Discovery assessment season - unexpected bills from HMRC

[Dazza]

So if you pay your tax now on the loan, theoretically the scheme promoter/trustees could demand repayment of the loan later on say in a few years time - in that case will HMRC repay our tax? Unlikely HMRC would do so we would have to fight the promoter as well, looks like we are shafted twice

[WalterWhite]

I'm not sure if I'm understanding this right so forgive me if I'm wrong.

Are the choices we either pay the e.g. £20k tax demand now or repay a £60k loan in full in 2019?

No. My understanding is that if you get through to 2019 without settling then you will be charged tax on the loan outstanding.

If you can prepare well enough so that you take very little (or no) income during that year then you will pay less tax than if you max out your tax free and basic rate allowances.

Maybe somebody else can confirm?

[EBTContractor]

No. My understanding is that if you get through to 2019 without settling then you will be charged tax on the loan outstanding.

If you can prepare well enough so that you take very little (or no) income during that year then you will pay less tax than if you max out your tax free and basic rate allowances.

Maybe somebody else can confirm?

Many people will lose the tax free allowance. In my case I'll be better off settling now.

I am hoping there will be another round of settlement opportunity.

[WalterWhite]

Many people will lose the tax free allowance. In my case I'll be better off settling now.

I am hoping there will be another round of settlement opportunity.

What happens if they are able to go the year without pulling any salary/div?

In this guys case with £60k loans that would mean the liability isn't anywhere near as bad wouldn't it?

[regron]

Many people will lose the tax free allowance. In my case I'll be better off settling now.

I am hoping there will be another round of settlement opportunity.

There already is, it's called the forced 2019 charge unfortunately.

[webberg]

So if you pay your tax now on the loan, theoretically the scheme promoter/trustees could demand repayment of the loan later on say in a few years time - in that case will HMRC repay our tax? Unlikely HMRC would do so we would have to fight the promoter as well, looks like we are shafted twice

Why would HMRC repay the tax?

HMRC thinks the loan is taxable income and not a loan at all. Subsequently, repaid or not, it remains income and tax is due.

[centurian]

Why would HMRC repay the tax?

HMRC thinks the loan is taxable income and not a loan at all. Subsequently, repaid or not, it remains income and tax is due.

^^^ This

The narrative according to HMRC is

1. You earned money
2. You didn't pay any tax on that money
3. For some very odd reason, you simply gifted away the money you earned in (1) before paying the tax in (2)
4. You then took out a loan with the same/related company as (3)

HMRC are chasing you for (2) - they are not seeking to cancel out your loan - just show you didn't pay the tax before you entered into the loan arrangement.

[dangerouswhensober]

The end of the 2016/2017 tax year

Am I correct in thinking that since yesterday (5th April) was the end of the 2016/17 tax year, then HMRC cannot issue any further Discovery Assessments for tax year 2012/2013 or any earlier years (because of the four year rule) ?

(Or have HMG and/or HMRC cunningly changed the rules yet again ... ?)

[webberg]

Am I correct in thinking that since yesterday (5th April) was the end of the 2016/17 tax year, then HMRC cannot issue any further Discovery Assessments for tax year 2012/2013 or any earlier years (because of the four year rule) ?

(Or have HMG and/or HMRC cunningly changed the rules yet again ... ?)

The 4 year rule on discovery is real.

However it is one of 3 time limits here.

The next one is 6 years and can apply if HMRC consider that you have misled them deliberately.

The one after that is 20 years and applies where fraud is in point.

We have seen several hundred 4 year assessments, perhaps less than a handful 6 year version (all challenged) and no 20 assessments. (In 40 years working in general tax, I've seen just 2 instances of 20 year assessments).

[Dylan]

They've probably got complacent as they have been told by their masters that 2019 is a silver bullet.