There is speculation on some threads here (which I am not permitted to use) around the situation is a loan has been made by a limited company that is (or was) your employer. The question is whether the loan is subject to the loan charge rules.
I offer my view below and invite any other specialists to comment/confirm/deny the analysis.
A loan from an employer is subject to its own tax code. That code seeks to measure the benefit that loan conveys on the grounds that the reason for the loan is the employment status and not a commercially objective lending of money based on credit criteria. The benefits charged to tax are usually the difference between an official interest rate and the actual interest rate and if the loan is written off, the value of the write off.
Where there are no third parties involved,i.e. just employer and employee, then there is no legal reason why the loan should be taxed in any other manner.
I am aware that some promoters maintain that this is what has happened and as such no loan charge declaration is needed.
We then get to the muddying of the waters.
First, was it really a loan? If it was in fact a payment for being an employee, then following the Rangers decision, it's entirely possible that a Judge might see section 62 ITEPA as applying to treat the money as remuneration. That puts the liability at the door of the recipient of funds and you would then be relying upon the PAYE rules and the inability of HMRC to transfer that liability to employee outside of certain circumstances, to avoid paying. If that was the case however, again I see no need to make a declaration of loan balance for the purposes of the loan charge. You may still be taxable, but not via the loan charge.
Second, the loan charge is rooted in the disguised remuneration rules in Part 7A ITEPA. This opens with a list of conditions that have to be present for the rules to apply in section 554A. One of the subsections (1)(d) requires that a third party is involved in the transfer of funds from employer to employee. In most cases this will be a trust of some description.
There are three developments there. The first is that a loan made by an employer but subsequently moved to a trust may be within that condition. It requires a bit of judicial contortion but I would not bet against HMRC convincing a Judge it is within the rules.
The second is that HMRC has been claiming recently that there is a third party involved because the usual flow of money is end client > agency/agencies > employer > you. they seem to be saying that the end client - a commercially distant and unconnected entity - is somehow complicit in the remuneration arrangements. I have to say that such a description denies the self evident facts and in normal circumstances I would be amazed if that argument was advanced in Court. However HMRC are desperate and I would not be surprised to see it made but would be utterly astounded if a Judge agreed with it.
The third is a more worrying development. We have a letter from HMRC claiming that although the legislation clear that a third party is needed, the "intention" of Parliament was that all disguised remuneration arrangements should be included, whether or not that condition is met! Tested in Court I can see HMRC very definitely losing that argument, but it is a concern.
Given that the loan charge is based on the DR rules, the above arguments, if correct might be seen as requiring disclosure.
We (and I'm sure others) are trying to get some clarity on this but from where? HMRC has their view as above. Promoters say "no disclosure". Short of taking a case to a Judge (and spending tens of thousands and years) we will again be reduced to analysis and a decision based on uncertainty because HMRC has chosen - very deliberately - to say that they can ignore the clear words of the law. AGAIN.
As I said, I invite alternative analysis.
I offer my view below and invite any other specialists to comment/confirm/deny the analysis.
A loan from an employer is subject to its own tax code. That code seeks to measure the benefit that loan conveys on the grounds that the reason for the loan is the employment status and not a commercially objective lending of money based on credit criteria. The benefits charged to tax are usually the difference between an official interest rate and the actual interest rate and if the loan is written off, the value of the write off.
Where there are no third parties involved,i.e. just employer and employee, then there is no legal reason why the loan should be taxed in any other manner.
I am aware that some promoters maintain that this is what has happened and as such no loan charge declaration is needed.
We then get to the muddying of the waters.
First, was it really a loan? If it was in fact a payment for being an employee, then following the Rangers decision, it's entirely possible that a Judge might see section 62 ITEPA as applying to treat the money as remuneration. That puts the liability at the door of the recipient of funds and you would then be relying upon the PAYE rules and the inability of HMRC to transfer that liability to employee outside of certain circumstances, to avoid paying. If that was the case however, again I see no need to make a declaration of loan balance for the purposes of the loan charge. You may still be taxable, but not via the loan charge.
Second, the loan charge is rooted in the disguised remuneration rules in Part 7A ITEPA. This opens with a list of conditions that have to be present for the rules to apply in section 554A. One of the subsections (1)(d) requires that a third party is involved in the transfer of funds from employer to employee. In most cases this will be a trust of some description.
There are three developments there. The first is that a loan made by an employer but subsequently moved to a trust may be within that condition. It requires a bit of judicial contortion but I would not bet against HMRC convincing a Judge it is within the rules.
The second is that HMRC has been claiming recently that there is a third party involved because the usual flow of money is end client > agency/agencies > employer > you. they seem to be saying that the end client - a commercially distant and unconnected entity - is somehow complicit in the remuneration arrangements. I have to say that such a description denies the self evident facts and in normal circumstances I would be amazed if that argument was advanced in Court. However HMRC are desperate and I would not be surprised to see it made but would be utterly astounded if a Judge agreed with it.
The third is a more worrying development. We have a letter from HMRC claiming that although the legislation clear that a third party is needed, the "intention" of Parliament was that all disguised remuneration arrangements should be included, whether or not that condition is met! Tested in Court I can see HMRC very definitely losing that argument, but it is a concern.
Given that the loan charge is based on the DR rules, the above arguments, if correct might be seen as requiring disclosure.
We (and I'm sure others) are trying to get some clarity on this but from where? HMRC has their view as above. Promoters say "no disclosure". Short of taking a case to a Judge (and spending tens of thousands and years) we will again be reduced to analysis and a decision based on uncertainty because HMRC has chosen - very deliberately - to say that they can ignore the clear words of the law. AGAIN.
As I said, I invite alternative analysis.
Comment