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

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    Originally posted by woody1 View Post

    Is that because it's being subjected to the Loan Charge?

    One of the bad things about the LC is that all the loans are taxed in a single year, not in the years you received payments, thereby pushing more of the income into the higher rate bands. (I'm guessing you received more than 14k over the years, perhaps the 220k in total?)

    If it is the LC, then I'm not sure you've got a lot of choice other than to settle. If you can't come up with the money in one go, you could ask for a payment plan (time to pay).
    Yes, I suspect it is being subjected to the Loan Charge, but that's my point, I absolutely did NOT receive more than the £14K via the Overdrawn Capital Account prior to the acquisition in Dec 2017.

    Prior to signing up with Procorre at the start of 2017 I ran a standard Ltd company paying myself in salary and dividends. I received a few payments in early 2017 into my Personal account via the ODCA before stopping them, as I was having some cashflow issues at the time, so I put the partnership on hold. Procorre then contacted me and started the discussions around the Acquisition and in the meantime I resumed receiving funds via the ODCA from Sept and up until Dec 1st 2017.

    By Dec-17 I had signed the paperwork, share transfer documents etc and completed the acquisition. At that time, I enquired with Procorre what tax needed to be paid on the £14k funds received via the ODCA in 2017 and they said "it had been reconciled by themselves and I did not have to declare it". Why my accountant didn't raise a red flag to that, I have no idea.

    Over the next few years, up until I terminated my partnership with Procorre in Apr 2021, I had received circa £194k in "earn out" payments into my personal account. I had always assumed these were completely legitimate and I had paid CGT on in April 2019 on the £220k valuation in anticipation of these earn-outs being received.

    Up to Apr 2019 I had received around £78k in earn out payments
    By Apr 2021 I had received another £114k in earn out payments

    I guess it is HMRCs claim, that the acquisition is bogus, despite the paperwork of share transfer etc. If HMRC are saying the entire acquisition was not legitimate, then I assume these funds will have to be treated as income (unless I go to tribunal to argue), but I don't understand why I would have to pay tax on the full valuation for the year ending April 2019 and not in the actual years they payments were received i.e. 2019 - 21? I get it for the years 2017 - 19, but not after 2019. That is very confusing to me.

    Graham Webber had written another post a week ago that relates to this. I'm not sure if it is good news or not though - https://www.linkedin.com/feed/update...7937045532674/

    Comment


      Originally posted by mightyspur View Post
      I guess it is HMRCs claim, that the acquisition is bogus, despite the paperwork of share transfer etc. If HMRC are saying the entire acquisition was not legitimate, then I assume these funds will have to be treated as income (unless I go to tribunal to argue), but I don't understand why I would have to pay tax on the full valuation for the year ending April 2019 and not in the actual years they payments were received i.e. 2019 - 21? I get it for the years 2017 - 19, but not after 2019. That is very confusing to me.

      Graham Webber had written another post a week ago that relates to this. I'm not sure if it is good news or not though - https://www.linkedin.com/feed/update...7937045532674/
      It sounds like HMRC have deemed the acquisition as a taxable event under the Loan Charge, and then used this to tax the full valuation in the 2018/19 tax year.

      If, as Graham says, HMRC are reviewing the settlement terms, then they ought to put on hold the "settle or appeal to tribunal" notices that they've already issued to people like yourself.
      Last edited by woody1; 28 February 2024, 09:16.

      Comment


        Originally posted by woody1 View Post

        It sounds like HMRC have deemed the acquisition as a taxable event under the Loan Charge, and then used this to tax the full valuation in the 2018/19 tax year.

        If, as Graham says, HMRC are reviewing the settlement terms, then they ought to put on hold the "settle or appeal to tribunal" notices that they've already issued to people like yourself.
        Yes, I assume HMRC have done that, which is understandable for acquisitions where the total valuation is the same as the the total people had received via the ODCA prior. Considering I didn't receive the total amount my company was valued at in total earn out payments over the 3 and a bit years and only had 14k received via ODCA beforehand, it still feels incredibly unfair, as I am affectively being taxed on income I didn't actually receive.

        Comment


          Originally posted by mightyspur View Post

          Yes, I suspect it is being subjected to the Loan Charge, but that's my point, I absolutely did NOT receive more than the £14K via the Overdrawn Capital Account prior to the acquisition in Dec 2017.

          Prior to signing up with Procorre at the start of 2017 I ran a standard Ltd company paying myself in salary and dividends. I received a few payments in early 2017 into my Personal account via the ODCA before stopping them, as I was having some cashflow issues at the time, so I put the partnership on hold. Procorre then contacted me and started the discussions around the Acquisition and in the meantime I resumed receiving funds via the ODCA from Sept and up until Dec 1st 2017.

          By Dec-17 I had signed the paperwork, share transfer documents etc and completed the acquisition. At that time, I enquired with Procorre what tax needed to be paid on the £14k funds received via the ODCA in 2017 and they said "it had been reconciled by themselves and I did not have to declare it". Why my accountant didn't raise a red flag to that, I have no idea.

          Over the next few years, up until I terminated my partnership with Procorre in Apr 2021, I had received circa £194k in "earn out" payments into my personal account. I had always assumed these were completely legitimate and I had paid CGT on in April 2019 on the £220k valuation in anticipation of these earn-outs being received.

