BIG GROUP

[Iliketax]

What would you say are the "commercial tests" that HMRC use?

Finance (No. 2) Act 2017

but you need to look at: http://www.legislation.gov.uk/ukpga/...aph/19/enacted and the following paragraphs to understand it properly

or

http://www.legislation.gov.uk/ukpga/...aph/25/enacted

[webberg]

There are perhaps two sets of "rules" that you need to think about here.

One is contained in the links you've been given. These are what I would call "catch up" rules that have been designed to work with the DR charge and other changes to legislation that we have seen in the last two years. As with all such attempts, the definition is inevitably skewed towards achieving the result the anti avoidance legislation wants and in some areas at least, the connection to real world situations is sometimes thin.

So by all means read them and where the rules are specific then they should be applied but bear in mind that they may not always be exactly on point.

The second set is rather more intuitive. HMRC has argued for many years that the loans are not really loans because - mainly - they were never meant to be repaid.

This is a line that has been pushed in enquiries and which was a key part of Rangers and and earlier case called Boyle. In essence they were trying to show that despite documents claiming otherwise, the payments were not loans. In both the above cases this argument largely succeeded although for slightly different reasons.

Whilst we now see legislation that seeks to reverse the consequences of the payments not being loans (at least at the first event when they might have become taxable) the key point is that in many instances the facts that lead to payments having more of a characteristic of earnings than a loan are strong at that a Judge is likely to find that there was not a loan on the occasion of payment.

Clearly at that point, the distinction between "commercial" or otherwise is moot.

I suppose we could describe these as a "hard" test and a "soft" test.

It will be interesting to see where these tests evolve, especially in the latest crop of schemes in the market which use loans but they are loans from employers - i.e. no third party and therefore, the argument goes, no disguised renumeration and therefore no Part 7A with its definitions.

Here we might be looking at the definitions in what might be called the "benefit in kind" rules which are different from both the Part 7A rules and the guidance from the Courts.

The BIK rules say that a loan granted by an employer might mean you have a tax benefit from interest "saved". That is easy to avoid. However, repayment or write off is still required at some point in the future (probably after the employer/promoter/lender has disappeared) and certainly write off is a taxable event in which the borrower can easily and legally be required to pay the tax.

Beware such schemes.

[Delendog]

There are perhaps two sets of "rules" that you need to think about here.

One is contained in the links you've been given. These are what I would call "catch up" rules that have been designed to work with the DR charge and other changes to legislation that we have seen in the last two years. As with all such attempts, the definition is inevitably skewed towards achieving the result the anti avoidance legislation wants and in some areas at least, the connection to real world situations is sometimes thin.

So by all means read them and where the rules are specific then they should be applied but bear in mind that they may not always be exactly on point.

The second set is rather more intuitive. HMRC has argued for many years that the loans are not really loans because - mainly - they were never meant to be repaid.

This is a line that has been pushed in enquiries and which was a key part of Rangers and and earlier case called Boyle. In essence they were trying to show that despite documents claiming otherwise, the payments were not loans. In both the above cases this argument largely succeeded although for slightly different reasons.

Whilst we now see legislation that seeks to reverse the consequences of the payments not being loans (at least at the first event when they might have become taxable) the key point is that in many instances the facts that lead to payments having more of a characteristic of earnings than a loan are strong at that a Judge is likely to find that there was not a loan on the occasion of payment.

Clearly at that point, the distinction between "commercial" or otherwise is moot.

I suppose we could describe these as a "hard" test and a "soft" test.

It will be interesting to see where these tests evolve, especially in the latest crop of schemes in the market which use loans but they are loans from employers - i.e. no third party and therefore, the argument goes, no disguised renumeration and therefore no Part 7A with its definitions.

Here we might be looking at the definitions in what might be called the "benefit in kind" rules which are different from both the Part 7A rules and the guidance from the Courts.

The BIK rules say that a loan granted by an employer might mean you have a tax benefit from interest "saved". That is easy to avoid. However, repayment or write off is still required at some point in the future (probably after the employer/promoter/lender has disappeared) and certainly write off is a taxable event in which the borrower can easily and legally be required to pay the tax.

Beware such schemes.

What about loans that specifically document that employees are excluded from getting a loan and therefore claim they are outside the DR rules and repayment is on death?

[Iliketax]

the key point is that in many instances the facts that lead to payments having more of a characteristic of earnings than a loan are strong at that a Judge is likely to find that there was not a loan on the occasion of payment.

If you talk about the facts at the date of grant, the Murray Group / RFC decisions mean that the tax point is before the loan is made and so it is irrelevant as to whether a judge thinks there is a loan or not. Of course not all loan schemes work in the same way as Rangers.

If you talk about the April 2019 loan charge, then the definition of a loan includes "a payment that is purported to be made by way of a loan". So for April 2019, it does not matter whether a judge thinks there is actually a loan or not if they think that a payment was puported to be made by way of a loan. In other words, if there is a loan, there is a problem. If there is not a loan but it was purported to be a loan then there is a problem.

What does purported mean? I don't know. But if you were told there was a loan, you signed a loan agreement, you entered it on your tax return as a loan, the employer put it on the P11D as a loan, then I struggle to see that it is both (i) not a loan, and (ii) not purported to be a loan.

