BIG GROUP

[webberg]

Please go and look at section 554Z5 and 554Z11.

The problem with the loan charge is that it breaks a fundamental "rule" that income can be taxed only once.

In theory therefore if the loan charge arises before the liability for the year the loan was paid, is finalised, then a subsequent agreement of that earlier year, should mean that the loan charge cannto apply (as the income has already been taxed).

To "solve" this problem, the loan charge, once made is not altered (except if it is found to have been not applicable) and the tax (non refundable) is not repaid.

Instead, because the income is taxed twice, the tax paid is credited twice.

I agree that it's very strange and I refer you to some excellent posts from Iliketax who has covered this in some detail.

You may disagree - that is your prerogative, and you may even be correct, but having spoken with a number of tax people and HMRC, I prefer my analysis.

[Boodog]

That's not how it works.

Let's assume that a loan was made in 12/13 of £50,000. Other income that year was £30,000. Income in 18/19 is nil.

(By the way this is a very unusual pattern).

Tax in 12/13 - no loan is approx £4,200.
Tax in 12/13 with the loan is approx £22,000

Tax in 18/19 - loan only is £8,360.

Loan charge is paid.

Later 12/13 is agreed.

You will owe £22,000-£4,200-£8,360 = £9440 plus interest

I don’t agree. Can you point me to an official HMRC calculation that verifies this? What you are saying is that calculations are based on the tax year in which the loan is charged, regardless. Sorry, makes no sense.

[webberg]

But I don’t think this means that they will do a comparison between settling and paying the loan charge - and make you pay the higher of the two. I think they will gross up the loans declared to account for scheme provider fees, then calculate interest and NICs - so there will be an additional amount to pay, to finally settle.

That's not how it works.

Let's assume that a loan was made in 12/13 of £50,000. Other income that year was £30,000. Income in 18/19 is nil.

(By the way this is a very unusual pattern).

Tax in 12/13 - no loan is approx £4,200.
Tax in 12/13 with the loan is approx £22,000

Tax in 18/19 - loan only is £8,360.

Loan charge is paid.

Later 12/13 is agreed.

You will owe £22,000-£4,200-£8,360 = £9440 plus interest

[Boodog]

But HMRC have stated that the LC does not close open enquiries and they will look at the open years and if the tax due is greater than that paid on the LC they will come after you. If it is the other way around they won't refund. Will they carry this out - who knows!

But I don’t think this means that they will do a comparison between settling and paying the loan charge - and make you pay the higher of the two. I think they will gross up the loans declared to account for scheme provider fees, then calculate interest and NICs - so there will be an additional amount to pay, to finally settle.

[Delendog]

For those people with low income in 2018/19, compared to the years in which the loans were taken out, it might be a better option to pay the loan charge, then settle interest etc for open years. Rather than settle under current terms. If the loan charge is pulled then this narrows options surely.

But HMRC have stated that the LC does not close open enquiries and they will look at the open years and if the tax due is greater than that paid on the LC they will come after you. If it is the other way around they won't refund. Will they carry this out - who knows!

[Boodog]

Not sure how you get to that conclusion?

For those people with low income in 2018/19, compared to the years in which the loans were taken out, it might be a better option to pay the loan charge, then settle interest etc for open years. Rather than settle under current terms. If the loan charge is pulled then this narrows options surely.

[webberg]

Agree with this last point - and for some people pulling the loan charge might be disadvantageous imo...

Not sure how you get to that conclusion?

[Boodog]

So far as we know they are promoter based groups who have been convinced that a JR will solve their issues.

The legal argument in each is similar and whilst I'm no lawyer I would have thought it would make sense for the best funded to move forward and the others to be stayed.

That would suit the promoter groups who have taken fees for this. They can then claim that being stayed is good tactics and if the better one is defeated, can make a claim that there is no point incurring more fees. What happens to the fees already paid? Who knows.

Remember, even if the loan charge was pulled tomorrow, you still have to deal with the liability on open years.

Agree with this last point - and for some people pulling the loan charge might be disadvantageous imo...

[webberg]

What are the other 3 JRS about please Graham?

So far as we know they are promoter based groups who have been convinced that a JR will solve their issues.

The legal argument in each is similar and whilst I'm no lawyer I would have thought it would make sense for the best funded to move forward and the others to be stayed.

That would suit the promoter groups who have taken fees for this. They can then claim that being stayed is good tactics and if the better one is defeated, can make a claim that there is no point incurring more fees. What happens to the fees already paid? Who knows.

Remember, even if the loan charge was pulled tomorrow, you still have to deal with the liability on open years.

[Clairol]

If you have only closed (unprotected) years then a win for us at litigation means no tax for you.

Will we win?

No guarantee of that. We have a confidence level of 65%.

Speak to other advisers and they may be 65% sure that we'll lose. Speak to HMRC and they will be 100% sure we'll lose.

I cannot be any more clear.

In terms of a JR against the loan charge, I think we know of at least 4 going ahead of which LCAG is one.

Will they defeat the loan charge?

I don't know.

Every message from Government is that the loan charge is here to stay, but it would not a shock if they held the line until the last possible second and then caved as that seems to be what passes for policy for this Government (and the last one and all the ones before then).

What are the other 3 JRS about please Graham?