AML 2019 Loan Charge

[FCKAML]

AML loans

Hi all
Newbie here, thank you for all the posts in this thread. I believe I have read every one avidly over the last week. A massive thankyou to all the contributors, you are doing amazing job.

I have two loans from AML.

2015/16 - 33,000
2016/17 - 51,200

The money trail was : Agency --> LTD company (I am director) --> AML --> My personal bank account

I have not received any letters from HMRC yet but i am considering settlement to get over it and leave this behind. I have some money in the LTD company account and thinking of taking director's loan to settle with HMRC.

I have a question, can i contribute towards Pension (for year 15/16 & 16/17) when settling with HMRC or pension option is only for LC19? My view is if i am using pension for settlement then i am infact using the money for my future compared to paying tax(effectively throwing away the money). I have 0 pension contribution till date.

Any advice will be welcome

[kentishlad]

Ive emailed my local MP, though I very much doubt he will take much interest in this.. but Im hoping

[Loan Ranger]

Says who?

Let's say you had a loan for £50k from Knox House Trust.
If you repay that £50k to Knox House Trust, you do not have the money, it is with Knox House Trust, who will then say that you have repaid the money they loaned you, thank you very much end of story.

You are a borrower, not a trustee. Unless you get Knox House Trust to agree to repay your company, then there's nothing you can do. You can't transfer the trust. You can't appoint your own trustees.

That would be earmarking, which means you'd be hit with the loan charge anyway.

When you repay the £50k, if there is any agreement/intention/understanding for you to get the money back, you'll be caught by the loan charge.

[ddrisk4]

That would be earmarking, which means you'd be hit with the loan charge anyway.

When you repay the £50k, if there is any agreement/intention/understanding for you to get the money back, you'll be caught by the loan charge.

Could Knox House transfer (or sell for a nominal amount) the loan to a limited company controlled by the borrower to avoid it being considered "earmarked".
If possible, then it seems like a less risky way to repay the loan without the repayment ending up under the control of the Trust.
This obviously has the disadvantage that you wouldn't be able to exploit the unused tax allowance from the years when the loan was made however you would avoid the interest on the tax from those years.

[Loan Ranger]

Could Knox House transfer (or sell for a nominal amount) the loan to a limited company controlled by the borrower to avoid it being considered "earmarked".
If possible, then it seems like a less risky way to repay the loan without the repayment ending up under the control of the Trust.
This obviously has the disadvantage that you wouldn't be able to exploit the unused tax allowance from the years when the loan was made however you would avoid the interest on the tax from those years.

That's even worse. If you control the company, that owns the loan, then the repayment would look even more like it was intended to benefit you.

Repayment, to avoid the LC, is really an illusion, mirage. HMRC will treat any repayment as having an avoidance motivation.

[ddrisk4]

That's even worse. If you control the company, that owns the loan, then the repayment would look even more like it was intended to benefit you.

Repayment, to avoid the LC, is really an illusion, mirage. HMRC will treat any repayment as having an avoidance motivation.

But there is no avoidance if full tax is then paid as the money is distributed to employees and shareholders.

[webberg]

But there is no avoidance if full tax is then paid as the money is distributed to employees and shareholders.

But it risks a double charge to tax.

One charge arising when the loan was made or via the loan charge in 2019.

One arising on the subsequent earmarking or actual distribution.

You would hope that HMRC would agree to charge only once, but whilst I see legislation that permits tax paid under the loan charge to be a credit against earlier liability, I see nothing obvious which stops a later charge arising.

[Loan Ranger]

But there is no avoidance if full tax is then paid as the money is distributed to employees and shareholders.

On the contrary, there is avoidance because you are using a (contrived) arrangement to avoid the loan charge.

[Iliketax]

whilst I see legislation that permits tax paid under the loan charge to be a credit against earlier liability, I see nothing obvious which stops a later charge arising.

Have a look at s554Z5 where it is subsequently paid to an employee (and taxed under Part 7A) after having already been taxed on the earmarking. If it is taxed under s62 and not Part 7A then there is no explicit tax relief.

If it is subsequently paid as a dividend, after having already been earmarked and tax paid then have a look at s554Z14. Potentially, you can get the tax back but you have to persuade HMRC that there is no connection (direct or indirect) with a tax avoidance arrangement. That sounds unlikely from the description. I don't think that there is an equivalent mechanism for getting NIC back.

[Iliketax]

The money trail was : Agency --> LTD company (I am director) --> AML --> My personal bank account

I have not received any letters from HMRC yet but i am considering settlement to get over it and leave this behind. I have some money in the LTD company account and thinking of taking director's loan to settle with HMRC.

When you talk to your tax adviser about this, ask her whether it should be your limited that is settling.