Finance Bill 2017-18 V HMRC DR Settlement Terms

[starstruck]

If anyone is interested, this is a recording of a webinar that HMRC did yesterday on "Disguised Remuneration: How to settle your tax affairs if you are in a contractor loans scheme" https://attendee.gotowebinar.com/rec...67266583308035

It gives HMRC's view as to settlements and has slides showing some comparison numbers. After a bit there are a lot of questions and answers. Don't get too excited listening out for an answer to the IHT issue (the question is probably asked 5,456 times but the answer is always "it depends").

There is a bonus point for guessing in advance how many different ways you can try to say "remuneration" (I bet someone wishes that they had called them disguised pay schemes).

Thanks ILikeTax, see what you mean about remuneration, you'd think the lady might have practised saying it before the session!

So, I'm curious about this question.

Q: If a third party has advised the loan has been written off does that avoid the loan charge?

A: Certainly loan write offs have been brought within part 7A after the first Finance Act in 2017 but I would strongly advise anyone who is just simply told by a third-party to investigate further about any write off of loan or any claim that the loan has been repaid because certainly we’ve made it quite clear that post the budget in 2016 we expected it to be a cash repayment of the loan and if anyone uses a different avoidance scheme or has used a different avoidance scheme that claims to have repaid that loan that HMRC will ignore that.

When I read that he seems to be saying write offs before 2016 are ok. What are your thoughts?

Also, what do you think about loans waived before 2011 (when DR rules came in, I think)?

[ChimpMaster]

It's a pity that some of the more interesting questions from the audience, us included, apparently didn't make the cut and never got asked.

Ah well, sure that was just an oversight.

The presenters barely had the ability to speak, let alone coherently put together an answer to any questions not within the remit of their script. A couple of 8 year olds could have read those slides and come out with the same impact.

[ChimpMaster]

Thanks ILikeTax, that was an interesting meeting to listen in on.

It was interesting that HMRC said that "Settling will give your clients certainty and peace of mind".

I know Webberg does not agree with this view. And I can see why.

I am sure everyone is keen to reach a point of certainty. I wonder why HMRC believe this is the case with CLSO2.

[webberg]

The presenters barely had the ability to speak, let alone coherently put together an answer to any questions not within the remit of their script. A couple of 8 year olds could have read those slides and come out with the same impact.

I think that might be insulting most of the 7 year olds out there?

[Boobetty]

Do not make the error of thinking the loans do not exist - they do.

What about if the loans were made by trustees who were fully aware they would never get repaid.

[Iliketax]

My take on the webinar:

1. It's good that HMRC went to the effort to communicate with people.

2. It was pretty poor from the perspective of the performance (different people in different rooms with poor telephones, lack of coordination between them in answering questions, person reading out the questions was not knowledgeable on the subject and so couldn't sort them / order them / read them in a way that made sense, losing your cool at one stage).

3. It is clear that HMRC are encouraging people to settle. It is clear that they think that the April 2019 loan charge is a big stick with which to encourage people to settle. I think that they are right about that. They also recognise that in some cases people will be better off financially settling.

4. They are convinced that there is no double tax (income tax being the tax here). This is based on what the legislation actually says. HMRC's detailed published guidance is also very clear on this. My view is that (unless you do something very contrived to try to get out of the April 2019 loan charge) this is right.

5. They are very clear that it will be easier to get time to pay with a settlement rather than with the April 2019 loan charge. If you are in need of time to pay, that to me is a huge plus point. They didn't say how long that could be.

6. They were not at all clear on the IHT position. I think that there are two reasons for this: (i) it is very fact specific, and (ii) they are not IHT experts and so not confident enough to talk about it in any detail.

7. They are clear that they believe that a settlement puts things to bed. I think I remember them saying that they cannot guarantee that there won't be future changes to legislation by a government (but I'd lost the will to live at the stage). But that is the same (in my view negligible) risk as if you pay the April 2019 loan charge. Realistically, new legislation (other than to plug any perceived loopholes) is not going to happen. In the HMRC schema (i.e. it is earnings at the start and so you should have paid tax at the start vs its really a loan and so you pay tax now because you don't really have to pay it back or else you would have done so by April 2019) then there is no need for a new tax charge.

8. They were as clear as they can be that you won't get penalties if you settle. Again, I was surfing ebay at that time, but I think that they caveated that by saying that they couldn't guarantee no penalties because they don't know what has actually happened. But for a normal contractor scheme where is was reasonably-ish implemented, I don't see that being a risk at all.

9. They are clear that they believe settling will give more peace of mind. I think that they are right on that.

What would I say to my clients? Absolutely nothing as I don't advise contractors. What am I doing? Absolutely nothing as I don't have any loans. What am I going to tell my mates at HMRC? I don't work there and have never done so.

