Settlement Opportunity

[dangerouswhensober]

The basic argument of HMRC is that the loans were not loans, but were income - so should be treated the same way as other income (e.g. salary). So they are claiming the tax on that extra income at whatever your marginal rate was for that period - normally 50%, as this was the top rate of tax in past years.

(I personally received assessments for three years consisting of the loan amounts for each year multiplied by 50% - that is the total amount claimed from me by HMRC as unpaid tax).

So in your case you should have received or should expect a "discovery" assessment in the region of £30k, if HMRC know how much your loan totals were.

BTW - I was under the impression that all "discovery" assessments for years up to and including 2010-2011 had been sent out already - have you not received an actual assessment, or is your hypothetical situation later than that ?

Just to clarify (and to add to Rob's comment) - the amount of your loans is considered by HMRC to be income on top of the basic salary you presumably received (and paid tax & NI on) - since most EBT schemes worked by making you an employee and paying you a basic net salary. This is why HMRC claim tax at the relevent marginal rates, assuming that all of your personal allowance was claimed in paying tax on your basic salary.

(Anybody - if I'm wrong, please correct me a.s.a.p.)

[lara400]

The basic argument of HMRC is that the loans were not loans, but were income - so should be treated the same way as other income (e.g. salary). So they are claiming the tax on that extra income at whatever your marginal rate was for that period - normally 50%, as this was the top rate of tax in past years.

(I personally received assessments for three years consisting of the loan amounts for each year multiplied by 50% - that is the total amount claimed from me by HMRC as unpaid tax).

So in your case you should have received or should expect a "discovery" assessment in the region of £30k, if HMRC know how much your loan totals were.

BTW - I was under the impression that all "discovery" assessments for years up to and including 2010-2011 had been sent out already - have you not received an actual assessment, or is your hypothetical situation later than that ?

Hi - I have received a discovery assessment for a single year 09/10 (yet to get one for another year). I have no idea if that is right but by the numbers above it does seem slightly correct...although could be well off! It is about 12k after about 6 months of work (as I started in October/Nov until April is about 6 months of tax for the year).

So, 24k for the year after (10/11) plus 12k for the one I have got would put me in the region of 36k to pay...hmm....I could settle now and pay half with money I have and the other half in a loan I take out (more bl**dy loans!).

Alternativly I could wait for a APN and wait 90 days after that and also argue that to give me a further 30 days but it is really something I want to get off my back....(I don't want to go on holiday next summer and think about this continuously)...

[FTTM]

With a warning that I have yet to find time to get to the fine print, I think it works something like this.

HMRC consider that you have received a net £60k. Let's assume you have personal allowances of £8,000. Tax rates are 20% on the first £30,000 of taxable income and 40% after that.

So you need to calculate what the gross salary would have been to leave you with £60k.

Back of an envelope that's a gross of £84,000 and tax due around £24,000.

I'm assuming there is no NI as you are already paying that.

Interest will be due as well.

Anybody else have any views on this?

Well if this is true then its going to screw me and everyone else even more.

How can they possibly calculate it this way? How can you pay income tax on an amount you haven't even earned?

I had always based my calculations that tax would be applied to the value of the loans received. Which to me would seem fair and equitable.

To treat the loans at net income and work out the tax payable in order to receive that net income is punitive to say the least.

I was considering settling but if they are indeed calculating the tax this way they can go whistle

[Rob79]

Well if this is true then its going to screw me and everyone else even more.

How can they possibly calculate it this way? How can you pay income tax on an amount you haven't even earned?

I had always based my calculations that tax would be applied to the value of the loans received. Which to me would seem fair and equitable.

To treat the loans at net income and work out the tax payable in order to receive that net income is punitive to say the least.

I was considering settling but if they are indeed calculating the tax this way they can go whistle

The above calculation is how HMRC has done a calculation in similar cases.... BUT it's not the only one.

