Loans from an employer

[Iliketax]

Just to be clear, for those whose loans were from an employer.

If the loans were transferred to a trust, in say 2008, they are caught by the loan charge?

Yes.

Here's HMRC's guidance on it: https://www.gov.uk/hmrc-internal-man...anual/eim47035

They use a loan made in 2008 and transferred in 2014 but the principles are the same.

Some people will say its wrong to look at HMRC's manuals but it is easy enough to use that to follow along with the actual legislation.

[Iliketax]

Thank you for this link.

Whilst the ruling is clear, how does this then relate to LC19? In particular, if "A Ltd" no longer exists.

You should take your own independent professional advice on this. But basically, you'll have to pay the tax due. If you did whatever you di when GAAR applied then you should talk to your professional adviser about that. If it had anything to do with anything offshore, you should talk to your adviser about HMRC's requirement to correct legislation too. This can have some quite scary implications so take advice from someone who is independent of the promoter.

[webberg]

As luck would have it the GAAR Advisory Panel gave its view on something similar recently (published yesterday). It basically said that in the circumstances it considered, GAAR applied. Full facts are here: https://assets.publishing.service.go..._June_2018.pdf

In very brief summary though:

1. A trust was set up and the employer agreed to contribute £x + a bit.
2. The employer lent the employee £x
3. The employer, employee and trustee agree that the employee now owes the trustee and the employer does not need to pay anything to the trustee

As I mentioned earlier in this thread, the DR rules were changed to stop this from 6 April 2017. But the GAAR Advisory Panel says that this was done in November 2013 and GAAR stops it working. November 2013 was before the 60% GAAR penalties were introduced.

To bring some balance to the above GAAR opinion, the panel accepted that the "comparable" transaction would have been a contribution from the company to the EFRB and a loan from the EFRB to the employee and that Part 7a of ITEPA in intent and legislation applied a PAYE charge on the employer, which in a close company can be visited upon the employee/shareholder. Thsi situation was what Part 7A was for.

The arrangement discussed by the panel included a complicated mechanism to remove the obligation to repay loans to any party other than the EFRB and involved the creation and exchange of deeds of covenant and the benefit conferred by them. These steps are not usually seen in the mass marketed versions of schemes.

Whilst I do not doubt the GAAR Panel's analysis of the intent and purpose of Part 7A, I think it important not to admit to mission creep here.

In my view the use of a third party (in this case an EFRB) is avoidance which is adequately countered by Part 7a.

The use of the third party alongside a series of legal documents and transfers is probably "abuse" which the GAAR Panel is there for.

HMRC want to draw that line as close to the mass market schemes as they can and we must be vigilant in stopping that and ensuring that GAAR is used as intended.

[Iliketax]

In relation to mass-marketed schemes...

The arrangement discussed by the panel included a complicated mechanism to remove the obligation to repay loans to any party other than the EFRB and involved the creation and exchange of deeds of covenant and the benefit conferred by them. These steps are not usually seen in the mass marketed versions of schemes.

The GAAR Advisory Panel's opinion seems to be very much on a mass-marketed scheme. Where an EFRBS is used as a proper EFRBS, there will be no loans. Where there is an EFRBS and a loan, it will almost certainly be part of a mass-marketed scheme.

[webberg]

We all have our views and mine is that the complexity and "abusive" elements seen in the scheme described in the GAAR opinion are not present in the majority of the structures we see.

In my opinion, the rules in Part 7A will be sufficient on their own, should HMRC choose to exercise them, and they are avoidance, but not abuse.

Understand if a more pro HMRC version of events is taken or a more hardline than my own.