Settling is more expensive that paying the 2019 loan charge

[difficulttimes]

New legislation for 2019 charge..

I was having a read through but it all was a bit of a depressing read so gave up..
Does anyone know if the 2019 charge is based on the loan amount that you received?
Also, do they also include interest dating back to the tax year it applies to?

Was there anything else of interest from the draft that was not known beforehand?

[Redcode]

You are obviously dealing with a reasonable, pragmatic HMRC that I don't recognise.

Has anyone else been offered these settlement terms?

I have been watching and reading this forum for many years now and have decided it was time to come out in the open and give a little bit of advice to all those considering making settlement under the new Disguised Remuneration Rules.

Before I embark on this I wish to make it quite clear I am not here to coheres or deter anyone from settling, neither am I here with self interest at the forefront of my mind unlike others who are on this forum appear to be. I am purely here to offer some assistance on this point but also make you aware that you could potentially fall foul of another Tax namely - IHT.

So lets deal with the points raised on this thread first before we talk about the IHT issue. In part what the poster said is correct but we need to distinguish between Employee Loans and Self-Employed Loans.

Employee Loans - Where an assessment has been raised and the collection of taxes has been held over for whatever reason. HMRC will seek Tax, NI and Interest on these Loans. Where there is voluntary restitution on years not under assessment HMRC will charge only Tax and interest. (this is the carrot to settle now). However, i should point out from my conversations with HMRC that this offer will not be on the table for long. We can all take a guess at how long but its the old adage - how long is a piece of string. My guesstimate would be that this will remain on the table until at least we receive Royal Assent on this Legislation. To wait until April 2019 as suggested by the original poster would be foolhardy in the extreme, because after that date Tax, NI (Ee's and Er's), Interest, Surcharges and Penalties will be levied and thats a given and indeed been confirmed in my conversations with HMRC also.

Now lets turn to the S/E Loans - these are of course more recent and the window for enquiry or window of discovery is still open and therefore Tax, Class 4 NI and Interest will be levied as confirmed by HMRC.

Now i will turn to the other matter which i would like to draw your attention to and that is the issue of IHT. I know from various conversations I have had personally with contractors over the past 12months or more, that none of their advisors have talked at all about this or at least in any great depth with their clients, about the consequences of having IHT levied upon them in addition to Income Tax and NI. Some advisors have simply dismissed this citing they believe this would be a double taxation of the same money. I am sure some will even tell you that during there discussions with HMRC that the matter of IHT has never come up, which it has not in my own dealings and conversations with HMRC. However, the fact is it won’t be because the offices dealing with Disguised Remuneration have only been tasked with collecting PAYE and NI'c not IHT. The issue of IHT is being dealt with a by a different department in isolation. Its interesting to note that a office has been set up in Edinburgh to specifically deal with this matter (EBTIHT - under the guidance of the Trust and Estates Dept) and it will be from this office that assessments will be raised.

As a Tax Advisor for over 30 years I can unequivocally state this will not be a double taxation, but a reflection of the more general position where taxed or untaxed income is settled into discretionary trusts within the relevant property regime for IHT.

The important thing to bear in mind in all this, is you will still have a loan outstanding with the Employee Benefit Trust and/or Discretionary Trust who granted the loan to you in the first instance. Whilst I am sure if you do settle, you wont want this hanging over your head for fear the Trustees will at some point in the future call in these loans. The reality is they wont call them in because i am sure there will be a clause in each Trust Deed that says they have to work in the best interest of the Beneficiaries and such a action would be against the principle of this. However, there are some unscrupluous providers who may see this as an opportunity to line there own pockets.

All that said, I would expect all Trusts to write off any loan balances which are outstanding as at the 6th April 2019 because they will want to give closure to the trusts and not run the risk of a 10 year Anniversary Charge which could be the case if loans are left outstanding because they will still deemed to be property of this Trust. This would be normal practice for the Trustees.

In these circumstances this will give rise to what is commonly referred to as an Exit Charge under IHT. The irony will be, you will have furnished HMRC with all the relevant data i.e. the amount of loans you have received over the period and therefore the amount that has been written off. In short, you will have given them the stick in which to beat you.

Unlike other Taxes where an Inheritance Tax account (IHT100) has not been delivered by a taxpayer in respect of a specific chargeable event, HMRC can and will pursue the tax due under the general time limit of 20 years commencing on the date the chargeable event took place.

As i said at the start, i am not here to gain clients or indeed enter into any kind of chat dialogue in response to further questions this post may raise. I would simply refer you to your agent/accountant/tax advisor or do your own bit of research.

A good source of information for the lay person on the subject of Disguised Remuneration and the consequences such as IHT can be found on this link. For you information Lexis Nexis is a publisher of Butterworths and Tolleys Tax Books. The Bibles for practitioners like myself.

http: //taxnews.lexisnexis.co.uk/TaxNewsLive/Members/BreakingNewsFullText.aspx?id=3813&css=1&xml=0

or even consider speaking with HMRC directly at one of the following offices.