What should you do? My personal view is that settling wins hands down in almost all circumstances for a number of reasons (normally less tax is due, peace of mind and time to pay). I would want to understand the IHT position before settling though (not that you will be able to influence that too much / at all, but to get a full understanding as to what is happening). The only realistic time I can think it would be better not to settle is if you could make massive personal pension contributions in 2018/19 (and you are not going to be caught by the LTA or AA and you are not going to be a 45% taxpayer in retirement (and if you expect to be 40% taxpayer then needing to use a spreadsheet to work things out means settling is probably best) and not if your company make the contributions). If you can't afford to settle then I'd be talking to HMRC about that and getting time to pay. If they say no, you don't settle and then repeat the conversation in respect of the April 2019 loan charge.

I would also suggest taking specific personal tax advice based on your own facts and circumstances. But you will need to choose carefully to make sure that they are not linked to the promoter, don't have a personal agenda and do actually understand what this is all about (and few will understand the legislation in any detail at the moment and few will understand how the scheme you were involved in was actually structured and what actually happened).

[phil@pmtc]

My take on the webinar:

1. It's good that HMRC went to the effort to communicate with people.

2. It was pretty poor from the perspective of the performance (different people in different rooms with poor telephones, lack of coordination between them in answering questions, person reading out the questions was not knowledgeable on the subject and so couldn't sort them / order them / read them in a way that made sense, losing your cool at one stage).

3. It is clear that HMRC are encouraging people to settle. It is clear that they think that the April 2019 loan charge is a big stick with which to encourage people to settle. I think that they are right about that. They also recognise that in some cases people will be better off financially settling.

4. They are convinced that there is no double tax (income tax being the tax here). This is based on what the legislation actually says. HMRC's detailed published guidance is also very clear on this. My view is that (unless you do something very contrived to try to get out of the April 2019 loan charge) this is right.

5. They are very clear that it will be easier to get time to pay with a settlement rather than with the April 2019 loan charge. If you are in need of time to pay, that to me is a huge plus point. They didn't say how long that could be.

6. They were not at all clear on the IHT position. I think that there are two reasons for this: (i) it is very fact specific, and (ii) they are not IHT experts and so not confident enough to talk about it in any detail.

7. They are clear that they believe that a settlement puts things to bed. I think I remember them saying that they cannot guarantee that there won't be future changes to legislation by a government (but I'd lost the will to live at the stage). But that is the same (in my view negligible) risk as if you pay the April 2019 loan charge. Realistically, new legislation (other than to plug any perceived loopholes) is not going to happen. In the HMRC schema (i.e. it is earnings at the start and so you should have paid tax at the start vs its really a loan and so you pay tax now because you don't really have to pay it back or else you would have done so by April 2019) then there is no need for a new tax charge.

8. They were as clear as they can be that you won't get penalties if you settle. Again, I was surfing ebay at that time, but I think that they caveated that by saying that they couldn't guarantee no penalties because they don't know what has actually happened. But for a normal contractor scheme where is was reasonably-ish implemented, I don't see that being a risk at all.

9. They are clear that they believe settling will give more peace of mind. I think that they are right on that.

What would I say to my clients? Absolutely nothing as I don't advise contractors. What am I doing? Absolutely nothing as I don't have any loans. What am I going to tell my mates at HMRC? I don't work there and have never done so.

What should you do? My personal view is that settling wins hands down in almost all circumstances for a number of reasons (normally less tax is due, peace of mind and time to pay). I would want to understand the IHT position before settling though (not that you will be able to influence that too much / at all, but to get a full understanding as to what is happening). The only realistic time I can think it would be better not to settle is if you could make massive personal pension contributions in 2018/19 (and you are not going to be caught by the LTA or AA and you are not going to be a 45% taxpayer in retirement (and if you expect to be 40% taxpayer then needing to use a spreadsheet to work things out means settling is probably best) and not if your company make the contributions). If you can't afford to settle then I'd be talking to HMRC about that and getting time to pay. If they say no, you don't settle and then repeat the conversation in respect of the April 2019 loan charge.

I would also suggest taking specific personal tax advice based on your own facts and circumstances. But you will need to choose carefully to make sure that they are not linked to the promoter, don't have a personal agenda and do actually understand what this is all about (and few will understand the legislation in any detail at the moment and few will understand how the scheme you were involved in was actually structured and what actually happened).

Thanks - excellent post.

[Iliketax]

So, I'm curious about this question.

Q: If a third party has advised the loan has been written off does that avoid the loan charge?

A: Certainly loan write offs have been brought within part 7A after the first Finance Act in 2017 but I would strongly advise anyone who is just simply told by a third-party to investigate further about any write off of loan or any claim that the loan has been repaid because certainly we’ve made it quite clear that post the budget in 2016 we expected it to be a cash repayment of the loan and if anyone uses a different avoidance scheme or has used a different avoidance scheme that claims to have repaid that loan that HMRC will ignore that.

When I read that he seems to be saying write offs before 2016 are ok. What are your thoughts?

Also, what do you think about loans waived before 2011 (when DR rules came in, I think)?

