Repaying back loans

[Iliketax]

If the original loan is employment-related then there is a specific piece of income tax law that says the waiver of that loan is taxable.

If you are self-employed and the loan is to do with your trade then it is likely that the waiver would be recognised as income under generally accepted accounting principles. As such, profits would be increased and so more income tax would be due.

You may be correct. However if my Granny had lent me a sum and then decided later that repayment wasn't necessary then it would be a gift not income.

If it is a waiver by your Granny then the original loan (probably) has nothing to do with your employment or trade. And so neither the loan nor the waiver would be subject to income tax. [Caveat - the 'probably' in there is because it is fact specific and there are plenty of pieces of tax legislation that can catch the making of loans by someone who is not an employer.]

[DonkeyRhubarb]

If the original loan is employment-related then there is a specific piece of income tax law that says the waiver of that loan is taxable.

If you are self-employed and the loan is to do with your trade then it is likely that the waiver would be recognised as income under generally accepted accounting principles. As such, profits would be increased and so more income tax would be due.

According to a QC opinion I've seen, the tax treatment of waiver (write-off) will depend on various factors.

[webberg]

The position is a complicated one.

Loans made by an employer are (as said above) subject to a tax code that see the benefit of any loan as taxable income deriving from the employment. That "benefit" may include the subsequent writing off of that loan.

This then gives rise to lots of questions.

What if the loan was repayable originally but is subsequently written off?
What if the employee leaves the job/employer?
Are the employer and lender (assumed to be a trust) related and to be treated as the same person?
What happens if the employer no longer exists and the lender/trust writes the loan off?

Loans made to a self employed person are both easier and more difficult.

If the self employment is genuine, continuing and the loan was made to the business (I've paraphrased that bit) then a write off is probably income of the business.

If the self employment was really an employment, see above.

If the self employment has subsequently ceased, would the loan write off be seen as income for a business no longer trading (post cessation income) or would it be seen as miscellaneous income (from an activity that does not amount to a trade but is more than a tax nothing?)

The FACTS will be determinative here and each scheme may have different facts leading to different conclusions.

Flying a flag for the tax profession here.

You will get to a proper answer ONLY but considering all the facts, applying the various pieces of legislation applicable at the time of loan/write off, considering the principles arising from judicial review.

That REQUIRES expertise.

The normal way to do this is for a day to day tax numpty to do the research and formulate the questions based on the facts and then to discuss and consider those facts with more experienced tax specialists, probably Counsel.

What you get is an OPINION.

That opinion may then be tested with HMRC. If HMRC disagree then everybody goes to Court and a JUDGE considers the position and makes a decision.

Make no mistake here.

It is ONLY a decision from HMRC and/or a Judge that is FINAL.

Everybody and his dog can have a view and a guess and the man in the pub (acknowledged expert as he is and having reached his view after careful research and analysis) is probably the cheapest option, but until that final decision, we're all speculating.

What is clear is that a view from a source which is focussed ONLY on the facts and the application of law/cases to those facts is going to be about as objective as you can get.

It's very difficult for those who have a personal involvement in any such arrangement to achieve objectivity and inevitably subjective considerations come into the equation as we all like to arrive at an answer that suits us.

I accept that the above may be seen as self serving and an advert for using tax professionals. However I offer no apology. My opinion is that there is no substitute for an objective opinion from an acknowledged specialist and no better person/team to take that opinion to HMRC to get an answer that can be relied upon. There are plenty of tax people to be found via Google; there are some well known names already active in this area who can back expertise with experience.

Whilst the above people may get the answer wrong, I can guarantee that they have a better chance of arriving at the right answer than an uninformed person.

Rant over - thanks for your time.

[DonkeyRhubarb]

And the lesson is, be careful who you listen to...

Opinions to be treated with a huge pinch of salt:

1) mates who were in the scheme
2) armchair lawyers on these forums
3) professional types on these forums that you don't know exactly who they really are
4) scheme promoters, or others, who may have a vested interest in only viewing things one way

Bottom line is, be a lot more cautious about what you do now than when you originally joined the scheme.