BIG GROUP

[Theythinkitsallover]

Loan repayments to avoid LC

No I get all that I really do. I understand what you are saying and the reference to Gibson etc.and the fact it was for works undertaken whilst in the UK etc.
Perhaps I am getting it wrong but all these references/manuals you point to are the DR rules

Now if those loan monies never pass through the Part 7a gateway and on 5th April 2019 are paid back and no loan exists then how can any of the points you refer to be relevant to the individual. They have repaid the loan.

The rules just don't or cant be applied to someone who has legitimately repaid their loan and paid the tax on its redistribution

These manuals you refer to from my understanding are all relating to DR rules and guidance for the officer to apply these rules. If DR isn't relevant as you have no loan on 5th April 2019 then I am not sure what you are saying

You still arent pointing me to the part that says one cant repay their loan from their own funds and pay tax on the redistribution wherever that may be in the world.

What you are trying to say is that you pay tax regardless because it was for works carried out whilst you were in the UK - agreed but that becomes a tax on a different basis - employer liability in accordance with the supreme court ruling

Now I am sure you will correct me on all of the above.

[Iliketax]

However, if you could point me to the legislation or section in the legislation that says you cant do this it would be appreciated. I would say I know of about 6 people impacted by this. All very wealthy/ not contractors all moving for a stint to sunnier climes to do exactly this/ all using their own funds not financed by anyone.

Tell me are they missing something ??

There are a few rules about tax that matter here. First, what is the year something is "for", the second is the year it is taxed in and a third is whether it is actually taxed in the UK if you are not resident in the UK. So looking at the April 2019 loan charge, the answer to the second question is "2018/19", the third is "yes" (as a Part 7A charge "counts as employment income" and so is not "general earnings").

So you then get to the question about what year or years it is "for". Here's a couple of links to help you decide: https://www.gov.uk/hmrc-internal-man...anual/eim45720 and https://www.gov.uk/hmrc-internal-man...anual/eim40008 The legislation is easy enough to google, as is the case law mentioned.

[Theythinkitsallover]

Loan repayments to avoid LC

The arrangement whereby a third party repays a loan for a nominal fee we have seen before. I remain baffled as to why a third party - with no connections to employer, promoter, trust - would repay a loan. Where do they get the money from? How are they servicing the money they need to repay the loan?

So what you are saying is that someone with 100k in their own bank account cant repay their loan ? Not sure I understand your point

I will say that HMRC this afternoon were very keen on saying that "depreciation" is not "repayment" and therefore "does not count" towards reducing the amount subject to DR charge. I think we perhaps knew this but just for clarity.

Who mentioned depreciation ?

Just to be absolutely clear. I don't.

Sorry Iliketax didnt mean to presume you agreed. That was wrong.

However, if you could point me to the legislation or section in the legislation that says you cant do this it would be appreciated. I would say I know of about 6 people impacted by this. All very wealthy/ not contractors all moving for a stint to sunnier climes to do exactly this/ all using their own funds not financed by anyone.

Tell me are they missing something ??

[webberg]

My thanks to Iliketax for holding the fort here.

I've been in a meeting with HMRC in which many of the above points were discussed. I'm using one of my inexhaustible supply of tea towels to reduce the output to something meaningful and am obliged to report this to my clients first.

In general however, I would agree with most of his analysis.

The arrangement whereby a third party repays a loan for a nominal fee we have seen before. I remain baffled as to why a third party - with no connections to employer, promoter, trust - would repay a loan. Where do they get the money from? How are they servicing the money they need to repay the loan?

I suspect that the "third party" and the promoter/employer/lender are in some manner connected and that a lot of the transactions are on paper and not real.

I will say that HMRC this afternoon were very keen on saying that "depreciation" is not "repayment" and therefore "does not count" towards reducing the amount subject to DR charge. I think we perhaps knew this but just for clarity.

[Iliketax]

Even Iliketax agrees.

Just to be absolutely clear. I don't.

[Theythinkitsallover]

How to Avoid the LC

There you go guys and gals. Even Iliketax agrees.

Your legitimate way out of this sorry mess. Sell your houses/ repay your trustees
and move to Bermuda or Barbados for the next few tax years to ensure being a non resident whilst they redistribute the funds back to you

Oh and probably best just for good measure never ever bring those monies back into the UK either.

If only I hear you all say...

[Iliketax]

From a different thread but relevant to this discussion. Below is an example you quoted as being acceptable circumstances in repaying the loan

How they repaid it? Money they borrowed from their favourite bank
What has happened to the money since? They intend to take the money as an actual profit share in due course

Hmmm. Maybe I'be misunderstood how banks work. How do I get a profit share from my favourite bank?

Below is Contractors possible situation :

What is going to happen to the money they used to repay it between now and 5 April 2019.? - ... sitting in Bermuda or Barbados drinking rum cocktails.

Should they be worried

Not until they run out of rum.

[Loan Ranger]

Iliketax - I have heard of a few doing this. Should they be worried or should I tell them to be worried more to the point.

I hope they weren't in the M********r scheme, because it's more likely to be the "trustees" living it up in Bermuda or Barbados on their money.

[Theythinkitsallover]

Loan repayments to avoid LC

From a different thread but relevant to this discussion. Below is an example you quoted as being acceptable circumstances in repaying the loan


[QUOTE]It depends on who borrowed it? A rich partner in a hedge fund
When they repaid it? Between now and April 2019
How they repaid it? Money they borrowed from their favourite bank
Why they repaid it? To avoid the 2019 loan charge
What has happened to the money since? They intend to take the money as an actual profit share in due course
What is going to happen to the money they used to repay it between now and 5 April 2019. - Profit share in due course

Below is Contractors possible situation :

I

t depends on who borrowed it? The contractor
When they repaid it? Before April 2019
How they repaid it? From their own funds or monies they borrowed from their favourite bank
Why they repaid it? To avoid the Loan Charge
What has happened to the money since? It is currently sitting with the trust
What is going to happen to the money they used to repay it between now and 5 April 2019.? - It is going to redistributed to the contractor in the 18/19 tax year as a non-resident sitting in Bermuda or Barbados drinking rum cocktails. They pay the relevant tax on this redistribution according to the rules of the country they now reside (tax is paid). Approx 0% on trust income and they are non resident for UK tax purposes when this is done.

Iliketax - I have heard of a few doing this. Should they be worried or should I tell them to be worried more to the point.

[Finalwhistle]

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.

.

I have been part of two loan arrangements. Disguised (DR) and non-DR (as you mention above). This is why I thought I may be able to treat the loans differently with regards to CLSO2 and/ or the LC. Does the LC as it currently stands apply to the non-DR loans i.e. loans direct from employer with no 3rd party? If not, then there is no need for me to declare the non-DR loan come April 19?

You have made it clear that CLSO is a 'declare all' so I would be forced to mention both loans and ultimately pay PAYE and NIC on both. fine.

The non-DR loan is the larger of the two loans so lets say I choose to ignore CLSO2 and decide to go BG. BG are representing the disgusted DR loan, are they also looking at the non-DR loan? or is this a totally separate line of enquiry?

Just standing back from it all it is difficult to comprehend how HMRC can justify penalising all and any loans from employers to employees.