New charge on outstanding disguised remuneration loans

[webberg]

Hopefully if the Q&A is published, some of the differences will become clearer.

Given that the HMRC team stuck to the party line and would not or could not discuss some of the implications and in some cases questions were not passed on the them (I accept that they wanted to wind up by 2pm, but you would have thought that such an important issue might have warranted more time?), until we see more, I suspect more differences of opinion will arise.

They did say that another webinar is scheduled for 10th May to discuss the impact of this proposal on small and medium enterprises.

Let's hope they're better prepared.

[webberg]

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

See Chapter 6, paras 5 and 6?

[ChimpMaster]

Interesting discussion so far.

How do HMRC know if a loan is 'outstanding'?

In 2019 how will they know if a loan given in 2009 (or even earlier, seeing as there isn't a time limit now) has still not been repaid - especially if the scheme provider has closed shop and run off?

Considering too that financial records only have to be kept for 7 years.

[DonkeyRhubarb]

Assume the worst and plan accordingly.

I was going to say "hope for the best" but that's just wishful thinking.

If you think the consultation will achieve anything, or Parliament will resist it, dream on.

They are determined to screw people with loans, one way or another.

[webberg]

The more I read this, the more it looks like a big stick to drive contractors to settle on HMRC terms.

To say that some of the proposals are controversial would be an understatement. They cut across safeguards for individuals from many legal codes, pierce the corporate veil and seek to unstitch legally binding agreements.

I'm not a lawyer but even I recognise that these are issues that will attract challenge.

Against that has HMRC built in a time bomb? It may be that if the liability is to fall upon "employer" and that may include an extended definition, how many providers will be willing to remain in their present form/company as the deadline approaches and what might that mean for users of those schemes? Why has HMRC given providers/employers 3 years warning of a potential liability allowing them time to move out of the line of fire?

Speculation on my part obviously but it would be good way to divide and conquer the contractor community?

Perhaps it's time for the various groups to sit down together and see if their priorities can be aligned?

Until now, those groups have had different objectives and different methods of achieving them. Strangely this proposal gives them all a focus and it would be sensible to explore that.

[Iliketax]

See Chapter 6, paras 5 and 6?

That's a very different point. You said that "It is NOT settlement that matters but whether the loan has been repaid." That's not right. If there is a settlement before April 2019 then there is no tax in April 2019.

Paras 5 and 6 are pretty much what I said in my original point 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.") and my later comment "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."

[webberg]

That's a very different point. You said that "It is NOT settlement that matters but whether the loan has been repaid." That's not right. If there is a settlement before April 2019 then there is no tax in April 2019.

Paras 5 and 6 are pretty much what I said in my original point 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.") and my later comment "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."

I think we'll have to agree to disagree until we see more.

My view remains that if there is an unrepaid balance on a loan at 5/4/19 it attracts a tax charge. If that tax charge is less than would have arisen in the period the loan was drawn (plus interest - presumably to 5/4/19?) then the "user" (not the employer?) "will still have to pay the difference between the new charge and the amount due in respect of the earlier liability".

In particular where there is no earlier liability because the earlier year is closed due to invalid enquiry or previous settlement excluding some years, HMRC still want to collect under the new charge at a rate based on the tax rates in the earlier year PLUS interest.

It's always unwise to read too much into a Technical Note. We know from experience that often the next stage abandons or changes the intent and words in such and again when the legislation arrives it may be different again. We're not going to see that legislation until Finance Bill 2017 (November/December this year?) so perhaps I'm just wasting my (and your) time - apologies.

[Iliketax]

In particular where there is no earlier liability because the earlier year is closed due to invalid enquiry or previous settlement excluding some years, HMRC still want to collect under the new charge at a rate based on the tax rates in the earlier year PLUS interest.

That would be a very novel reading and does not tie in with the comments on the webinar about HMRC planning to use Part 7A as the collecting mechanism.

... so perhaps I'm just wasting my (and your) time - apologies.

I'm not worried about wasting time on this particular issue. I need to know how it will apply to my work (which has nothing to do with contractors and I don't work for HMRC).

But I am worried about the spin that some people are giving it. This change will have a huge impact for people who have loans. Many people will have to remortgage to pay the April 2019 charge and some may well go bankrupt. Discouraging people from settling, discouraging people from talking to HMRC about time to pay may work better in getting a group of people together to fight this. But a settlement with time to pay may well be substantially better for some individuals.

You say it is a "big stick". It is not. It is a massive club with spikes sticking out of it.

One thing that I am very clear on is that the substance of this measure is not going to change. More than £2.5bn of yield has been counted and no minister (or shadow minister) is going to give this up. They will be told of people who have tens of millions of pounds in such loans so why would they want to help them. Details will be refined, information gathering powers and obligations set out, targeted anti-avoidance rules designed and so on. But this will happen. While there are political aspects to waiting until 2019 to collect the tax, it also does give a breathing space for people to take a measured view as to what is best for their own circumstances.

[DonkeyRhubarb]

Presumably now HMRC have got this charge coming down the line in 2019, they don't need to do anything.

Not much point the taxpayer litigating either because, even if you win, you still lose in 2019.

Time to pack the suitcases?

[carling]

That would be a very novel reading and does not tie in with the comments on the webinar about HMRC planning to use Part 7A as the collecting mechanism.

Please could you clarify this point.
Are you trying to say that loans drawn in years that are not under enquiry or discovery and now out of time are not going to attract the loan charge ? If so thats not the impression I got from the webinar.