BIG GROUP

[superbean]

I join a tax reduction scheme involving offshore loans. The loans are tax free (for most of us) and they are supposed to be discretionary however we instruct when to make the loan. The loans only serve the purpose of reducing tax, nothing else. Being the intelligent people we are, very few could have genuinely thought this was not very much in the grey, closer to the black end of the spectrum.

My query though is still about understanding what the actual relevant tax guidelines are/were, in writing - which, unless I have misunderstood, is what HMRC is saying were not applied 'as intended'.

Given that I do not know where to start with the myriad of paperwork around UK tax, I was hoping for some light from one of the experts in the forum.

[Loan Ranger]

Being the intelligent people we are, very few could have genuinely thought this was not very much in the grey, closer to the black end of the spectrum.

That is why the Ltd Co IR35 tax avoiders on this website are so hostile to us. They are on the spectrum, whether they care to admit it or not. But they are closer to the white end. The schemes were aggressive.

[MLeggsy]

My query though is still about understanding what the actual relevant tax guidelines are/were, in writing - which, unless I have misunderstood, is what HMRC is saying were not applied 'as intended'.

Given that I do not know where to start with the myriad of paperwork around UK tax, I was hoping for some light from one of the experts in the forum.

Hi superbean,

I came to the conclusion that the HMRC ruling around intention is simply... "You had a loan which you had no intention of repaying". There are of course many flavours of scheme but I think this is the core of it.

MLeggsy

[webberg]

Some interesting points above.

Where is the legislation that says loans are income?

I suppose the first place to start is Part 7A ITEPA 2003. This was introduced in December 2010 and was designed to recognise and tax "disguised remuneration".

That phrase "disguised remuneration" does not actually appear in the legislation but is a frequent mention in the various technical, consultation and other HMRC notes that were produced before and after it. The HMRC PR machine plays heavily on the negative connotations of the phrase as it allows them to lump in contractors with the super wealthy and the multinationals we all love to bash over tax avoidance.

Legislation has followed at regular intervals ever since, with the latest loan charge proposals in FA 2017 Sch 11 and 12.

What does the law mean?

Well the law is capable of interpretation in many ways. The original Part 7a rules were poorly drafted and left loopholes. Those parts of the law which did nail some schemes were fairly quickly worked around.

Is it illegal to avoid tax by using what the legislation says? No. In pretty much all of the schemes being investigated by HMRC there is no suggestion of illegality. HMRC tend to stay away from that argument as the test is high. Taxpayers tend to stay away from it for fear of penalty. Promoters therefore play fast and loose with the schemes and often the documented routes of money etc are not actually followed.

The law comes back in here because the Courts have decided, in tax cases, that they can take an approach that looks at the facts of what happened, applies the law -as intended and written - to those facts and come up with an analysis.

The facts are always the facts.

The intention of the law is whatever Parliament said. Courts will look at materials and debates at the time the law was written. The written law is less important in many instances and the Courts have turned some "interesting" somersaults in some cases to find for HMRC (and less often the taxpayer).

This is known as purposive interpretation.

To see a good example, read the Supreme Court decision from July 2017 in the Rangers case.

Aggressive, abusive, immoral, unethical?

Wholly subjective.

HMRC's PR machine would have you believe that there is a difference between people who use the rules in one of the ways above and those who say, invest in an ISA.

Is there?

An ISA in legislation allows investment returns to be outside tax.

An investment in an EIS or VCT allows for relief if conditions are met.

A pension premium is tax deductible.

So if you receive funds in a particular manner, one that the tax law as written is either silent upon or specifically excludes, why should the rule of law not apply?

Here is the crux of the matter.

HMRC say that the law "always intended" to capture certain items of money and that later "clarification" of the law is not retrospection.

Promoters say that you should be entitled to rely upon what the law says and not what a Civil Servant wakes up one morning and decides is what Parliament intended.

