BIG GROUP

[ChimpMaster]

No. There is clarity on the workings. If £100 of loan then income tax and NIC is on £100. There is no uncertainty. The next Finance Bill is very, very unlikely to change the calculations.

What is not clear is what the final mechanism for paying this will be. If the employer is still around, it will definitely be PAYE/NIC. But if the employer has gone bust / has no cash then it is not clear what the mechanism for paying it will be as the government has said it will consult further on this (e.g. will it just become self-assessment).

Yes, will be income. Personal pension contributions can reduce the overall tax due (there is no "maybe" about it). But don't forget that the annual allowance for 2018/19 could be tapered down to £10,000 (depending on total income, etc).

If the employer is still around, it will definitely include employee's NIC. It is still a guess if the employer is no longer around because of the promised consultation.

Bearing in mind the clarification the Finance Bill (might) bring: As it currently stands, whether or not the employer is still around, are you saying that any NICs will not be paid by the employee?

[starstruck]

ILikeTax - This is great stuff, helping hugely. Cannot thank you enough!

So back to IHT. For someone with only closed years and all loans waived around 2006. Is the loan charge likley to raise the spectre of IHT? Is settlement (CLSO2) likely to raise this? I'm confused, is anything currently owed now or not? If something is owed then interest is presumabluy accuring. What does one do?

[webberg]

ILikeTax - This is great stuff, helping hugely. Cannot thank you enough!

So back to IHT. For someone with only closed years and all loans waived around 2006. Is the loan charge likley to raise the spectre of IHT? Is settlement (CLSO2) likely to raise this? I'm confused, is anything currently owed now or not? If something is owed then interest is presumabluy accuring. What does one do?

There is no connection between the loan charge and IHT. The loan charge is taxing unpaid balances to income tax.

There is no relevance of closed years to IHT. The IHT charges are triggered on events.

Settlement via the CLSO 2 is said to include IHT. I suspect that this is HMRC assuming that you will arrange loan write off within a period (90 days?) and if not, then a future IHT charge might arise.

IHT is charged whenever your estate decreases (or increases) in value.

So a payment to a trust reduces your estate but because you are a beneficiary of the trust, it is not usually a net loss and therefore no IHT.

A payment from a trust that is treated as a distribution can be either an income or capital event. An income event is usually taxed to income tax. A capital event - a return of the original money - is usually an IHT event.

That is most likely to be an "exit" event.

For some trusts there is also an anniversary charge every 10 years. This is at 0.25% per quarter, so a maximum of 10%. It's 10% of the loan value (because the loan is an asset of the trust).

[Iliketax]

Bearing in mind the clarification the Finance Bill (might) bring: As it currently stands, whether or not the employer is still around, are you saying that any NICs will not be paid by the employee?

As things stand, if the employer is around:

1. It has to pay the PAYE, employee's NIC, employer's NIC and apprenticeship levy to HMRC as part of the normal payroll cycle (so by mid-April 2019).

2. It employer can then choose whether to pursue the employee for the PAYE and employee's NIC. But it still has to pay it to HMRC regardless. Normally, an employer would get the employee to reimburse it and the employer has a common law right to do so (as well as some tax and NIC legislation).

3. If the employee does not reimburse the employer within 90 days of the end of the tax year, a further income tax charge (together with employee's and employer's NIC) will arise on the amount not reimbursed (google s222).

4. For the avoidance of doubt, the employer cannot get the employee to pay the employer's NIC or apprenticeship levy.

I don't work with contractors though but I would expect many employers to have been wound up or have no funds. In the normal world, you don't get an employer paying something when it no longer exists. So I don't know what the strict legal position here is but I would expect that the employee would have to pay the income tax through self-assessment and there would be no NIC. But this depends on what the consultation outcome will be. For example, the government could say that the individual has to pay it (e.g. similar to a direct payment scheme).

Now there is a lot of things being mentioned to say that the Rangers case changes that and says that it means that the employee would not actually have to pay the tax. I think that is wrong because it ignores that the April 2019 loan charge is a "notional payment" rather than a payment (which means PAYE regulations work in a different way).

