Overdrawn Capital Account Scheme (Aston Mae / Glen Mae / Procorre)

[cojak]

My curiosity if Procorre has never gone away. Even today they have a pretty glossy website full of words but lacking in any substantive information whatsoever. If you have actually managed to work out how this outfit works, I'd love to hear about it. I can well understand why the more naive amongst us have been taken in by them. For a while a rep posted at CUK. True to form, many words and no actual information was posted by them.

Do you mean this thread Fred?

https://forums.contractoruk.com/busi...onsulting.html

[Fred Bloggs]

Do you mean this thread Fred?

https://forums.contractoruk.com/busi...onsulting.html

Indeed. So many words. So little information. I'll say this for them, they are masters of obfuscation. Really, who ever they are, they should run a political party. Their website is a master piece of content over substance.

[Telco7676]

Thanks for all the information, you rightfully raise many questions that anyone here with the same issue need to get to the bottom of before making any further decisions or payments. Hopefully we can get some facts soon.

1. Are the Glen May LLP and Procorre LLP's Opaque or Transparent?
In addition the Singapore LLP Act link you shared I found this link for income tax rules for Singapore LLP's - does this imply it's Transparent based on sections 5, 7 and 8? If this is the case, then it does beg the question of the benefits of being registered in Singapore over the UK which makes me think Opaque and hence why the urgency to buy a stake in our LTD companies now?

file:///Users/rakesh/Google%20Drive/Documents/Working%20Documents/Rakesh/RPC&M/Procorre/etaxguides_IIT_Income%20Tax%20Treatment%20of%20LLP s_2014-03-01.pdf

Does anyone know the answer to this?

2. Is it just a coincidence that contractors were told that as a result of Procorre LLP acquired the assets of Glen May LLP in March/April 2017 given the new DR rules came into affect from 6th April 2017? Or is there a difference in the Glen May LLP and Procorre LLP set-up on how these changes bite before and after 6th April 2017?

3. As you mention although we called partners, are we really partners or employees? If employees, I suspect the LLP will be liable for ensuring the correct taxes have been paid as what we have received to date could be deemed to be net income?

OK. I'm going to waste some of my time writing some stuff on this. I would suggest that if you think it might be relevant to you then you should talk to a competent independent tax adviser about whether it is actually useful to you. The main reason for me writing this is so that you can have an informed discussion with your competent tax adviser based on your own facts and circumstances. I also like the sound of my own voice.

I should start by saying I know little about the details of the overdrawn capital account schemes. I have never seen any docs for any of those mentioned here (and I don't want to see any). I don't advise contractors. But I do know about disguised remuneration and I do know about partnership tax.

The self-employed DR rules are different to the employee ones. But their objective is the same. They look at "outstanding" loans that were made between 6 April 1999 and 5 April 2017. If five conditions are satisfied then the amount of the outstanding loan is taxed as trading income. Some of you may have spotted that I said 5 April 2017, not 2019. That's because the self-employed DR rules already catch payments (including loans) made since 6 April 2017 that satisfy those five conditions. If an amount is within these rules then you pay income tax and self-employed NIC.

So there are five conditions (that I have simplified). If you want to follow along, have a look here: Finance (No. 2) Act 2017

A. You are carry on a trade alone or in partnership.

B. There is an arrangement connected to your trade and it is reasonable to suppose that it is concerned with "relevant benefits" (e.g. a payment of cash by way of an overdrawn capital account).

C. You get a payment (i.e. some cash).

D. There is a qualifying third party payment. This will be the case if your end user pays the LLP for the services you have provided.

E. There's a tax advantage (e.g. the cash from the overdrawn capital account is not taxed but if you'd got a profit share first then you would have paid tax).

So sounds like a slam dunk. You are in this legislation. If you want to read the April 2019 loan charge bit, have a look here Finance (No. 2) Act 2017 and here for the reporting obligation: https://www.legislation.gov.uk/ukpga...dule/2/enacted

So this is where is gets a bit more interesting. Why do you think you are carrying on a trade in partnership? Well if you are carrying on a trade if you are a partner in a general partnership because that is really a partnership. But that's not relevant to these schemes.

You are also carrying on a trade if you are a member of a UK LLP that is carrying on a trade [and the salaried member rules do not apply]. This is because UK tax legislation specifically says that you are (see s863 ITTOIA 2005). Without that deeming rules, a UK LLP would be treated like a company.