[Iliketax]

What about loans that specifically document that employees are excluded from getting a loan and therefore claim they are outside the DR rules and repayment is on death?

So who got the cash? Why did they get the cash? Or in other words, why did the borrower get the cash rather than me?

[ChimpMaster]

If you talk about the facts at the date of grant, the Murray Group / RFC decisions mean that the tax point is before the loan is made and so it is irrelevant as to whether a judge thinks there is a loan or not. Of course not all loan schemes work in the same way as Rangers.

If you talk about the April 2019 loan charge, then the definition of a loan includes "a payment that is purported to be made by way of a loan". So for April 2019, it does not matter whether a judge thinks there is actually a loan or not if they think that a payment was puported to be made by way of a loan. In other words, if there is a loan, there is a problem. If there is not a loan but it was purported to be a loan then there is a problem.

What does purported mean? I don't know. But if you were told there was a loan, you signed a loan agreement, you entered it on your tax return as a loan, the employer put it on the P11D as a loan, then I struggle to see that it is both (i) not a loan, and (ii) not purported to be a loan.

ILikeTax - I have an interesting question for you here:

As an employee of an offshore employer, I received loans via an offshore EBT back in 2006/7. The scheme was not DOTAS registered.

Loan information was entered Tax Returns and on P11Ds. BIK was paid.

In late 2008 these loans were paid off by a different 3rd party offshore company: I paid a small % for them to do this. This was a service offered by the employer as part of the scheme, but the 3rd party company was not related to the employer. The mechanics of this repayment escape my obviously limited intellect, but repayment was by cash from this other company, to the Trust. I did not make a repayment myself. I received a statement advising that I now had zero liability to the Trust or to anyone.

In any case, the result was that that loan no longer exists. No more P11D or BIK since 2009.

So, for the purposes of the 2019 LC, given that my loan was not extant in March 2016, does the reporting requirement exist for me?

[Iliketax]

ILikeTax - I have an interesting question for you here:

As an employee of an offshore employer, I received loans via an offshore EBT back in 2006/7. The scheme was not DOTAS registered.

Loan information was entered Tax Returns and on P11Ds. BIK was paid.

In late 2008 these loans were paid off by a different 3rd party offshore company: I paid a small % for them to do this. This was a service offered by the employer as part of the scheme, but the 3rd party company was not related to the employer. The mechanics of this repayment escape my obviously limited intellect, but repayment was by cash from this other company, to the Trust. I did not make a repayment myself. I received a statement advising that I now had zero liability to the Trust or to anyone.

In any case, the result was that that loan no longer exists. No more P11D or BIK since 2009.

So, for the purposes of the 2019 LC, given that my loan was not extant in March 2016, does the reporting requirement exist for me?

Without the full facts, I can't answer that question.

For example, if the loan from the trust was £1,000 and as a result of whatever they did, you owe the third party company £1,000, you still have a £1,000 loan that is 'outstanding' to worry about. Just to be clear, I use 'outstanding' to mean what the tax legislation means is outstanding.

If the loan was for £1,000 and the third party company agreed with the trust that the NPV of the receivable that the trust held was £1 and paid £1 for the £1,000 loan receivable, you'd still have the loan 'outstanding' of £1,000 and something to worry about.

Same facts but the trustee agreed to waive the loan for its NPV of £1 (before March 2016) then the loan that is 'outstanding' may be £999 (or £1,000) and so you'd still have something to worry about.

For the avoidance of doubt, I could imagine a million more ways that this could have happened.

[Loan Ranger]

So, basically, unless you personally repaid the loan, it doesn't count as repaid for the purposes of LC19?

If your mum and dad repaid it, it wouldn't count either?

[ChimpMaster]

So, basically, unless you personally repaid the loan, it doesn't count as repaid for the purposes of LC19?

If your mum and dad repaid it, it wouldn't count either?

I believe that was the case before 2016 or thereabouts. The rules were different before - but I stand to be corrected on this point.

[ChimpMaster]

Without the full facts, I can't answer that question.
<snip>
For the avoidance of doubt, I could imagine a million more ways that this could have happened.

(firstly apologies to BG as this is in their thread - the previous post led me here).

Understood, ILikeTax. I am quite certain that there is no further debt for me with anyone. The loan was repaid in full, not in any depreciated manner.

Some more details:
Employee works and capital is settled into a Trust.
The original loan is made from Trust to Employee.
2 years go by and the above cycle repeats every few weeks or so.
Employee then asks the (recommended) 3rd Party Company for loan to repay Trust loan in 2008, in full. Employee pays small fee for this service.
The Trust loan is therefore cleared in full.
The Trust then makes a distribution to another Trust, and this Trust makes a distribution to the 3rd Party Company.
This last cycle of events pays back the 3rd Party loan.
As a final note, the 3rd Party Company liquidated in 2011.

Like I admitted, I don't understand the internal mechanics of how this was carried out but I am certain I don't have any outstanding liability.

And, as this is a very confusing situation, I don't know if I have anything to report in the 2019LC.

I don't have any open enquiries and am well beyond the 6 year window.