Pension contributions can be used to relieve LC19

[Whysoserious]

You're making a few assumptions ILikeTax.

There is still a fair chance that the upcoming litigation by schemes such as K2 and others with huge pockets for their fighting fund can win.
Therefore the only 'charge' will be the loan charge. A charge which people can help to reduce by lowering their salary, pension contributions etc.
The original tax liability has still to be proven in court.

[Iliketax]

You're making a few assumptions ILikeTax.

There is still a fair chance that the upcoming litigation by schemes such as K2 and others with huge pockets for their fighting fund can win.
Therefore the only 'charge' will be the loan charge. A charge which people can help to reduce by lowering their salary, pension contributions etc.
The original tax liability has still to be proven in court.

I'm basing those assumptions on the scenario that webberg has set out earlier in the thread. If you are right then his scenario goes out of the window as no one would be settling after April 2019.

[jes107]

Confused

My head is a mess................one minute I'm planning for bankruptcy and now there could be a glimmer of hope. I will have around £95k of loans applicable to the loan charge. In theory could I take no salary in 2018/19 and live on bread and beans and during the year try find funds (bank loans / family) of £85k to put into my pension and therefore come out with a NIL tax charge. Will there any NI or other interest/penalty charges to pay?

All this for saving around £5k worth of tax over 3 years!

[Loan Ranger]

But that is absolutely not what your example is about. You say that the settling is after 5 April 2019. As I've said, s554Z5 is just not relevant then.

So then you get to s554Z11B and s554Z11C. These do not reduce the value of the 5 April 2019 loan charge relevant step. What they say is that (if there's an overlap, which there will normally be) then the tax that you pay counts against both tax charges. So you have two tax charges. First on the April 2019 loan charge (the "Chapter 2 overlap charge") and secondly on the earlier charge. As you've paid the April 2019 loan charge by then, this will be the "Chapter 2 overlap paid amount". This amount is then set against the earlier tax charge and (if there's any left, against interest on late tax on that earlier charge). The earlier charge is relation to the 2011/12 and 2012/13 thing that you've settled.

So there is no double tax. There is no reduction in 2018/19 income. But as with all things to do with this, I think you should take independent professional tax advice.

That makes sense to me.

As I said previously, I wouldn't go down the pension route if I thought there was a high risk that HMRC would continue to pursue people after they'd paid LC19.

[webberg]

No.



The way that s554Z5 works is to reduce the value of the relevant step. So if the outstanding loan was for £10,000 and the loan that you are paying tax (at whatever rate) was £10,000 (so there is no overlap) and the earlier tax has been paid by 5 April 2019 (or you've agreed time to pay) then the value of the relevant step is reduced to nil. You've previously said you do not agree with my analysis on this. You've mentioned your tea towel but you've never said why you disagree. So let's pretend you agree with it. In this case (i.e. settling before 5 April 2019) then the 'outstanding' loan is not charged to tax and so you have no ability to relieve pension contributions as there is no April 2019 loan charge.

But that is absolutely not what your example is about. You say that the settling is after 5 April 2019. As I've said, s554Z5 is just not relevant then.

So then you get to s554Z11B and s554Z11C. These do not reduce the value of the 5 April 2019 loan charge relevant step. What they say is that (if there's an overlap, which there will normally be) then the tax that you pay counts against both tax charges. So you have two tax charges. First on the April 2019 loan charge (the "Chapter 2 overlap charge") and secondly on the earlier charge. As you've paid the April 2019 loan charge by then, this will be the "Chapter 2 overlap paid amount". This amount is then set against the earlier tax charge and (if there's any left, against interest on late tax on that earlier charge). The earlier charge is relation to the 2011/12 and 2012/13 thing that you've settled.

So there is no double tax. There is no reduction in 2018/19 income. But as with all things to do with this, I think you should take independent professional tax advice.

So to continue with my example, the "settlement" is post 5/4/19.

Under 554Z5, you claim that the payment and liability conditions are not met and therefore there can be no reduction in the relevant step that is deemed to have occurred on 5/4/19. Therefore, what I call the "gross v gross" relief rules are not in point.