If you are an employee of a trading company then the company is carrying on a trade but you are not. You are just an employee.

But what if you are a partner of a non-UK LLP? Are you a partner? Are you an employee? Forget that you might be called a "partner", employees at John Lewis are called partners. It's what your real status under UK tax law that matters.

Before going into that, some entities are treated as "opaque" for tax purposes. This means that the entity is treated as being separate from its owners for tax purposes. So a company is taxed on its profits, not the shareholders. If a shareholder works for a company, they will be an employee/director. This is different from a "transparent" entity. The profits of such an entity are taxed on its owners. For example, a UK LLP is transparent and its owners, the partners, pay tax on its profits. Those partners are not (absent special rules) taxed as employees/directors.

You might want to show your tax adviser page 4 of the attached which confirms what I have said: https://assets.publishing.service.go...mber_rules.pdf

So what about a non-UK LLP. That depends. Some like a Luxembourg SCSp will be treated as transparent for tax purposes. Others, like a Kazakhakstan LLP will be treated as opaque. HMRC publish a very incomplete list here: https://www.gov.uk/hmrc-internal-man...ual/intm180030

I don't know enough about the LLPs mentioned here (and the Singaporean company register is down for maintenance) but let's pretend that one of them is a Singaporean LLP. Is that opaque or transparent? If it is transparent then the self-employed DR rules will bite. If it is opaque then you would have been an employee and so the self-employed DR rules won't apply. But the employee DR rules would apply. Is that so bad though? The employee DR rules don't actually apply to loans from your employer. And it gets a lot more interesting about who has to pay any tax if the overdrawn capital is treated as income. I'm not going to go into that here though. That's something that you can talk to your own tax adviser if it may be relevant.

If you then look at the Singaporean LLP Act https://sso.agc.gov.sg/Act/LLPA2005 then you will see that a Singaporean LLP is a body corporate that is liable for the debts that it has. So skimming through that Act, to me, it suggests that such an LLP is opaque. But I might be wrong. If I am right (and your tax adviser will want to do some thinking on that and probably want to get HMRC to confirm that) then you will be an employee and not a partner. So no trade, means no self-employed DR rules.

Obviously these LLPs may not be a Singaporean LLP and then you'd have to do some thinking with your tax adviser.

Whatever you do, take independent tax advice from someone who is competent before doing anything.

[Iliketax]

Thanks for all the information, you rightfully raise many questions that anyone here with the same issue need to get to the bottom of before making any further decisions or payments. Hopefully we can get some facts soon.

1. Are the Glen May LLP and Procorre LLP's Opaque or Transparent?
In addition the Singapore LLP Act link you shared I found this link for income tax rules for Singapore LLP's - does this imply it's Transparent based on sections 5, 7 and 8? If this is the case, then it does beg the question of the benefits of being registered in Singapore over the UK which makes me think Opaque and hence why the urgency to buy a stake in our LTD companies now?

file:///Users/rakesh/Google%20Drive/Documents/Working%20Documents/Rakesh/RPC&M/Procorre/etaxguides_IIT_Income%20Tax%20Treatment%20of%20LLP s_2014-03-01.pdf

Does anyone know the answer to this?

2. Is it just a coincidence that contractors were told that as a result of Procorre LLP acquired the assets of Glen May LLP in March/April 2017 given the new DR rules came into affect from 6th April 2017? Or is there a difference in the Glen May LLP and Procorre LLP set-up on how these changes bite before and after 6th April 2017?

3. As you mention although we called partners, are we really partners or employees? If employees, I suspect the LLP will be liable for ensuring the correct taxes have been paid as what we have received to date could be deemed to be net income?

1. Singaporean tax rules are not relevant. A Singaporean LLP is transparent for Singaporean tax purposes. But that has nothing to do with UK tax.

2. I've no idea. I don't know what the facts are.

3. You may be right. I don't know the facts. You may still have got loans, the redirected earnings principles may not apply and there may be a tax charge now if the loans are repaid. If I was in this sort of position, I'd be arguing that the payments made were just a payment of earnings. But that's where you need to take your own independent advice based on your own facts.

[Telco7676]

Ok thanks, any suggestions other than finding a tax expert on LLP's to find out if HMRC will classify Glen May LLP and Procorre LLP as opaque or transparent based on page 4 rules?

