• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

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

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

  • cojak
    replied
    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!

    Leave a comment:


  • woody1
    replied
    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.

    Leave a comment:


  • Iliketax
    replied
    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.


    Leave a comment:


  • mightyspur
    replied
    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.

    Leave a comment:


  • woody1
    replied
    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.

    Leave a comment:


  • mightyspur
    replied
    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/

    Leave a comment:


  • woody1
    replied
    Originally posted by mightyspur View Post

    As you say, HMRC are assuming the acquisition price equates to the overdrawn capital account balance. My advisor told me the settlement they are offering, is the total acquisition price minus 16% in fees, so in my case that is £220k - 16% = £184k as income. The tax illustration they sent in March last year had the full 220k listed as income and taxed calculated off the back of that figure (and my other income received in 2019), but I thought they had perhaps revised that position, as we are now 12 months down the line, but perhaps I misunderstood and your suggestion is correct and it is still on the £220k.

    My issue though, is I had only received 14k via the OCA prior to the acquisition. If Procorre had valued my company at 14k then I wouldn't be so frustrated with all this (and alarm bells would have started ringing a little earlier)
    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).

    Leave a comment:


  • mightyspur
    replied
    Originally posted by interestedparty View Post

    Hi, can i double-check something with you please? Is it correct that the figure HMRC are assessing you on is the total valuation of the company, as was used used for the purported acquisition, minus the total fees charged to you which I understand was 16%? My understanding was that the acquisition price equated to the overdrawn capital account balance which already represented the net of total fees minus the 16% charges - so if they allow you the fees deduction then this equates to a double deduction as they'd already been deducted?
    As you say, HMRC are assuming the acquisition price equates to the overdrawn capital account balance. My advisor told me the settlement they are offering, is the total acquisition price minus 16% in fees, so in my case that is £220k - 16% = £184k as income. The tax illustration they sent in March last year had the full 220k listed as income and taxed calculated off the back of that figure (and my other income received in 2019), but I thought they had perhaps revised that position, as we are now 12 months down the line, but perhaps I misunderstood and your suggestion is correct and it is still on the £220k.

    My issue though, is I had only received 14k via the OCA prior to the acquisition. If Procorre had valued my company at 14k then I wouldn't be so frustrated with all this (and alarm bells would have started ringing a little earlier)
    Last edited by mightyspur; 26 February 2024, 10:00.

    Leave a comment:


  • woody1
    replied
    Originally posted by eek View Post

    The previous person references the "Procorre cleanse scheme' and it's very possible that all he is talking about is the consequence of that scheme and there are still other Procorre schemes where HMRC believe money is owed.

    And you only have to look at Dan Neidle's report on Property 118 (https://taxpolicy.org.uk/2023/09/22/amazing/) to see how 1 bad decision can result in HMRC getting multiple bits of the same cherry.
    Unfortunately, it's a bit Hobson's choice in this case. It's either accept HMRC's settlement offer, or go to tribunal. And the clock is ticking to decide.

    Leave a comment:


  • interestedparty
    replied
    Originally posted by mightyspur View Post
    Had a chat with my advisor, who have said that HMRC have a very strict settlement arrangement based on their understanding of the "scheme". If I try to argue how I should be handled differently, they will simply refuse my settlement offer and I will have to go to tribunal to argue my case. Their interpretation of the Procorre cleanse scheme, is the amount that my company was valued at, is all to settle previous loans received, so the only settlement they are offering is the total valuation, minus 16% in the fees Procorre charged and the rest is considered income and that is what I have to pay the income tax on.

    They are ignoring the fact I actually only received circa 14k prior to the acquisition and to top it all off, if I decide to go ahead and pay that, there is still the likelihood they will also come after me for the actual money I did receive in the following years as earn outs payments. So I'll pay tax on income I didn't receive, then have to pay income tax on the actual payments I did receive and have already paid CGT on. Life gets better and better.
    Hi, can i double-check something with you please? Is it correct that the figure HMRC are assessing you on is the total valuation of the company, as was used used for the purported acquisition, minus the total fees charged to you which I understand was 16%? My understanding was that the acquisition price equated to the overdrawn capital account balance which already represented the net of total fees minus the 16% charges - so if they allow you the fees deduction then this equates to a double deduction as they'd already been deducted?

    Leave a comment:

Working...
X