New charge on outstanding disguised remuneration loans

[TheDandy]

Have you read the article? Whilst the comments may not be sympathetic I thought the article was balanced and reasonable.

"He also says the charge is deeply unfair as in many cases the tax was not payable under the law that existed when the loan was advanced (pre December 2010), so the taxpayer should win their case if they could get a hearing at the tax tribunal. Under the proposals such taxpayers will have to pay the tax on the outstanding loan even if they do win their case at the tax tribunal."

Yes I have read it. 'Deeply unfair' - how does that help?

[DotasScandal]

This.
Taxwriter is actually one of the few pros that sees through the BS.
That article was certainly not HMRC-sympathetic.

[jonnieboy]

Yes I have read it. 'Deeply unfair' - how does that help?

Not much - pretty much like most of your posts.

[TheDandy]

Not much - pretty much like most of your posts.

Thanks for reminding me not to get on your bad side.

[webberg]

There will be a plethora of professional and hopefully objective articles on the proposals in the Budget.

(I will plug my own which appears tomorrow in Taxation).

There was (as advertised elsewhere) a webinar today at which HMRC fielded a team who were not bothered by any sense of fairness or personal integrity.

I'm sure that will give rise to many more articles and opinions.

Until we see the consultation (which was promised as a "technical" consultation, the decision to have this new retrospective law having already been decided) the true effect cannot be known, but make no mistake, this is a game changer.

As such, a catholic approach, taking learning from all articles and opinions is at this stage a sensible approach and no particular view should be regarded as definitive, wholly correct or final.

[Iliketax]

There was (as advertised elsewhere) a webinar today at which HMRC fielded a team who were not bothered by any sense of fairness or personal integrity.

I think you must have been listening to a different webinar. I did not hear anything on there that suggests that there were any doubts on the presenters' personal integrity. I know some of those who spoke and I am not aware of the slightest issues with their integrity. And just for the record, I don't work for HMRC.

[Iliketax]

For me, the key message that HMRC said on the webinar was:

1. There will be a tax charge in April 2019. Those with loans will have three years to prepare for it. This change will happen, it's not up for consultation
2. HMRC will continue to challenge those with pre-existing loans. This means investigations will continue, APNs will be sent and have to be paid, etc. They are not going to stop what they are doing now
3. If you settle before April 2019, you don't have to pay the April 2019 tax charge
4. HMRC may well continue to pursue old cases after April 2019 but if HMRC are successful, the 'borrower' will be able to use the April 2019 tax as credit for the tax due when the loan was originally made.
5. For employees who have paid tax on the 'cheap' interest benefit then that interest won't reduce the April 2019 charge. But if you settle before then you may be able to set that interest against the tax that was (under the settlement) originally due.
6. The April 2019 tax will be paid by the employer but there are going to be rules to pass it on to the employee (and eventually, the self-employed).

So what does this mean for contractors? No idea. I don't work with contractors.

But for employees and employers. I'd suggest that this change will encourage pre-April 2019 settlement, especially where not all the money has been borrowed from the trust (which probably doesn't apply to many contractors) and there are investment returns in the trust (the changes to para 59 agreements will mean settlement pre-December 2016 is beneficial). Early settlement also means that you don't have to gamble on tax rates. Also, early settlement may mean that the tax charge is spread over a number of years whereas the April 2019 charge is in a single tax year and so you may stay a 40% taxpayer with a settlement but are more likely to be a 45% taxpayer (or whatever the maximum rate will be). The gamble though is interest on late tax. If you just pay the April 2019 charge and HMRC aren't successful in the original investigation then you won't have to pay interest on late tax. But with the recent UBS Supreme Court case and the Murray Group case, I think HMRC will win (in the employee context) long before April 2019. If you don't settle and HMRC choose to keep investigating post-April 2019 then you have the hassle of dealing with them, taking things to the FTT, etc.

[webberg]

1. Agreed
2. Agreed
3. Incorrect. If the loans are still in existence at 5/4/19 and have not been repaid, then a charge arises. That charge will be the higher of the tax charge due in the year the loan was drawn (or perhaps available) plus interest or the value of the unrepaid loan at an unknown tax rate at 5/4/19. It is NOT settlement that matters but whether the loan has been repaid.
4. That may be correct but why would they bother?
5. My understanding was that if you had paid tax on the BIK charge, then that tax would be a credit against the 5/4/19 charge?
6. I'll go back and look at my notes or perhaps wait for the Q&A to be published because that's not how I understood the position.

In terms of personal integrity.

A question was asked about how HMRC would react to the inevitable wave of bankruptcy that this tax charge may trigger. The officer who answered first denied that this would happen at all, then only in limited numbers and then made the usual noises about "last resort" etc. Anybody who has worked with contractors will know that a good percentage will use this route either because they have no choice or in some cases perhaps to frustrate the charge. The officer has worked with contractors and will know this and to deny it in order to justify the measure, in my opinion, impinges his integrity.

You could argue that he was toeing the company line and that to do otherwise might cost him his position in that team/HMRC. You could argue that most of us would do the same. You could argue that by taking such a biased view of the situation and ignoring some hard truths, HMRC is no better than many of the providers who duped contractors into the schemes in the first place. In my opinion however, either he believes what he said was correct, in which case he is hopelessly naïve or he does not believe it and was being at best disingenuous.

I know that most of my clients will go for the latter.

[Iliketax]

3. Incorrect. If the loans are still in existence at 5/4/19 and have not been repaid, then a charge arises. That charge will be the higher of the tax charge due in the year the loan was drawn (or perhaps available) plus interest or the value of the unrepaid loan at an unknown tax rate at 5/4/19. It is NOT settlement that matters but whether the loan has been repaid.

That is not what they said. They just re-confirmed what was said in the technical note (see para 11(b)).

4. That may be correct but why would they bother?

They said it was because it may raise more tax. This may be because of the old rates (e.g. 50%) or for ways specific to the scheme involved, they did not go in to details.

5. My understanding was that if you had paid tax on the BIK charge, then that tax would be a credit against the 5/4/19 charge?

They specifically said the opposite. I think they said that at least twice. They did say that if you settle before April 19 then the position may be different.

6. I'll go back and look at my notes or perhaps wait for the Q&A to be published because that's not how I understood the position.

OK. They partially answered the specific question that I asked on that.

[TheDandy]

The feedback I received was essentially that the HMRC panel couldn't really answer any questions beyond basic. Given that two people who attended the webinar have different interpretations and opinions tells me that the situation is as clear as mud. I don't really know why they bothered to have this webinar as this stage, why not just wait for a sham consultation; that's what everyone on the receiving end of APNs is expecting. Strikes me it's another opportunity for them to ramp up some more pressure and fear and push more people into settlement.