EBT IHT Team
HMRC Trusts and Estates
Meldrum House
15 Drumsheugh Gardens
Edinburgh
EH3 7UQ

HMRC Trusts & Estates
Non-Resident Trusts
Ferrers House
PO Box 38
Castle Meadow Road
Nottingham
NG2 1BB

[EBTContractor]

Questions.

When is Royal Assent?
How does HMRC intend to communicate to people what they 'owe' and how it's calculated?

[regron]

When is Royal Assent?
How does HMRC intend to communicate to people what they 'owe' and how it's calculated?

Royal assent is normally reached around July. You can follow the whole process of the Bill here:

Finance (No. 2) Bill 2016-17 — UK Parliament

[zal]

Thanks redcode for the implication on IHT

This nightmare is never-ending.

[Loan Ranger]

To wait until April 2019 as suggested by the original poster would be foolhardy in the extreme, because after that date Tax, NI (Ee's and Er's), Interest, Surcharges and Penalties will be levied and thats a given and indeed been confirmed in my conversations with HMRC also.

I have seen nothing in the legislation which levies those. It's just tax and primary nics.

I hope you're not spreading FUD.

[DotasScandal]

HMRC shill?

[Iliketax]

I have seen nothing in the legislation which levies those. It's just tax and primary nics.

I hope you're not spreading FUD.

For employment-related loans, it is primary and secondary class 1 NIC. The two just go hand-in-hand. The legislation for NICs is not in the Finance Bill (NIC is always dealt with separately).

Normally, the employee just pays the primary Class 1 NIC and the employer pays the secondary. But the complexity is what happens if the PAYE liability gets transferred to the employee (e.g. because the employer has closed down). Does the employer's NIC go with that? That is still being thought about. If it does, does the employee get tax relief for that? They do in other situations where the employer's NIC is transferred. So at the end of the day, there must be a risk that the employer's NIC could be transferred to the employee where the employer is insolvent or has been liquidated.

It's not clear whether the s222 liability would arise (e.g. if an employee fails to reimburse the employer by July 2019). This is basically a tax (and NIC) on PAYE not reimbursed quickly enough. You could also call it a surcharge but I've never heard it described as that - "penal" is often used. This is mentioned in the 5 December 2016 document as something that is being considered further. It's also not clear how this would work where the PAYE liability gets transferred to the employee.

There is no intention to charge interest for periods up to 5 April 2019 - although it would be due if, for example, the employer does not pay the PAYE and NIC to HMRC promptly.

Employer's may also have to include the loan amount for Apprenticeship Levy. That's not clear yet. I'm not aware of any other potential surcharges.

There is also the possibility of penalties (e.g. failure to operate PAYE, failure to provide information, etc).

** I don't work for HMRC, I don't work with contractors, I'm not after fees and I'm not trying to scaremonger.

[CDJ]

Now i will turn to the other matter which i would like to draw your attention to and that is the issue of IHT. I know from various conversations I have had personally with contractors over the past 12months or more, that none of their advisors have talked at all about this or at least in any great depth with their clients, about the consequences of having IHT levied upon them in addition to Income Tax and NI. Some advisors have simply dismissed this citing they believe this would be a double taxation of the same money. I am sure some will even tell you that during there discussions with HMRC that the matter of IHT has never come up, which it has not in my own dealings and conversations with HMRC. However, the fact is it won’t be because the offices dealing with Disguised Remuneration have only been tasked with collecting PAYE and NI'c not IHT. The issue of IHT is being dealt with a by a different department in isolation. Its interesting to note that a office has been set up in Edinburgh to specifically deal with this matter (EBTIHT - under the guidance of the Trust and Estates Dept) and it will be from this office that assessments will be raised.

Hi RedCode - thanks for this summary of IHT.. a quick question.. the information I've received from advisors is that IHT is actually levied against the Trustees (this came out as we where trying to get out loans written off after settling under the CLSO and the Trustees were caught in a bind that they didn't want to do that for fear of IHT). Given that - is it your view that because of IHT, Trustees will either call loans or make a legal claim for the IHT they will get charged for any write-off/HMRC demand???

[Silverskin]

Seeking clarity

Hi all,
I've been trawling through the forum trying to find out information about the merits of the early settlement option or the loan charge. This thread has been quite useful although I'm a little unclear.

I appreciate that everyone's situation is different but just to give a typical example, for loans outstanding from say 2000-07 and totalling say 500k is there any obvious approach to take? Presumably one of the obvious concerns for older loans would be accrued interest, so does that point to one form of resolution being preferable to the other?

Also can someone give clarity on what open v closed years refers to and which years these are please?

Thanks in advance.