I think that because they were getting the question 'live' they did not think through what they were saying beforehand and they were trying to be helpful but mixed up a few concepts. My take on it is:

1. The original disguised remuneration rules did not have the waiver of a loan as a "relevant step". This got changed from April 2017 so that the waiver of a loan became a relevant step and so it created a disguised remuneration tax charge. This is the "Part 7A" reference in your quote.

2. So you could say that a waiver of a loan made by a relevant third person before April 2017 that did not actually create an income tax charge.

3. The April 2019 loan charge looks at what is outstanding in a mechanical way. A repayment after 16 March 2016 (they got the date wrong on the call) only reduces what is outstanding if repaid using "money" (if they said cash, they are technically wrong but not enough to make a practical difference). On or before 16 March 2016, you could (for example) use your house (something that is not "money") to repay a loan and it would count as being repaid for the April 2019 loan charge. You can't now.

4. A waiver never counts as a repayment. It doesn't matter whether that was before / after 2011 or before / after April 2017. What does matter is if you've already paid the tax (or agreed time to pay) on the original loan or on the waiver. If you have, you get double tax relief so the April 2019 tax disappears.

5. The last bit of your quote is that the legislation ignores any repayment that is linked to a tax avoidance scheme or if you (or someone else) get the money back without paying tax.

So what I think he meant to say is "No, unless you've paid tax on it (or have agreed time to pay)".

[iheartclso2]

My take on the webinar:

1. It's good that HMRC went to the effort to communicate with people.

2. It was pretty poor from the perspective of the performance (different people in different rooms with poor telephones, lack of coordination between them in answering questions, person reading out the questions was not knowledgeable on the subject and so couldn't sort them / order them / read them in a way that made sense, losing your cool at one stage).

3. It is clear that HMRC are encouraging people to settle. It is clear that they think that the April 2019 loan charge is a big stick with which to encourage people to settle. I think that they are right about that. They also recognise that in some cases people will be better off financially settling.

4. They are convinced that there is no double tax (income tax being the tax here). This is based on what the legislation actually says. HMRC's detailed published guidance is also very clear on this. My view is that (unless you do something very contrived to try to get out of the April 2019 loan charge) this is right.

5. They are very clear that it will be easier to get time to pay with a settlement rather than with the April 2019 loan charge. If you are in need of time to pay, that to me is a huge plus point. They didn't say how long that could be.

6. They were not at all clear on the IHT position. I think that there are two reasons for this: (i) it is very fact specific, and (ii) they are not IHT experts and so not confident enough to talk about it in any detail.

7. They are clear that they believe that a settlement puts things to bed. I think I remember them saying that they cannot guarantee that there won't be future changes to legislation by a government (but I'd lost the will to live at the stage). But that is the same (in my view negligible) risk as if you pay the April 2019 loan charge. Realistically, new legislation (other than to plug any perceived loopholes) is not going to happen. In the HMRC schema (i.e. it is earnings at the start and so you should have paid tax at the start vs its really a loan and so you pay tax now because you don't really have to pay it back or else you would have done so by April 2019) then there is no need for a new tax charge.

8. They were as clear as they can be that you won't get penalties if you settle. Again, I was surfing ebay at that time, but I think that they caveated that by saying that they couldn't guarantee no penalties because they don't know what has actually happened. But for a normal contractor scheme where is was reasonably-ish implemented, I don't see that being a risk at all.

9. They are clear that they believe settling will give more peace of mind. I think that they are right on that.

What would I say to my clients? Absolutely nothing as I don't advise contractors. What am I doing? Absolutely nothing as I don't have any loans. What am I going to tell my mates at HMRC? I don't work there and have never done so.

What should you do? My personal view is that settling wins hands down in almost all circumstances for a number of reasons (normally less tax is due, peace of mind and time to pay). I would want to understand the IHT position before settling though (not that you will be able to influence that too much / at all, but to get a full understanding as to what is happening). The only realistic time I can think it would be better not to settle is if you could make massive personal pension contributions in 2018/19 (and you are not going to be caught by the LTA or AA and you are not going to be a 45% taxpayer in retirement (and if you expect to be 40% taxpayer then needing to use a spreadsheet to work things out means settling is probably best) and not if your company make the contributions). If you can't afford to settle then I'd be talking to HMRC about that and getting time to pay. If they say no, you don't settle and then repeat the conversation in respect of the April 2019 loan charge.

I would also suggest taking specific personal tax advice based on your own facts and circumstances. But you will need to choose carefully to make sure that they are not linked to the promoter, don't have a personal agenda and do actually understand what this is all about (and few will understand the legislation in any detail at the moment and few will understand how the scheme you were involved in was actually structured and what actually happened).

Thank you/ We are all doomed and HRMC will get us one way or another and do NOT to trust other advisers. Settlement is the only way they are kind enough to offer that certainty giving us more time to pay what we should have done years ago.

[MyxALot]

Thank you/ We are all doomed and HRMC will get us one way or another and do NOT to trust other advisers. Settlement is the only way they are kind enough to offer that certainty giving us more time to pay what we should have done years ago.

Lol!!