Settlement Opportunity

[meanttobeworking]

Did you provide the details of the loans in your email?

Yes, although I was only restating information I had previously provided them when they first asked for details of loans received, back when they first opened the enquiry 18 months ago.

[Rob79]

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?

If you were on PAYE and received £100k of cash from your employer why would HMRC consider that was not net pay?

HMRC's perspective here is that they would like to treat you as an employee receiving salary. This is a common approach and I found HMRC applying this in the early days of IR35 which caused a massive problem for the bank I was working at when it was introduced.

If you are genuinely self employed, then your analysis has a good chance of being accepted.

[FTTM]

surely if it is net pay then they should go and speak to my employer to work out why they haven't deducted the correct amount of tax? cant have it both ways.

[Safe]

If you were on PAYE and received £100k of cash from your employer why would HMRC consider that was not net pay?

HMRC's perspective here is that they would like to treat you as an employee receiving salary. This is a common approach and I found HMRC applying this in the early days of IR35 which caused a massive problem for the bank I was working at when it was introduced.

If you are genuinely self employed, then your analysis has a good chance of being accepted.

Rob,

I'm afraid to say that you are wrong. I'll explain the reason as below:

Assume my total invoice with Sanzar was 100K in 2010-2011 tax year. Sanzar deducted 15% fee and gave me 85k in combination of salary and loan. The salary portion was around 9K (net) and the rest paid in loan which is: 85k-9k=76k

Now the tax code

- For 2010-2011 is 647L which means £6,475 is tax free.

- 20% tax from £0 to £37,400 (I have already deducted the allowance)

- 40% tax between £37,400 to £150,000

- 50% tax for anything above £150,000


Simple online calculator shows that in order to achieve the net income of 85K I should earn 138K. This is well above the total invoice (100K) which I earned in 2010-2011. The tax only due based on 138k will be circa 47k.
So I paid 15k for Sanzar fee plus additional 47k tax which is in total will be 62K or 62%.

Do you think this is feasible and believable?

If any of you want detail calculation i can provide here for info.

[Rob79]

surely if it is net pay then they should go and speak to my employer to work out why they haven't deducted the correct amount of tax? cant have it both ways.

They certainly can.

If this is deemed to be salary from which tax should have been deducted under PAYE but has not been, then there is a priority order for who is liable for that PAYE.

This starts with the employer and includes in due course the employee or recipient of the cash.

It would not be the first time that this argument has been used.

[centurian]

I think Rob is saying that HMRC are taking this approach - please correct me if I am wrong Rob

You received a wodge of cash in the bank - and as far as we are concerned, that's net salary - and we are basing the tax demand on that. We don't care how much was on some invoice with some tin-pot offshore company - there is no relationship between the two. If that invoice doesn't cover the full gross amount, tough - not our problem

Can they get away with this, no idea. I'd like to think any final calculation in front of a court would expose this as excessively punitive and get knocked back. Whether that argument can be applied against an APN calculation, I am less sure.

[Rob79]

Rob,

I'm afraid to say that you are wrong. I'll explain the reason as below:

Assume my total invoice with Sanzar was 100K in 2010-2011 tax year. Sanzar deducted 15% fee and gave me 85k in combination of salary and loan. The salary portion was around 9K (net) and the rest paid in loan which is: 85k-9k=76k

Now the tax code

- For 2010-2011 is 647L which means £6,475 is tax free.

- 20% tax from £0 to £37,400 (I have already deducted the allowance)

- 40% tax between £37,400 to £150,000

- 50% tax for anything above £150,000


Simple online calculator shows that in order to achieve the net income of 85K I should earn 138K. This is well above the total invoice (100K) which I earned in 2010-2011. The tax only due based on 138k will be circa 47k.
So I paid 15k for Sanzar fee plus additional 47k tax which is in total will be 62K or 62%.

Do you think this is feasible and believable?

If any of you want detail calculation i can provide here for info.

I think that your calculation is feasible but I'm not convinced that the analysis falling out of a Court will agree with you.

The fact is that you can be taxed on more than your invoice value because:

1. Your company/agent has invoiced the contractor.
2. Your contractor has then paid you (not the invoiced party).
3. HMRC nay consider that your company/agent has income elsewhere and can therefore pay you NET salary £100k

If I was an HMRC Inspector (I'm not) why would I not find a way to charge the maximum amount of tax as a means of at least forcing people to think about settlement?

[turbowoowoo]

I think that your calculation is feasible but I'm not convinced that the analysis falling out of a Court will agree with you.

The fact is that you can be taxed on more than your invoice value because:

1. Your company/agent has invoiced the contractor.
2. Your contractor has then paid you (not the invoiced party).
3. HMRC nay consider that your company/agent has income elsewhere and can therefore pay you NET salary £100k

If I was an HMRC Inspector (I'm not) why would I not find a way to charge the maximum amount of tax as a means of at least forcing people to think about settlement?

Hold on a minute

The income in question is not deemed Net income, just income which has not been taxed. This is about tax avoidance from the contractor, otherwise the employer would be liable.

the whole premise is we took the income as a loan which wasn't subject to tax, now with Hector on our tails it will be.

I am sure if they try and say this is net tax this would be classed as criminal!!

[silvys]

How long to receive a settlement figure

Has anyone actually received a settlement figure yet?

I phoned HMRC just over a month ago to request a settlement quote. I was informed they already had details of the loan amounts and I would would receive a settlement figure within 3 weeks.

I still haven't got anything back yet.

Anyone interested in getting a settlement figure, I would recommend requesting it ASAP if you want to get anything back before Jan 2015

[Safe]

I think that your calculation is feasible but I'm not convinced that the analysis falling out of a Court will agree with you.

The fact is that you can be taxed on more than your invoice value because:

1. Your company/agent has invoiced the contractor.
2. Your contractor has then paid you (not the invoiced party).
3. HMRC nay consider that your company/agent has income elsewhere and can therefore pay you NET salary £100k

If I was an HMRC Inspector (I'm not) why would I not find a way to charge the maximum amount of tax as a means of at least forcing people to think about settlement?

Rob,

What you said doesn't make sense at all. Sorry.
100K is the total invoice (Total income) so there is no other income. In addition if you read page 2 of 8 settlement Q& A third bullet point it states:
"We will apply a charge to income tax only on the sums you have actually received as 'loans'. In the future litigation other approaches could apply higher charges, including an income tax charge on all sums paid on your behalf to the offshore employer and there might be a personal NIC liability. In contrast, no further NIC will be sought from you personally under the settlement opportunity".

It clearly says they are going to charge income tax on the loan we have received. It means the loans are gross not net.