Given that Parliament often pays little attention to the law, skipping complex parts of tax law in debate and in the end voting on Party lines, the fault at the heart of the problem lies there. However, that is not going to be fixed any time soon.

Instead it falls to the Courts. The lower levels of tax courts display an HMRC bias (yes, I know this is controversial) and certainly HMRC manage the cases being allowed to go forward so as to present the very worst examples in the hope that less "aggressive" schemes will also then get struck down.

So there is legislation but there is also a library of Court decisions going back 40, 50, + years.

[Loan Ranger]

There are probably a lot of contractors on this site who would argue that using a Ltd Co is not tax avoidance.

But in many cases they are doing exactly what the anti-avoidance IR35 legislation was intended to prevent. It's only because of weaknesses in IR35 that they have been able to get away with it.

The Government has now fixed this in the public sector and is planning to roll out the same changes in the private sector.

-----------------------------

I'm not saying that using a Ltd Co is the same as using a scheme because the schemes obviously had little commercial purpose and were a lot more aggressive in terms of tax reduction.

However, the way many contractors have been using a Ltd Co is still tax avoidance.

[superbean]

@webberg @loanranger @mleggsy
Thank you all - even though sifting through the ins, outs, rights, wrongs or sheer (mis)interpretations of law and intention is as open to views as ever, your input and comments have helped.

[catesby]

@webberg @loanranger @mleggsy
Thank you all - even though sifting through the ins, outs, rights, wrongs or sheer (mis)interpretations of law and intention is as open to views as ever, your input and comments have helped.

Well said superbean - loudly seconded and couldn't agree more.

[webberg]

There are probably a lot of contractors on this site who would argue that using a Ltd Co is not tax avoidance.

But in many cases they are doing exactly what the anti-avoidance IR35 legislation was intended to prevent. It's only because of weaknesses in IR35 that they have been able to get away with it.

The Government has now fixed this in the public sector and is planning to roll out the same changes in the private sector.

-----------------------------

I'm not saying that using a Ltd Co is the same as using a scheme because the schemes obviously had little commercial purpose and were a lot more aggressive in terms of tax reduction.

However, the way many contractors have been using a Ltd Co is still tax avoidance.

The use of a Ltd Co remains a legitimate one if the way in which you conduct your business matches it. Clearly using a Ltd Co to disguise an employment is precisely what the various avoidance rules are aimed at.

Unfortunately there are a number of players in the contractor market who either allow or encourage a myth to gain credence. That myth is that a Ltd Co will grant you protection from IR35.

One glance at the Christa Ackroyd case will blow that away but look around this page at the banners. That case has done little to stem the flow.

The sheer volume of those who may be in (or out) of IR35 is their best protection. The chance of an HMRC enquiry, much less a successful one, is low and HMRC just does not have the resources.

Switching the onus to the engager was always going to happen (and matches what happened with MSC). It is inevitable in the private sector.

A far sighted HMRC would set up a body with private sector representation (CBI etc) and design and develop with them a model that deals with tax and employment issues consistent with the Taylor Report. That should solve the issue for a generation.

They won't though.

So we have HMRC in this space who want to increase "compliance", i.e. tax take and are terrified of (once again) unleashing a beast they can't control.

We have agencies and umbrellas and contracting accounting firms who are making good profits and who have no incentive to move on to truly compliant structures that match the gig economy.

We have the big consultancies who have a vested interest in seeing independent contractors take a lesser slice of the market.

We have contractors who should be questioning the very fundamentals of what they do, how they do it, why they do it and finding a means to achieve a fair balance of risk and reward.

The Taylor Report is the way forward but without some form of coercive action from HMG, none of the parties have enough skin in the game to make it happen.

Instead we will have the continuing death by a thousand cuts of the contractor market which will leave behind a rightly embittered and resentful group of highly skilled workers upon who this country will need to lean on in the years to come.

Once again HMRC dogma triumphs over common sense.

[sreid]

Im In

Im in (Need Help)

[webberg]

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