Originally posted by Iliketax
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Previous Settlement
Originally posted by Iliketax View PostIt's worth talking to your tax adviser but it sounds like you have not settled the closed year as you have not "agreed terms with an officer of Revenue and Customs for the discharge of that liability" (current version of s554Z5 ITEPA 2003). The fact that HMRC know about a closed year is not enough. So you would still have to pay tax on the closed year loans under the April 2019 loan charge.
Assuming you actually paid the tax for the settled year (or have reached an agreement with HMRC about paying it) then there will be no tax due under the April 2019 loan charge. It does get more complex if, for some reason, you were taxed on less than the full amount of the loan under the settlement. Also, you may well have some reporting obligations in respect of the settled year but your going to have to wait for some new legislation to see what they are.
"Some employment based contractor loans schemes operated until 5 April 2011. If someone settled their use of these schemes by 16 March 2016, they don’t need to pay any further Income Tax or NICs to obtain relief from a future DR charge (including the loan charge) which would otherwise arise in relation to those schemes. This doesn’t apply to any scheme which they asked us to exclude from the settlement.
For any settlement entered into after 16 March 2016, or any settlement in relation to a scheme which operated after 5 April 2011, the amounts in respect of which relief from a DR charge can be claimed will be restricted to those specified in the settlement agreement."
This sounds to me that if you entered CLSO 1, then there should be no loan charge applicable (even for closed years) ?? Otherwise why differentiate between pre 16 March 16 and post ?
https://www.gov.uk/government/public...ttlement-termsComment
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Originally posted by jbeer View PostThis sounds to me that if you entered CLSO 1, then there should be no loan charge applicable (even for closed years) ?? Otherwise why differentiate between pre 16 March 16 and post ?
https://www.gov.uk/government/public...ttlement-terms
I think that this comes from the way paragraph 59 Schedule 2 Finance Act 2011 applies. This was originally designed to say (i) ok. so you did some fancy planning pre-April 2011, (ii) you've now agreed that you should pay income tax when you did that fancy planning, so (iii) don't worry about the disguised remuneration rules on those amounts again because you paid the tax at the start. This was really helpful where money was put in an EBT and then not all of it loaned back again.
It was a bit generous and so the scope of the para 59 agreement got reduced.
The last Finance Act made changes to para 59 to make it clear that it can apply to the deemed "relevant step" on 5 April 2019. So if the various conditions in para 59 are satisfied then the April 2019 loan charge is disapplied (i.e. you are home and dry). This is where it then gets a bit complicated. Two of the conditions are:
(d) before the [April 2019 deemed] chargeable step is taken—(i) an agreement was made between Her Majesty's Revenue and Customs and either A or B (or both) under which it was agreed that the pre-6 April 2011 step was to be treated as giving rise to earnings of A from A's employment with B within Chapter 1 of Part 3 of ITEPA 2003 for the pre-6 April 2011 tax year, or(e) before the chargeable step is taken, A or B has paid, or otherwise accounted for, any tax which A or B is required to pay or otherwise account for as a consequence of—
(ii) the tax payable by A for the pre-6 April 2011 tax year was otherwise decided on the basis that the pre-6 April 2011 step was to be treated as giving rise to earnings of A from A's employment with B within Chapter 1 of Part 3 of ITEPA 2003 for that tax year,(i) the agreement mentioned in paragraph (d)(i), or
(ii) the tax payable by A for the pre-6 April 2011 tax year having otherwise been decided on the basis mentioned in paragraph (d)(ii), and
So assuming you went down the agreement with HMRC route, to fall within para 59 you need both a settlement with HMRC (para 59(1)(d)) and the tax to have been paid (para 59(1)(e)). So if a closed year was not in the agreement then you fail (d). If it was in the agreement and paid the tax set out in the agreement then (e) is clearly met. So you'd be fine from the April 2019 loan charge perspective.
The question then is what happens if (i) the closed year loan was, say, £100,000, (ii) HMRC agreed that £0 of tax should paid on it (rather than £40,000), and (iii) that agreement was within the scope of para 59?
I'll start by saying that I don't negotiate settlements with HMRC so don't have sufficient range of experience to know everything that they might have agreed back in the good old days. If they explicitly said that and its included in the agreement you might have a case that you don't have to pay the April 2019 charge. But there have been tax cases that say that "0" is not an amount and so having £0 to pay means that you've not paid anything (see McQuillan).
At the end of the day this is new stuff. It is complicated. I'm sure that HMRC have not thought of all the various circumstances and decided what to do. What ever you do, don't rely on what some random stranger on an internet forum says. Take proper professional advice based on your own circumstances (including what your settlement agreement actually says rather than what you think it says). And be aware that these provisions will be something that most people who deal with tax for a living will have absolutely no clue about. It's not in the books that they use. There are few sensible discussions on it in the professional press. You will be paying them to learn.
If you do get some advice, post it here and include (i) the facts that they are advising on, (ii) what they said, and (iii) why they said it. Without all three bits, it will be no help to others.Comment
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Previous settlement
Thanks, it does sound rather complicated. I guess, possibly naively, I thought where it said…
“For any settlement entered into after 16 March 2016, or any settlement in relation to a scheme which operated after 5 April 2011, the amounts in respect of which relief from a DR charge can be claimed will be restricted to those specified in the settlement agreement."
then this would imply the opposite is true for pre 16 March 2016 agreements, i.e. the settlement agreement would not necessarily have to specify the closed years for the relief to be given.
However, I wasn’t aware of all the Finance Act clauses.
I agree not to take what some random stranger states as gospel, but in this case, rather than pay for professional advice to get their interpretation - which may also be wrong - would it not make sense to just ask HMRC as its going to come down to their interpretation at the end of the day ?Comment
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We are seeking clarification on this point (and others) as there is a disparity between:
- What the original "policy" for this charge suggested
- What the words suggest
- What statute shows
The original policy said that where a year was "implicitly" closed as part of a settlement, then it would not be subject to the DR charge.
The latest words in the settlement agreement seem to suggest that because a closed year was not an explicit part of the previous settlement, then it remains a viable target for the DR charge.
That is a potential conflict that so far has gone unanswered by HMRC.
Clearly, it's an uncertain aspect which makes recommending (or otherwise) a settlement very difficult for advisers who like to know, understand and explain the position to clients.Best Forum Adviser & Forum Personality of the Year 2018.
(No, me neither).Comment
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Originally posted by jbeer View Postwould it not make sense to just ask HMRC
Originally posted by jbeer View Postas its going to come down to their interpretation at the end of the day ?Comment
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Originally posted by Iliketax View PostOK. When you talk to you tax specialist, ask her what she thinks about the "payment condition" in s554Z5(4) ITEPA [the current version, not the one in their "red" or "yellow" book].
He told me to stay away from internet forumsComment
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Originally posted by vern19 View PostJust heard back from my tax advisor, he thinks you are an HMRC stooge.
He told me to stay away from internet forumsBest Forum Adviser & Forum Personality of the Year 2018.
(No, me neither).Comment
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Originally posted by vern19 View PostJust heard back from my tax advisor. He told me to stay away from internet forumsComment
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Originally posted by PokemonStay View PostSo you are ignoring your tax advisor.....Best Forum Adviser & Forum Personality of the Year 2018.
(No, me neither).Comment
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