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

[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]

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.

[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.

[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

[dog]

Call them and speak to Leonora Miller. She will talk you through it in fine detail.

Perhaps Leonara Miller or someone else from Procorre could post on this forum to set the record straight...?

[Fred Bloggs]

Of all the schemes I've come across, this has got to be the most mind boggling.

I've read a few people's posts but gave up trying to comprehend the actual mechanics of it.

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.

[nucastle]

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.

Thank you for this post. As much as it muddies the waters even more, it's fascinating none the less.

[Loan Ranger]

Of all the schemes I've come across, this has got to be the most mind boggling.

I've read a few people's posts but gave up trying to comprehend the actual mechanics of it.

[Iliketax]

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.

[Fred Bloggs]

Call them and speak to Leonora Miller. She will talk you through it in fine detail.

Yes, of course she will. They had plenty of opportunity to do that right here and never did.