Discovery assessment season - unexpected bills from HMRC

[dangerouswhensober]

Thank you ...

I haven't had a DA for 2012/2013 (unless it was prepared by HMRC yesterday and is currently in transit).

Not sure if this is such good news as it might appear to be - I'd quite expect HMRC to come challenging on some other basis at some time in the future, given the long-term fluidity of their arguments.

And I'm assuming that, DA or not, I'll still have to declare loans from that year if still outstanding in 2019.

Ah well ...

[webberg]

Thank you ...

I haven't had a DA for 2012/2013 (unless it was prepared by HMRC yesterday and is currently in transit).

Not sure if this is such good news as it might appear to be - I'd quite expect HMRC to come challenging on some other basis at some time in the future, given the long-term fluidity of their arguments.

And I'm assuming that, DA or not, I'll still have to declare loans from that year if still outstanding in 2019.

Ah well ...

It is a feature of the practice here that HMRC cannot issue an assessment on 5th April and still be in time. They have to allow (I think) up to 4 working days for delivery. If that day count is correct (might be 3 days - can't remember and no time to check the SA Manual) then the last day for a valid assessment to have been issued was 31st March.

[dangerouswhensober]

It is a feature of the practice here that HMRC cannot issue an assessment on 5th April and still be in time. They have to allow (I think) up to 4 working days for delivery. If that day count is correct (might be 3 days - can't remember and no time to check the SA Manual) then the last day for a valid assessment to have been issued was 31st March.

Thank you again - I have now stopped holding my breath :-)

[HebdenMole]

Query

I received a discovery assessment for 2013/14 back in February and appealed it. HMRC confirmed via telephone in March it was postponed. Haven't had a letter yet or anything. Does anyone know what is likely to happen next?

[regron]

I received a discovery assessment for 2013/14 back in February and appealed it. HMRC confirmed via telephone in March it was postponed. Haven't had a letter yet or anything. Does anyone know what is likely to happen next?

As it is on appeal then nothing until either:

1. You receive an APN for it (if it qualifies).
2. The 2019 charge becomes law (assuming it is loan related).
3. If none of the above, then the courts will decide when the time comes.

Note that interest still applies and will continue to accrue.

[HebdenMole]

As it is on appeal then nothing until either:

1. You receive an APN for it (if it qualifies).
2. The 2019 charge becomes law (assuming it is loan related).
3. If none of the above, then the courts will decide when the time comes.

Note that interest still applies and will continue to accrue.

Thank you for your reply.

I think I'm in a different boat to many here as this discovery assessment was actually issued totally incorrectly - I was in a scheme but only for 1 year and it wasn't the year they issued it for. Can I not get in touch with HMRC with my bank statements to prove this? I thought that could be fairly easily resolved.

I'm obviously expecting a discovery assessment to come through at some point for the year I was actually in the scheme but I can pay that when it does.

[regron]

Thank you for your reply.

I think I'm in a different boat to many here as this discovery assessment was actually issued totally incorrectly - I was in a scheme but only for 1 year and it wasn't the year they issued it for. Can I not get in touch with HMRC with my bank statements to prove this? I thought that could be fairly easily resolved.

I'm obviously expecting a discovery assessment to come through at some point for the year I was actually in the scheme but I can pay that when it does.

In that case I think you would be better off getting professional advice.

[Clairol]

The threads are filling up with stories of unexpected bills arriving from HMRC.

Whilst there is no substitute for getting proper advice that suits your own circumstances, the following general description may help reduce the shock.

However if you have an accountant - ask her/him for help. If you don't then Google is your friend.

You could ask the promoter of the scheme you used for help, but bear in mind that they may be neither personal tax specialists nor be acting just for you.

Discovery assessment

Chances are you have a discovery assessment. The letter will mention section 29 TMA 1970. HMRC issue these where they consider a liability has arisen and they are too late to open an enquiry The time limit is 4 years from the end of the year of assessment. Hence 2012/13 assessments are being issued now, before the end of this tax year.

What is or is not a discovery is a long and complicated answer that I'm not going to cover here. Suffice to say that HMRC uses them as a blunt instrument, claiming that they have universal application. That is just not true.

What can you do about them?

You can make an appeal and have the tax postponed whilst you agree the actual liability.

You MUST do this within 30 days. The letter that came with the assessment will tell you how to do this.

Then what happens?

You have to agree the liability with HMRC.

You have 3 choices.

1. Accept HMRC's view of the liability which is basically any loans you received are income subject to tax and NIC and that some of the fees you paid to the promoter may also be seen as taxable income.

2. Litigate. You can go to Tribunal and mount a challenge to HMRC's view. Best done in a group as costs can be high. You will need to find a group and usually these are collated around particular advisers. It depends on the scheme used as to which adviser is best placed to do this. Ask the promoter if they know of any groups. If there is no group - start one.

3. Settlement via discussions. Most advisers will be able to speak with HMRC and make some progress towards a settlement. Be under no illusions here though. HMRC is playing hard ball and achieving reductions based on doing nothing with the arrangements, is unlikely to see any discount to the tax/NIC being asked for. The adviser will however be able to check your personal circumstances and make adjustments as required. Some have plans that may or may not result in a reduction of the bill. None of those plans is a guarantee of a reduced bill. You need to evaluate them with a cynical mind.

If I appeal and sit tight, what then?

HMRC has introduced a sweep up tax charge in 2019. Basically if you have loans from a disguised remuneration scheme that are not repaid by 5/4/19, HMRC will add the balance to your income and tax you.