[Iliketax]

So back to IHT. For someone with only closed years and all loans waived around 2006. Is the loan charge likley to raise the spectre of IHT? Is settlement (CLSO2) likely to raise this? I'm confused, is anything currently owed now or not? If something is owed then interest is presumabluy accuring. What does one do?

As I said before, I don't work with contractors. But my personal view is that:

1. The April 2019 loan charge will mean that a lot more information has to be given to HMRC (wait for 1 December when the next Finance Bill is published). This is likely to include what has happened to each loan in each tax year. So it will be an easy question for HMRC to ask and they would probably think themselves foolish not to.

2. Yes, settlement is likely to as it is specifically mentioned in the notes that they have published on this.

I think HMRC have also just gained some new powers (google "requirement to correct" and "failure to correct"). This covers IHT and creates a minimum 100% penalty. Whether it can apply depends on whether it "involves an offshore matter" or not.

I think that there is some confusion on here in that there are two IHT regimes:

- One for individuals (I would have thought that this is not normally relevant unless your company makes the payment to a trust rather than the agent).

- One for trusts (normally relevant).

This is a complicated area that I don't hold myself out to be an expert on. In relation to the trust regime though, it is very helpful if (i) the money was paid to the trust and then borrowed within three months, and (ii) the loan is interest-free and there is no ability for the trustee to call for repayment for a very long time. With those facts, there is likely to be no / a nominal amount of IHT. Whether you can prove this or HMRC would accept it is another story.

[webberg]

To clarify, I think the above poster (at 12:26) is discussing the DR charge 2019 rather than the liability for historic tax?

I have just written and then deleted an explanation of why we consider Rangers to have a significant impact on historic and future tax charges.

Deleted because we know HMRC reads these threads and as they have yet to show their full hand, why should we?

[starstruck]

There is no relevance of closed years to IHT. The IHT charges are triggered on events.

Settlement via the CLSO 2 is said to include IHT. I suspect that this is HMRC assuming that you will arrange loan write off within a period (90 days?) and if not, then a future IHT charge might arise.

Ok I get that, but you are talking about the loan not yet having been written off. I stated the "event" was in 2006 (when the loans were waived/written off) and nobody picked up on this "event" and all these years have passed. Is there an IHT liability that needs resolution here? Up until a week ago I wasn't aware of any of this IHT stuff, I'm trying to work out what a loan waived in 2006 means with regards to IHT, the loan charge and CLSO 2.

[webberg]

Ok I get that, but you are talking about the loan not yet having been written off. I stated the "event" was in 2006 (when the loans were waived/written off) and nobody picked up on this "event" and all these years have passed. Is there an IHT liability that needs resolution here? Up until a week ago I wasn't aware of any of this IHT stuff, I'm trying to work out what a loan waived in 2006 means with regards to IHT, the loan charge and CLSO 2.

Bear in mind that the value of the loan for the purposes of the DR charge 2019 is:

Original sterling value at 16th March 2016, less repayments

Repayments mean cash repayments.

Certainly therefore any real or alleged depreciation or write off post the above date will not count towards reducing the loan brought into tax.

So, would a real/alleged write off prior to that date mean that no loan existed at March 2016 and therefore no charge can arise?

You would hope that the draftsman had been briefed well enough that such a possibility had been considered and as we see the law now, by implication, loans that have disappeared before the trigger date are not going to be included.

I prefer a scenario in which HMRC has not thought about this and will instead seek to deny the write off ever happened.

We have asked HMRC but answer is there none.

[starstruck]

Settlement via the CLSO 2 is said to include IHT.

Does than mean none to pay or they calculate as part of settlement?

[webberg]

Does than mean none to pay or they calculate as part of settlement?

The versions we have seen (all pre 7/11/17 announcement) include an IHT value based on an assumed write off within a period.

We're expecting the post 7/11/17 versions to be the same.