This is why it's CRITCAL that you understand HMRC's basis of calculation before agreeing to anything.

I could perhaps produce 2 or 3 options other than the above, dependent upon circumstances but all that would do is create more confusion.

If somebody wants to send me some details of their scheme and some nominal (not actual) numbers, I'll have a look.

[AlCapone]

With a warning that I have yet to find time to get to the fine print, I think it works something like this.

HMRC consider that you have received a net £60k. Let's assume you have personal allowances of £8,000. Tax rates are 20% on the first £30,000 of taxable income and 40% after that.

So you need to calculate what the gross salary would have been to leave you with £60k.

Back of an envelope that's a gross of £84,000 and tax due around £24,000.

I'm assuming there is no NI as you are already paying that.

Interest will be due as well.

Anybody else have any views on this?

This makes no sense to me. Say I invoice for £60k. I take £20k as salary and £40k (more or less after fees) as loans. I’ve already paid PAYE on the £20k so that’s out of the equation. HMRC are saying that the £40k is income not a loan so assuming you’re in the higher tax bracket (40%) your tax liability is £16k plus interest.

[dangerouswhensober]

This makes no sense to me. Say I invoice for £60k. I take £20k as salary and £40k (more or less after fees) as loans. I’ve already paid PAYE on the £20k so that’s out of the equation. HMRC are saying that the £40k is income not a loan so assuming you’re in the higher tax bracket (40%) your tax liability is £16k plus interest.

Yes - that's exactly how they calculated the figures for me on the discovery assessments for the three years - except that they applied the rate of 50% - presumably that was the top rate of tax for those years.

(As suggested by several other people, I'm going to ask them for a detailed written calculation before doing anything else ...)

[Rob79]

This makes no sense to me. Say I invoice for £60k. I take £20k as salary and £40k (more or less after fees) as loans. I’ve already paid PAYE on the £20k so that’s out of the equation. HMRC are saying that the £40k is income not a loan so assuming you’re in the higher tax bracket (40%) your tax liability is £16k plus interest.

It depends on whether HMRC see the £40k (in your case) as gross income to be taxed or NET income already taxed.

In many EBT/EFURB cases, Company pays trust £40k - trust loans employee £40k - HMRC says that amounts to £40k of NET income.

My example assumed no other income and therefore treated the whole amount as NET income.

If HMRC treats the amount as gross income, then they are presumably accepting that it's received by you are income from self employment (or perhaps income from a foreign source)?

[AlCapone]

Yes - that's exactly how they calculated the figures for me on the discovery assessments for the three years - except that they applied the rate of 50% - presumably that was the top rate of tax for those years.

(As suggested by several other people, I'm going to ask them for a detailed written calculation before doing anything else ...)

Don't think there's ever been a 50% bracket. 45% was introduced not long ago for £150k plus earners. Sounds like they slapped you with the NI too?

[Rob79]

Don't think there's ever been a 50% bracket. 45% was introduced not long ago for £150k plus earners. Sounds like they slapped you with the NI too?

NO. Tax was charged at 50% on taxable income over £150,000 from 6/4/2010 to 5/4/2013

[FTTM]

It depends on whether HMRC see the £40k (in your case) as gross income to be taxed or NET income already taxed.

In many EBT/EFURB cases, Company pays trust £40k - trust loans employee £40k - HMRC says that amounts to £40k of NET income.

My example assumed no other income and therefore treated the whole amount as NET income.

If HMRC treats the amount as gross income, then they are presumably accepting that it's received by you are income from self employment (or perhaps income from a foreign source)?

And on what basis can they argue this is NET income? , taking PAYE element out of the equation, to receive 100K in net loans , you would probably have invoiced for approx 120K ( EBT co taking their 20% cut).

If they calculate the income tax owed to give a 100K take home ( net) this would require a gross salary of approx 160K.

How can they calculate income tax on an ammt that was never ever earned or received by any party?