BIG GROUP

[WalterWhite]

So to be clear, we're being taxed on amounts we've PAID rather then received?

I believe you would be taxed on the full amount that hasnt been taxed. Basically the loan amount and the promoter fees.

Maybe ask Webberg for clarification

[regron]

So to be clear, we're being taxed on amounts we've PAID rather then received?

Putting it simply, if you received say 80% of your total income, then they are adding the additional 20% on that you NEVER received and taxing you on the whole 100%.

[sallyann]

Putting it simply, if you received say 80% of your total income, then they are adding the additional 20% on that you NEVER received and taxing you on the whole 100%.

Happy days.

[Silverskin]

Happy days.

And how do HMRC determine what number 100% equates to?

[regron]

BIG GROUP

And how do HMRC determine what number 100% equates to?

You tell them, or your provider (if still around) tell them, or HMRC estimate (make it up) based in the information they have.

[Sidco]

EBT Settlement

Does anybody know anyone who has gone thru the settlement process?

[webberg]

Let me set out the settlement terms we have discussed with HMRC and seen reduced to a written agreement.

Pre DR schemes.

These are schemes used from perhaps 2001 to late 2010 when the disguised remuneration legislation arrived.

HMRC claim that the loans are taxable income in the tear they were drawn down. Consequently there is tax due on those loans on the basis that they should have been added to tax due in that year. As tax is due in that year but is paid late, then interest is also due at the rates published. This is simple interest (not compounded) on the tax due.

NIC on such schemes is unlikely UNLESS the scheme claimed to be a "self employment/partnership" scheme in which case Class 4 NIC would be applied to the increased profits.

Post DR schemes

These have pretty much the same treatment as above with the exception that the chance of NIC being applied is higher as the rules changed.

Period December 2010 to March 2011

In this period a number of events happened as promoters looked to prevent a PAYE liability arising on them in respect of loans made in the period and which were still there at the year end. I am not going to detail them here but let's say that some of the actions here probably have a less than solid technical or legal grounding in my opinion.

By and large HMRC tends to ignore this period and includes 2010/11 in its entirety as above.

Interest on overdue tax for closed years

Where settlement is reached with HMRC and that includes "voluntary restitution" for a closed year, HMRC is legally unable to charge interest. This is because there can be no tax liability for the year - because HMRC has failed in its primary duty to administer the tax system competently - and therefore the amount paid, being voluntary, cannot bear interest or penalties otherwise it becomes onerous.

Some advisers would have you believe that this is a concession that they have extracted from HMRC after hours of negotiation. I'm afraid that is incorrect and the fact that no interest is due, is just a result of the law.

A closed year is one for which HMRC has failed to open an enquiry. HMRC claim that year is under enquiry if they have issued you with a notice of a compliance check (debatable), a COP8 (very debateable), a letter mentioning section 9A (correct), a discovery assessment under section 29 (debatable).

Including promoter fees

HMRC has changed their position on this many times.

Our understanding at the moment is that schemes which claimed an employment will NOT have fees added to the alleged taxable amount each year.

Schemes that claimed self employment WILL have fees added.

This is because HMRC say that in striking the profits a self employed business, the gross income should be included and that the fees paid are not allowable for tax purposes as they are not "wholly and exclusively" for the business. Instead they are to allow for the transmission of funds in a particular way and/or the cost of a tax avoidance scheme.

Their position is almost certainly flawed and would (in my opinion) struggle if taken to a Tribunal.

Extra statutory agreement

HMRC claim that the settlement is extra statutory and as such it does not have to comply with law. Hence the position on fees above, when challenged, will draw a response of "take it or leave it". They know that it would be almost impossible to test the terms before a Tribunal.

All of the above issues have been rehearsed many times in Big Group and given the private forum there, often a lot less politely and with prejudicial pointing of fingers. I think I've said enough on this for a public forum however and whilst I anticipate you all having some follow up questions, I'm warning now that I'm unlikely to answer them here.

[Silverskin]

Let me set out the settlement terms we have discussed with HMRC and seen reduced to a written agreement.

Pre DR schemes.

These are schemes used from perhaps 2001 to late 2010 when the disguised remuneration legislation arrived.

HMRC claim that the loans are taxable income in the tear they were drawn down. Consequently there is tax due on those loans on the basis that they should have been added to tax due in that year. As tax is due in that year but is paid late, then interest is also due at the rates published. This is simple interest (not compounded) on the tax due.

NIC on such schemes is unlikely UNLESS the scheme claimed to be a "self employment/partnership" scheme in which case Class 4 NIC would be applied to the increased profits.


Interest on overdue tax for closed years

Where settlement is reached with HMRC and that includes "voluntary restitution" for a closed year, HMRC is legally unable to charge interest. This is because there can be no tax liability for the year - because HMRC has failed in its primary duty to administer the tax system competently - and therefore the amount paid, being voluntary, cannot bear interest or penalties otherwise it becomes onerous.

Some advisers would have you believe that this is a concession that they have extracted from HMRC after hours of negotiation. I'm afraid that is incorrect and the fact that no interest is due, is just a result of the law.

A closed year is one for which HMRC has failed to open an enquiry. HMRC claim that year is under enquiry if they have issued you with a notice of a compliance check (debatable), a COP8 (very debateable), a letter mentioning section 9A (correct), a discovery assessment under section 29 (debatable).

Thanks Webberg.

Addressing these two related points, are you saying that if electing to settle with HMRC then interest will only apply for those years that are open and no interest will apply for those years that are closed?

Furthermore, although it's been mentioned before, can you confirm that by taking the loan charge that interest (specifically) will not be applied?

Thanks

[Silverskin]

Thanks Webberg.

Addressing these two related points, are you saying that if electing to settle with HMRC then interest will only apply for those years that are open and no interest will apply for those years that are closed?

Furthermore, although it's been mentioned before, can you confirm that by taking the loan charge that interest (specifically) will not be applied?

Thanks

Anyone able to comment on this, especially the first question. For long dated loans especially, if interest is not being charged on closed years this is highly significant.

Thanks

[webberg]

Do not get confused between

a. interest on overdue tax

b. Interest on loans

My note clearly said that where you have a tax liability arising from a closed year, HMRC is unable to charge interest on overdue tax, because there is no tax due. By settling you are making a voluntary payment, not a tax payment.

The ability of a lender to charge interest on an outstanding loan is a matter for the loan contract and HMRC has absolutely no influence on that.

The last iteration of the 2019 charge (before it was dropped from the Finance Act) did indicate that where a loan has provision for interest but it has not been paid, then the amount subject to the 2019 charge would be the principal plus the accrued interest. That said, the provisions were (probably) flawed and it was very unclear as to how the rule could be applied across many loan agreements which have a myriad of different ways of charging interest.

The key here though is a subject that I've been banging on about, ad nauseum.

HMRC has no power to amend, cancel, adjust, otherwise interfere with, the loan that exists between you and the lender.

Settling the tax does NOT make any difference to the loan terms.