Finance Bill 2017-18 V HMRC DR Settlement Terms

[webberg]

Sorry to flog a dead horse here. But just for absolutely clarity. Loans that have been depreciated to zero and waived and the trust is closed - all those things - all long before 2011. They still create a loan charge?! I’m repeating this line of questioning only because I asked the same question of someone senior in a tax dispute team of a big 4 firm and they said it is not completely clear at present. They seemed exceptionally knowledgable of the loan charge to me, but I am obviously just a victim with no tax knowledge.

I would agree with the Big 4 and say it's not at all clear.

A strict interpretation of the position might be that as no loan existed at March 2016, then no DR charge can apply.

However, HMRC has made it clear that the intention of the law is to tax amounts received as a "loan" which, in their opinion, should have been regarded as employment income.

They therefore say that a loan that has been treated like a loan and repaid in cash is probably not and certainly for the purposes of the DR charge, not employment income.

By implication, all other forms of credit and loans which have not been repaid in cash as within the scope of the charge. This includes loans made in non sterling currencies at their original value.

The intention seems to be to eliminate from the equation depreciation caused by another currency falling against sterling.

However does the above hold good only for so long as the loan exists at the trigger date in March 2016?

If there is no legal means for the lender to recover the "loan" at that time, does this mean that there is no loan?

Would HMRC try to argue that the anti avoidance clause in the DR charge, that allows them to ignore reductions in loans as a result of another avoidance scheme, could apply even where the "avoidance" occurred before March 2016? I think not but would not be surprised to see this attempted by HMRC.

Unfortunately therefore whilst you are seeking clarity and certainty, I think there is little to be had on this point until it becomes a real one for many people.

[webberg]

so i declare bankruotcy, my money goes to the trust, (the trust acting in my best interests pays the money into my pension (salary sacrifice) and its a job done? Sign me up?!?

The trust was not your employer and therefore did not pay you a salary and therefore you cannot sacrifice it?

[webberg]

What would the position be if the trustees can not be contacted/folded/dissapeared?

The trust cannot disappear without a legal process.

Where a trustee resigns or is removed or becomes bankrupt, the assets will pass to another trustee to be administered.

You therefore need to track the transfer of assets from the former to the present trustee.

We've done this in a lot of cases and have come up blank just once.

[webberg]

What HMRC said to me in the first assessment they sent me (I haven't checked any others) was:

...this assessment brings into charge further sums that you received .... although described as loans I believe these sums relate to your professional in the UK and are taxable income ....

That, to me, is saying that HMRC believe the loans were not loans.

What HMRC decide for tax purposes is a loan or is not a loan and what contract law may decide is a loan or not a loan, will not necessarily coincide.

[Iliketax]

Sorry to flog a dead horse here. But just for absolutely clarity. Loans that have been depreciated to zero and waived and the trust is closed - all those things - all long before 2011. They still create a loan charge?! I’m repeating this line of questioning only because I asked the same question of someone senior in a tax dispute team of a big 4 firm and they said it is not completely clear at present. They seemed exceptionally knowledgable of the loan charge to me, but I am obviously just a victim with no tax knowledge.

As you've described it, yes.

What bit did she say is not completely clear about whether the loan is 'outstanding'? And why did she say it is not clear?

I a lot of respect some of the senior people in the tax dispute teams of the big 4. They have a great deal of experience dealing with HMRC. But I know that very few of them would have had a look at the detailed April 2019 loan charge legislation. If your individual has spent time doing that, then I'd love to know what is not clear. Or if they know some facts that you have not mentioned (e.g. that you had repaid the loan in 2009 using the proceeds of a binary option over a combination of Lei, Soums and Roubles that you had sold forward) then I'd love to hear them.

Just to reinforce things, the April 2019 loan charge could be better described as a tax charge on an arithmetical difference. Whether that happens to coincide with what you actually owe someone is neither here nor there.

The amount 'outstanding' is basically given by a formula as follows (just to be clear, the legislation does not actually set out a nice little formula like this):

Outstanding = Principal (calculated using the sterling rate when the loan is made) - actual repayments made in sterling - actual repayments made in foreign currency (calculated using the sterling rate when the repayment was made)

It is prescriptive in that repayments must be calculated using the "value in sterling on the date [the repayment] is made". There is nothing about 2011 in there. There is nothing about waivers in there. For the avoidance of doubt, there are extra rules that limit what can count as a repayment. There are also extra rules that prevent a double tax charge if you have already paid tax on the same amount.

So before you talk to her again, read up on it and understand what is happening so you can understand her answer. And then question her on it.

You can read HMRC's view of loans in a depreciating currency - https://www.gov.uk/hmrc-internal-man...anual/eim47065

And your can read a bit more about 'outstanding' here - https://www.gov.uk/hmrc-internal-man...anual/eim47045

It doesn't matter that the loan doesn't actually exist or is not a real loan (i.e. someone has just pretended its a loan) or the trustee doesn't exist (e.g. see last line here: https://www.gov.uk/hmrc-internal-man...anual/eim47025 and the only line here: https://www.gov.uk/hmrc-internal-man...anual/eim47030)

You can read all their guidance on the April 2019 loan charge here - https://www.gov.uk/hmrc-internal-man...anual/eim47000

If you read their guidance, I suggest your read it alongside the legislation here - Finance (No. 2) Act 2017

And for completeness, you can read all their guidance on the double tax relieving rules here - https://www.gov.uk/hmrc-internal-man...anual/eim46000 (but the legislation is not all in one place)

One final thing is that I'm not saying that just because it is in HMRC's manuals it is right. It is not. I'm including the links as (i) they explain HMRC's thinking, and (ii) they refer to the actual paragraph of the legislation and so you can look at it, discuss it with your professional adviser and make up their own mind based on what you have read and what they have explained to you.