          Up to Apr 2019 I had received around £78k in earn out payments
          By Apr 2021 I had received another £114k in earn out payments

          I guess it is HMRCs claim, that the acquisition is bogus, despite the paperwork of share transfer etc. If HMRC are saying the entire acquisition was not legitimate, then I assume these funds will have to be treated as income (unless I go to tribunal to argue), but I don't understand why I would have to pay tax on the full valuation for the year ending April 2019 and not in the actual years they payments were received i.e. 2019 - 21? I get it for the years 2017 - 19, but not after 2019. That is very confusing to me.

          Graham Webber had written another post a week ago that relates to this. I'm not sure if it is good news or not though - https://www.linkedin.com/feed/update...7937045532674/
          I have no knowledge of any of this other than what you have written but I have set out some thoughts:

          1. It is likely that your shares in your limited company are "employment-related securities" (see s421B(3) ITEPA). Being an ERS brings in more anti-avoidance legislation (see Part 7 ITEPA).

          2. If you sell an employment-related for more than their market value then employment income tax is due on the excess (see Chapter 3D Part 7 ITEPA). The Supreme Court's has heard a case on this legislation (search for Grays Timber Products supreme court).

          3. The excess would be subject to PAYE and NIC. It would be your employer (i.e. your limited company) that has the obligation to operate PAYE/NIC.

          4. So the key question is what was the market value of the shares in your company? That market value is, very basically, what would a random stranger (a prudent prospective purchaser) would pay to become the owner of the shares you sold (see s273 TCGA).

          5. My guess is that HMRC would say that a purchaser would pay pretty much nothing for the shares. If they can say that then pretty much all the sales proceeds are subject to tax.

          6. Why would they say pretty much nothing? I guess that they would say that the only way that the company would get income would be if you (or someone like you) was paid a market wage and, if the company paid that, it would make little profit and so not be worth much.

          7. That's not the only answer though. HMRC could say that some or all of the earn-out wasn't really sales consideration but just earnings. Their guidance lists what they think that these characteristics are (see ERSM110940 in a slightly different context). If they did then the excessive amount would be subject to PAYE/NIC. Again, it would be your employer (i.e. your limited company) that had to pay the PAYE/NIC.

          8. They could also say that the sums that you received are taxed under the disguised remuneration rules (see s554C(1)(a) ITEPA) and no deduction is given for the value of your shares (see s554Z8 ITEPA). Again, it would be your limited company that had to pay PAYE/NIC.

          9. There's no double tax in that whatever amount is subject to employment income tax is not subject to capital gains tax. Any CGT you've paid will offset the employment income tax due.

          10. When is any employment income tax due? It will depend on the underlying documents and what route HMRC use to challenge. This could be when the cash is received (if they say that the earn-out wasn't really sales consideration or if the disguised remuneration rules did applied) or when the shares were disposed (if they say that you got more than market value). The underlying documents might push them one way or another.

          11. You say HMRC claim "the acquisition is bogus". I've no idea what that means. HMRC don't need to say anything was "bogus" or that the sale did not happen to get an employment income tax charge.

          12. In relation to the £14k that was withheld to repay your overdrawn loan account, that probably does not stop the April 2019 loan charge on that amount (see para 4 Schedule 11 F(No2)A 2017). But there should not be two lots of tax on the same amount (see the complicated double tax rules in Part 7A ITEPA).

          13. If HMRC challenge you under the excess market value rule (my point 2) or the disguised remuneration rules (my point 8) then there would be a penal tax charge too (see s222 ITEPA). This doesn't apply if HMRC challenge you under the payments just being your earnings.

          From my perspective, to be successful you would need to be able to demonstrate that a hypothetical person would have paid the same price for the shares you sold. As I say, I have no knowledge of what has happened to you or the scheme, other than what you've written.


          Comment


            Originally posted by mightyspur View Post

            Yes, I assume HMRC have done that, which is understandable for acquisitions where the total valuation is the same as the the total people had received via the ODCA prior. Considering I didn't receive the total amount my company was valued at in total earn out payments over the 3 and a bit years and only had 14k received via ODCA beforehand, it still feels incredibly unfair, as I am affectively being taxed on income I didn't actually receive.
            That's the Loan Charge for you. It can produce unfair outcomes. Imagine someone receiving £60k/year in loans for 5 years, and then finding that the whole lot (£300k) is taxed in 2018/19. The tax bill would be far higher than if the income had been assessed in each of the years the loans were actually received.

            The scheme you used was complex/convoluted (as well as contrived), as exemplified by Iliketax's analysis above.

            Is HMRC's interpretation of the Loan Charge legislation correct in this case? Who knows.

            Comment


              And from HMRC list of dodgy tax avoidance schemes

              Originally posted by cojak View Post
              One that slipped the net.

              29th February 2024:

              Abchurch Ltd

              and how the Hell did I miss this one???

              A drum roll pulease for….

              Procorre LLP!
              "I can put any old tat in my sig, put quotes around it and attribute to someone of whom I've heard, to make it sound true."
              - Voltaire/Benjamin Franklin/Anne Frank...

              Comment

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