted by Rob79
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I've been asked by some how the "settlement" process works. As such I've prepared some notes on the general process and modified these to account for some of the circumstances here. These I have laid out below.
A word of caution. I do undertake this sort of thing in my day job. My focus is in tax avoidance schemes which do not usually involve contractors. It is entirely possible that the process HMRC wish to follow may vary from that I've seen and dealt with elsewhere.
Further disclaimer. I am not looking for work. I cannot afford to spend a lot of time organizing a group who may wish to settle nor in the inevitable calculation of liability and negotiation with HMRC, without recompense for time and effort. My day job is keeping very much occupied.
HMRC extend "settlement opportunities" in line with their LSS (Litigation and Settlement Strategy). Usually an offer to settle is made in advance of litigation at the first stage. The terms offered are usually in line with a standard template which says that you get tax relief on the cash you've paid for a scheme but nothing else.
That said, in this case HMRC appear to have no reliable numbers, no template analysis to calculate liability even if they had those numbers and no legal decision backing up an analysis. Their current position is therefore relatively weak.
I have found that in this situation "getting your retaliation in first" is effective. In other words, discuss principles with HMRC such as period, treatment of fees paid, treatment of sums received, treatment of post scheme payments. Then go away and calculate a position based on known information and professional analysis. Present that number to HMRC. The agency is relatively ill informed about contractor schemes, has little hard data and little real idea of technical analysis. Somebody doing this work for them means that they may be inclined to accept parts of the analysis without much more than an arithmetic check.
Ensure that all discussions up to the making of a formal offer are "without prejudice". Do not commit to accepting a figure until you know what it is.
Ensure that "time to pay" arrangements are part of the settlement. To a degree this relies upon individual circumstances but an agreed provision in the settlement is always good to have as the Inspector of HMRC will always trump the Collector of HMRC.
Ensure that the period of the agreement is understood. HMRC is offering settlement for the periods loans were received. Those loans remain outstanding. What happens if and when those loans ware written off or unwound? You do not want to face another tax bill for that, be that income tax or IHT. You need to include unwind in the process.
The process will therefore be to collect your numbers, get a calculation done and speak with HMRC "without prejudice".
Would you get a better deal going via a professional adviser? Probably not. HMRC are obliged to make the same offer to all. Therefore if somebody has paid several tens of thousands for top notch advice and has got a particular analysis agreed, it should be on offer to all.
Would you get a better deal going via a group? Usually it makes little difference. In this instance however where HMRC's position is relatively weak, you might. If as a result of a group settling HMRC now has data and an analysis which they can apply against all those not settling, then they might be inclined to cut a little slack. No guarantee of that and you might instead just get requests for more and more information. As long as you are "without prejudice" you can terminate your involvement in any group settlement discussion (or individual discussion) if you such requests and that should not prejudice you.
There is a deadline on the opportunity. As long as you are in discussion or have at least indicated you'd like to discuss a settlement before that deadline, you will be entitled to its terms.
A group approach does NOT oblige you to accept the terms agreed. The choice of acceptance remains yours.
The downside of groups and settlements is that they tend to go for the lowest common denominator and a settlement may actually be worse than a position arrived at via litigation. Once you have accepted a settlement, you are not entitled to the litigation outcome. That is one of the terms of accepting the "deal".
Be under no illusions here. HMRC DOES NOT NEGOTIATE.
They will arrive at the "right amount of tax" and once there, will not alter their view unless (usually) a judge makes a decision otherwise.
What the "right amount of tax" actually is though is a question of analysis.
Groups normally are organized as having a leading person or small group who collate communications and deal with disseminating results and requests. That group engages the various professionals required and instructs them. It takes feedback from those professionals and keeps the members informed. The steering person/group is NOT responsible for fees to the professionals. Those are the obligations of all. Consequently there is usually a simple constitution setting out the aims of the group, the process, the ways in which the group will operate and terminate. That usually requires a positive action (signing a copy and returning it) and payment of a fee. That fee is used to pay the professionals and meet admin costs. It would be usual for the steering person/group to keep the funds with a third party - normally a solicitor - and pay the professionals only when work is done and invoiced.
Pretty sure that the internet has a template available.
If you join a group, pay your fee and disagree with process, progress, result, it is usually the case that your fee in non refundable. That is the risk you take.
As mentioned, the above is dealing with HMRC. You need to think about how to deal with the trust/promoter who might still have some call on the loans. That requires legal analysis. Whilst I think that there are legal advisers acting for settlement groups, that is outside my experience and I have no views as to whether they could be accommodated in the type of arrangement above.