And yes, they will know in the majority of cases what the loan balance is and if they don't they will ask you. As a rule, never lie to HMRC. That is just not sensible.

Understood - what do I do?

Get advice.

I'm sure people will be along here pointing out my connection with a firm that advises in this area. This is true.

There are others and a few minutes on Google will show them to you.

The first steps mentioned above - appeal and postpone tax - can be done by following the instructions in the HMRC letter and will cost you nothing. Only if you want to go on and understand and deal with the agreement of liability etc as described above, would you need advice.

Remember that HMRC would be happy to "help". Whilst I have a view on the ability of the person you might get through to on the phone to understand the position and offer unbiased help, they are there and they work for free.

In summary:

Deep breath.

Read the whole letter.

Make an appeal and postponement application.

Get advice.

What are these plans please and do any work?

"Some have plans that may or may not result in a reduction of the bill."

[Iliketax]

What are these plans please and do any work?

"Some have plans that may or may not result in a reduction of the bill."

My personal view is that these so called "plans" will put you in a much worse position as far as the April 2019 loan charge is concerned. That may not be what you want to hear. But I think that is a very fair assessment. And I've put "plan" in quotes as not even Baldrick would call them any of them one.

In short, there are at least three reasons for that:

1. HMRC have included a lot of targeted anti-avoidance legislation that stops "plans" that try to side step the rules working. They are updating these when they hear of new "plans". My view is that these "plans" never worked in the first place but it's like HMRC are double underlining some stuff to make sure people can see it doesn't work. I would also expect that HMRC get feedback on the dodgy schemes that people try to promote to them.

2. HMRC have a lot of information on who has these loans. Clearly they have this for open years but they will also have some information for other years. They have also substantially beefed up what individuals with loans have to tell them after April 2019 (and this will mean that they get more information to follow up with). Every time there is a settlement for a scheme that they had no information on, they will add it to their list and find out more.

3. The general anti-abuse rule (GAAR) is in place. This basically says that if you try to do something that gets around this type of legislation then it is ignored. There are now penalties of 60% of the tax that you avoided where GAAR applies. This is a serious piece of legislation with scary consequences. I am seeing HMRC start to ask people about the implications of these rules in my day job.

I am not aware of any firm suggesting that their clients enter into a "plan" to get around the 2019 loan charge. By "any firm" I mean any firm that I know the name of (and I believe that I am reasonably well connected). My expectation is that any firm that is publicly named would get reported by HMRC to their regulator under the "Professional Conduct in Relation to Taxation". There will of course be many unnamed firms on internet forums who are described as "reputable" who have "plans" but that is a bit like having a chocolate teapot.

In the "good ol' days" there was very little downside of taking part in a tax avoidance scheme (other than eventually having to pay the tax if it didn't work, fees for implementing it, interest on late tax and the mental hassle of HMRC challenging them). That is not true with the April 2019 loan charge. A 60% minimum GAAR penalty and accelerated payment notices (pay now, argue in court in five years time), together with penalties for misreporting and the risk of what you having been told as being "QC approved" is actually a sham or fraudulent.

I think that there is also some confusion about the implications of settling old loans. If tax is paid on the loans (e.g. in respect of open or closed years) then the April 2019 loan charge won't apply. Similarly, if you agree payment terms for historic years with HMRC then the April 2019 loan charge won't apply. The existing legislation is very clear and HMRC have made clear that there is no intention of double tax. More details on settling are being published by HMRC later this year but there is nothing to stop you approaching HMRC now.

The only plan I know that means that there is no April 2019 tax charge is to repay the whole of the original loan (assuming it was not made in a depreciating currency). But that will cost you more than the tax and so in a contractor-type of situation is just silly. Also, it won't change the position for open years and so is even more silly. And if the promoter of the "plan" arranges finance or there is some "plan" to get your money back later then that either creates another tax charge or means an extra 60% GAAR penalty on top of the tax (and any normal penalty on the tax). But don't worry, total penalties are restricted to 100% of the tax (and you pay the tax and interest on late tax).

To give you an example of the kind of "plan" I have seen:

1. You become an employee of the trustee that lends you money. That was said in a public conference by a barrister and HMRC changed the draft legislation to make clear it didn't work.

2. The trust buys an "option" that is almost certain to lose money equal to the outstanding loan (like anyone in the real world would!). You buy a "bet" that is almost certain to "win" money equal to the loan (but no one in the real world would "bet" with you on these terms). So the only "net" winner here is the people charging fees. You "win" and "because it is a bet it is tax-free". You use the money to repay the loan to the trustee. The trustee uses the cash from that to pay the loss on its option. If it accidentally goes wrong (i.e. the trustee wins and you lose) you double your money and do it again (and again, and again until you win). HMRC did not think about changing the legislation for this. In fact, I think I heard that a couple of guys in the policy team had to go to hospital because they broke their ribs laughing so much. And just in case you (and the trustee) are tempted to go to Ladbrokes to have a go at this, you may want to think about how many lots of tax you will have to pay (ignoring the penalties its potentially many multiples of just paying the tax) because it does not work.

So while I sympathise with your position, I think that it is safe to assume that none of the "plans" will actually work.

[ChimpMaster]

Clairol, many people are confused and unsure of how to proceed. HMRC's rhetoric and lackadaisical attitude on this subject have been the cause of the ambiguity over the past 15 years or so. Not to mention their time machine.

But now HMRC have made it very clear and very simple. To repeat what I said in another thread:

All reports post to April 2019 loan charge becoming law.

One way or another the tax will have to be paid.

So if you're not sure what to do now, just wait until 2019 and pay the tax then.