Finance Bill 2017-18 V HMRC DR Settlement Terms

[webberg]

I think this question was around the use of non sterling loans that depreciated and before the March 16 date had apparently been "written off".

Number of similar schemes out there which did that such as Horizon, TRM, Cherrylon, Choice Premier.

[Whysoserious]

An interesting point that seem to have been missed in HMRC's attempt to force settlement.
Given that it's illegal for HMRC to enter into 'slave' contracts for repayment of debt, a large proportion of contractors will face bankruptcy.

The contractor will owe substantially more money to the trust than they do to HMRC. Therefore the largest creditor in many of the forthcoming bankruptcies will be the Trust, not HMRC. The official receiver cannot ignore the loan from the trust that is both legal and repayable. Most of the contractors estate in bankruptcy will therefore be paid to the trust in repayment of the loan. The trust to which they are a beneficiary of, with HMRC left with the crumbs of the estate leftover.

I wonder how they'll explain the loss in expected tax receipts. "Sorry Chancellor, we made 10,000's of people bankrupt, but most of their estate didn't come to us, it was paid to a trust of which they are the beneficiary of".


Following bankruptcy, the HMRC tax debt is removed in full, the EBT loan is removed in full and the contractor
has access to a trust with most of their estate funds in it to draw down as required (paying tax on it of course).

[malvolio]

An interesting point that seem to have been missed in HMRC's attempt to force settlement.
Given that it's illegal for HMRC to enter into 'slave' contracts for repayment of debt, a large proportion of contractors will face bankruptcy.

The contractor will owe substantially more money to the trust than they do to HMRC. Therefore the largest creditor in many of the forthcoming bankruptcies will be the Trust, not HMRC. The official receiver cannot ignore the loan from the trust that is both legal and repayable. Most of the contractors estate in bankruptcy will therefore be paid to the trust in repayment of the loan. The trust to which they are a beneficiary of, with HMRC left with the crumbs of the estate leftover.

I wonder how they'll explain the loss in expected tax receipts. "Sorry Chancellor, we made 10,000's of people bankrupt, but most of their estate didn't come to us, it was paid to a trust of which they are the beneficiary of".


Following bankruptcy, the HMRC tax debt is removed in full, the EBT loan is removed in full and the contractor
has access to a trust with most of their estate funds in it to draw down as required (paying tax on it of course).

... except the taxman has first lien on any assets, after the liquidators if there are any.

[Whysoserious]

... except the taxman has first lien on any assets, after the liquidators if there are any.

Not since 15th September 2003. HMRC lost their ability for preferential status under the Enterprise Act 2002. They fall in line behind whoever is the biggest creditor.

[phil@pmtc]

Not since 15th September 2003. HMRC lost their ability for preferential status under the Enterprise Act 2002. They fall in line behind whoever is the biggest creditor.

Surprisingly HMRC are well down on the list of creditors. Makes it even more ridiculous that they make a reasonable time to pay so annoyingly difficult to sort at times.

[jes107]

Bankrutcy

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?!?

[demby]

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?!?

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

[fuhector]

Again.

HMRC has NEVER said that the loans are not loans.

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.

[Iliketax]

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.

They must have remembered your letter as they made sure that the legislation covers you by saying that a loan includes "a payment that is purported to be made by way of a loan".

[starstruck]

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)".

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.