Under 554Z11B & C, the settlement post 5/4/19 says that the tax paid in 18/19 can be set against the charges now due in 11/12 ans 12/13.

In my example, the tax paid in 18/19 was £3.6k because £120k of pension contribution was paid. Therefore if the liability in 11/12 and 12/13 is £15k for each year, plus interest, there is tax of £26.4k to pay (plus interest). Let's assume that the £3.6k is paid in respect of the relevant step which I'm not sure of.

So the cash equation becomes:

Pension contribution paid £120k. Tax paid 18/19 £3.6k. Tax paid for earlier years £26.4k.

If you choose not to make a pension contribution then you may more tax in 18/19 but in theory at least the tax paid should cover the charge from the earlier years, in which case why on earth would HMRC carry on with enquiries unless the interest charges were substantial?

I suppose the answer I get is that HMRC is obliged to pursue everybody fairly under the law, but having singularly failed to do so in the area for 15 years, why that justification holds true escapes me.

(I think the cheap shot at the end is beneath you?)

[webberg]

You're making a few assumptions ILikeTax.

There is still a fair chance that the upcoming litigation by schemes such as K2 and others with huge pockets for their fighting fund can win.
Therefore the only 'charge' will be the loan charge. A charge which people can help to reduce by lowering their salary, pension contributions etc.
The original tax liability has still to be proven in court.

For what it's worth, any arrangement going to Court on the original analysis they worked to (Sempra, Dextra etc) is more likely than not to fail.

Cases going on the Rangers analysis this year have a better chance but perhaps not until elevated to Court of Appeal and above.

This is going to be a war of attrition and unfortunately, with one exception at present (not BG), I just don't see promoters hanging around for that series of battles. I hope I'm wrong.

[webberg]

You've previously said you do not agree with my analysis on this. You've mentioned your tea towel but you've never said why you disagree.

This is true.

My tea towel is now back where it belongs and I do not agree with your analysis.

I do have a long and somewhat detailed analysis of my own and have considered posting it here for all and sundry to have pot shots at. Clearly I have not done that.

Firstly, because a number of clients have asked me not to.

Second, it's an analysis of a law that has yet to be tested and whilst I understand your literal interpretation, given that the facts on the ground and as found in Supreme Court, I remain unconvinced that, ultimately, HMRC can achieve the result they want. (Which I remain convinced is as much about saving face in front of their political masters as opposed to operating the tax system which is actually their brief).

Third, unlike legislation, its not public and there is little advantage to anybody (and perhaps a commercial disadvantage to me) from sharing it.

Fourth, I suspect it will just confuse people more.

Accepting that I have gained more than you, thank you for the contributions.

[Loan Ranger]

My head is a mess................one minute I'm planning for bankruptcy and now there could be a glimmer of hope. I will have around £95k of loans applicable to the loan charge. In theory could I take no salary in 2018/19 and live on bread and beans and during the year try find funds (bank loans / family) of £85k to put into my pension and therefore come out with a NIL tax charge.

It seems so.

There are a few caveats though
1) you need to have already had a pension set up in previous years to do "carry forward"
2) you need to have unused allowance from those previous years

Will there any NI or other interest/penalty charges to pay?

Nope.

[webberg]

That makes sense to me.

As I said previously, I wouldn't go down the pension route if I thought there was a high risk that HMRC would continue to pursue people after they'd paid LC19.

HMRC tell us (and we'll ask again this week) that they will not give up enquiries into earlier years, despite the DR charge.

I would put this at more than "high risk". I actually believe HMRC on this one.

[jbeer]

You can't reduce your tax bill to zero (or 3.6K in webberg scenario) right ?

Pension contributions just increase the threshold at which higher rate tax kicks in.

So if you are making a 120K pension contribution you actually only pay in 80% of that - 96K and its automatically topped up to 120K. You then pay 20% tax on the 150K (-12K PA) = 27.6K.

So there will always be tax to pay at 20% unless you earn <= 12K for the year.