The first possibility is that the entity is a person distinct from the members, and
that the entity rather than the individual member is liable for any debts owed.
These are referred to as"opaque".

The second is that the laws of the territory under which the entity is formed
confer limited liability on its members if set conditions are met. These are
referred to as "transparent"

1. Singaporean tax rules are not relevant. A Singaporean LLP is transparent for Singaporean tax purposes. But that has nothing to do with UK tax.

2. I've no idea. I don't know what the facts are.

3. You may be right. I don't know the facts. You may still have got loans, the redirected earnings principles may not apply and there may be a tax charge now if the loans are repaid. If I was in this sort of position, I'd be arguing that the payments made were just a payment of earnings. But that's where you need to take your own independent advice based on your own facts.

[webberg]

Not sure what you want here?

Iliketax is an expert and he/she has given you an analysis of the position based on what is known.

Given the nature of the subject - it's very technical and very detailed and probably very specific - I very much suspect that a non tax expert is going to be of much help.

If you take this to HMRC, chances are you'll get the analysis that generates maximum tax.

Those behind Glen May and its cousins are conflicted and will give you advice that suits them.

I'm afraid that you will need a tax expert.

[Dell]

Not sure what you want here?

Iliketax is an expert and he/she has given you an analysis of the position based on what is known.

Given the nature of the subject - it's very technical and very detailed and probably very specific - I very much suspect that a non tax expert is going to be of much help.

If you take this to HMRC, chances are you'll get the analysis that generates maximum tax.

Those behind Glen May and its cousins are conflicted and will give you advice that suits them.

I'm afraid that you will need a tax expert.

Does anybody know or use a tax expert or consultant or advisor who can deal with all of this then? I have multiple years with both Glen May and Procorre...

[nucastle]

I would have said that not being able to get a copy of the partnership deeds, a set of partnership accounts at any given time, having any actual influence or anything even vaguely 'partner' related were fairly opaque

Whether this when presented to HMRC in the proper way, has any weight behind it of course, is the million dollar question.

[Iliketax]

Ok thanks, any suggestions other than finding a tax expert on LLP's to find out if HMRC will classify Glen May LLP and Procorre LLP as opaque or transparent

Have a look here for HMRC guidance on it; https://www.gov.uk/hmrc-internal-man...ual/intm180000

There's a phone number here: https://www.gov.uk/hmrc-internal-man...ual/intm180020

If it was me, I'd phone them and explain your situation and have a chat and see what they say. They may have been asked to consider a Singaporean LLP before and will have the answer straightaway (and ask them to confirm by email if they say opaque). They probably won't know about the April 2019 loan charge though. And when I say "chat" I mean, "chat". Try to build a friendly relationship with them, explain that you feel niave about it and that you feel vulnerable about you status. You've seen some stuff in HMRC's guidance (mention page 4 that I linked to) and see how it goes. If they're not sure, ask to speak to a colleague. Say that you can access the Singaporean LLP Act online and can chat it through with them to see if they can help you come to a view. Make it clear that you are not going to hold them to that view, you just need some help before getting proper tax advice. If you go in hard, you may not get help. If you know someone who can do this better than you, do it together (my husband is really worried, can you help us...). But it's got to be worth a go.

Oh, and if you can't get hold of them on the phone send them an email asking when would be good to talk. You want to do the chatty bit by phone.

In terms of tax expert on LLPs, I can't give a recommendation (and I don't advise contractors). I would say it is a bit of a niche sport (whether an LLP is opaque or transparent) and most tax advisers probably won't know where to start. So when you talk to them, give them the bits I have linked to and use that to help them work out what to do next.

One thing that may not be helpful is to go down the non-statutory clearance route unless you have got the LLP Agreement. Without that, HMRC probably won't answer a non-statutory clearance.

[Iliketax]

I would have said that not being able to get a copy of the partnership deeds, a set of partnership accounts at any given time, having any actual influence or anything even vaguely 'partner' related were fairly opaque

Whether this when presented to HMRC in the proper way, has any weight behind it of course, is the million dollar question.

I would say that would be a helpful factor, especially if it ever gets to the FTT. One of the phrases I like is "viewed realistically" and I certainly would be making very clear that, viewed realistically, I was not carrying on a trade as a self-employed person.