My apologies for the length of this post.
A word of caution. I do undertake this sort of thing in my day job. My focus is in tax avoidance schemes which do not usually involve contractors. It is entirely possible that the process HMRC wish to follow may vary from that I've seen and dealt with elsewhere.
Further disclaimer. I am not looking for work. I cannot afford to spend a lot of time organizing a group who may wish to settle nor in the inevitable calculation of liability and negotiation with HMRC, without recompense for time and effort. My day job is keeping very much occupied.
HMRC extend "settlement opportunities" in line with their LSS (Litigation and Settlement Strategy). Usually an offer to settle is made in advance of litigation at the first stage. The terms offered are usually in line with a standard template which says that you get tax relief on the cash you've paid for a scheme but nothing else.
That said, in this case HMRC appear to have no reliable numbers, no template analysis to calculate liability even if they had those numbers and no legal decision backing up an analysis. Their current position is therefore relatively weak.
I have found that in this situation "getting your retaliation in first" is effective. In other words, discuss principles with HMRC such as period, treatment of fees paid, treatment of sums received, treatment of post scheme payments. Then go away and calculate a position based on known information and professional analysis. Present that number to HMRC. The agency is relatively ill informed about contractor schemes, has little hard data and little real idea of technical analysis. Somebody doing this work for them means that they may be inclined to accept parts of the analysis without much more than an arithmetic check.
Ensure that all discussions up to the making of a formal offer are "without prejudice". Do not commit to accepting a figure until you know what it is.
Ensure that "time to pay" arrangements are part of the settlement. To a degree this relies upon individual circumstances but an agreed provision in the settlement is always good to have as the Inspector of HMRC will always trump the Collector of HMRC.
Ensure that the period of the agreement is understood. HMRC is offering settlement for the periods loans were received. Those loans remain outstanding. What happens if and when those loans ware written off or unwound? You do not want to face another tax bill for that, be that income tax or IHT. You need to include unwind in the process.
The process will therefore be to collect your numbers, get a calculation done and speak with HMRC "without prejudice".
Would you get a better deal going via a professional adviser? Probably not. HMRC are obliged to make the same offer to all. Therefore if somebody has paid several tens of thousands for top notch advice and has got a particular analysis agreed, it should be on offer to all.
Would you get a better deal going via a group? Usually it makes little difference. In this instance however where HMRC's position is relatively weak, you might. If as a result of a group settling HMRC now has data and an analysis which they can apply against all those not settling, then they might be inclined to cut a little slack. No guarantee of that and you might instead just get requests for more and more information. As long as you are "without prejudice" you can terminate your involvement in any group settlement discussion (or individual discussion) if you such requests and that should not prejudice you.
There is a deadline on the opportunity. As long as you are in discussion or have at least indicated you'd like to discuss a settlement before that deadline, you will be entitled to its terms.
A group approach does NOT oblige you to accept the terms agreed. The choice of acceptance remains yours.
The downside of groups and settlements is that they tend to go for the lowest common denominator and a settlement may actually be worse than a position arrived at via litigation. Once you have accepted a settlement, you are not entitled to the litigation outcome. That is one of the terms of accepting the "deal".
Be under no illusions here. HMRC DOES NOT NEGOTIATE.
They will arrive at the "right amount of tax" and once there, will not alter their view unless (usually) a judge makes a decision otherwise.
What the "right amount of tax" actually is though is a question of analysis.
Groups normally are organized as having a leading person or small group who collate communications and deal with disseminating results and requests. That group engages the various professionals required and instructs them. It takes feedback from those professionals and keeps the members informed. The steering person/group is NOT responsible for fees to the professionals. Those are the obligations of all. Consequently there is usually a simple constitution setting out the aims of the group, the process, the ways in which the group will operate and terminate. That usually requires a positive action (signing a copy and returning it) and payment of a fee. That fee is used to pay the professionals and meet admin costs. It would be usual for the steering person/group to keep the funds with a third party - normally a solicitor - and pay the professionals only when work is done and invoiced.
Pretty sure that the internet has a template available.
If you join a group, pay your fee and disagree with process, progress, result, it is usually the case that your fee in non refundable. That is the risk you take.
As mentioned, the above is dealing with HMRC. You need to think about how to deal with the trust/promoter who might still have some call on the loans. That requires legal analysis. Whilst I think that there are legal advisers acting for settlement groups, that is outside my experience and I have no views as to whether they could be accommodated in the type of arrangement above.
My apologies for the length of this post.
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