[iheartclso2]

As you've described it, yes.

What bit did she say is not completely clear about whether the loan is 'outstanding'? And why did she say it is not clear?

I a lot of respect some of the senior people in the tax dispute teams of the big 4. They have a great deal of experience dealing with HMRC. But I know that very few of them would have had a look at the detailed April 2019 loan charge legislation. If your individual has spent time doing that, then I'd love to know what is not clear. Or if they know some facts that you have not mentioned (e.g. that you had repaid the loan in 2009 using the proceeds of a binary option over a combination of Lei, Soums and Roubles that you had sold forward) then I'd love to hear them.

Just to reinforce things, the April 2019 loan charge could be better described as a tax charge on an arithmetical difference. Whether that happens to coincide with what you actually owe someone is neither here nor there.

The amount 'outstanding' is basically given by a formula as follows (just to be clear, the legislation does not actually set out a nice little formula like this):

Outstanding = Principal (calculated using the sterling rate when the loan is made) - actual repayments made in sterling - actual repayments made in foreign currency (calculated using the sterling rate when the repayment was made)

It is prescriptive in that repayments must be calculated using the "value in sterling on the date [the repayment] is made". There is nothing about 2011 in there. There is nothing about waivers in there. For the avoidance of doubt, there are extra rules that limit what can count as a repayment. There are also extra rules that prevent a double tax charge if you have already paid tax on the same amount.

So before you talk to her again, read up on it and understand what is happening so you can understand her answer. And then question her on it.

You can read HMRC's view of loans in a depreciating currency - https://www.gov.uk/hmrc-internal-man...anual/eim47065

And your can read a bit more about 'outstanding' here - https://www.gov.uk/hmrc-internal-man...anual/eim47045

It doesn't matter that the loan doesn't actually exist or is not a real loan (i.e. someone has just pretended its a loan) or the trustee doesn't exist (e.g. see last line here: https://www.gov.uk/hmrc-internal-man...anual/eim47025 and the only line here: https://www.gov.uk/hmrc-internal-man...anual/eim47030)

You can read all their guidance on the April 2019 loan charge here - https://www.gov.uk/hmrc-internal-man...anual/eim47000

If you read their guidance, I suggest your read it alongside the legislation here - Finance (No. 2) Act 2017

And for completeness, you can read all their guidance on the double tax relieving rules here - https://www.gov.uk/hmrc-internal-man...anual/eim46000 (but the legislation is not all in one place)

One final thing is that I'm not saying that just because it is in HMRC's manuals it is right. It is not. I'm including the links as (i) they explain HMRC's thinking, and (ii) they refer to the actual paragraph of the legislation and so you can look at it, discuss it with your professional adviser and make up their own mind based on what you have read and what they have explained to you.

Thank ytou all clear. I will now read all the information while I wait for CLSO2 from the HRMC.
It is best NOT to trust the big 4 when they have not read all in detail and do not haev all the facts for contracting.
HRMC have all the information on contractors since 1999 and already covered it in the manauls so a dead certainty they will WIN and NO chance for us.
Nothing about waivers in there so it must be HRMC think it is NOT improtant any way and have it all covered any way/ The deprecitaion is in there so that IS important obviously. HRMC stopepd it.
What is most important is the oustanding mechanial forumla calculations and nothing about 2011 in there so NO CHANcE chance of me winning against HRMC.

We are DOOMED clearly NO way out of this HRMC are on the ball here that is clear for anyone CLSO2 is the ONLY way/ thank god HRMC gave us a chance to avoid double tax with CLSO2.
Paying CLSO2 will not be taxed in april 2019 from tjhe kind double tax rules and anyone should do the same before it gets WORSE.

[Whysoserious]

Or if you can stomach it, file for bankruptcy.
Based on figures I’ve seen for a handful of contractors HMRC would receive around 20% of the money owed and the trust would get around 80%.

After 12 months bankruptcy term ends and you can collect your 80% of money to restart your life.

Self imposed bankruptcy has the potential to wipe clear all HMRC debt, all trust debt and after 1 year you can collect 80% of your assets/wealth via your trustees.

Might not be suitable for everyone but it’s a real option if 12 months hurt and 20% (on average) loss of wealth is acceptable.

[webberg]

Or if you can stomach it, file for bankruptcy.
Based on figures I’ve seen for a handful of contractors HMRC would receive around 20% of the money owed and the trust would get around 80%.

After 12 months bankruptcy term ends and you can collect your 80% of money to restart your life.

Self imposed bankruptcy has the potential to wipe clear all HMRC debt, all trust debt and after 1 year you can collect 80% of your assets/wealth via your trustees.

Might not be suitable for everyone but it’s a real option if 12 months hurt and 20% (on average) loss of wealth is acceptable.

For all I know the above may be correct.

HOWEVER.

Bankruptcy is a complicated business and if this is a route being contemplated I would be recommending that you take proper professional advice.

[Iliketax]

Thank ytou

Woohoo! My first fanboi. I'm so chuffed.

[stonehenge]

Or if you can stomach it, file for bankruptcy.
Based on figures I’ve seen for a handful of contractors HMRC would receive around 20% of the money owed and the trust would get around 80%.

After 12 months bankruptcy term ends and you can collect your 80% of money to restart your life.

Self imposed bankruptcy has the potential to wipe clear all HMRC debt, all trust debt and after 1 year you can collect 80% of your assets/wealth via your trustees.

Might not be suitable for everyone but it’s a real option if 12 months hurt and 20% (on average) loss of wealth is acceptable.

If you are really that intent on not paying, skip the country and start a new like somewhere else.