Newbie. Just found out about the Loan charge. Help

[piebaps]

The 4% loan interest is presumably the promoter's cut.

[Fred Bloggs]

The 4% loan interest is presumably the promoter's cut.

Perhaps I am off beam, but I understood these scheme providers creamed off more like 15% for the privilege of lending you your own money back.

And to pick up on a point made by webberg, why does the promoter care if his opinion on what is/not a loan is right or wrong? He is home and dry and the poor mug punter is the one who gets the bill from Hector for "the correct amount of tax".

[Dmac]

Perhaps I am off beam, but I understood these scheme providers creamed off more like 15% for the privilege of lending you your own money back.

And to pick up on a point made by webberg, why does the promoter care if his opinion on what is/not a loan is right or wrong? He is home and dry and the poor mug punter is the one who gets the bill from Hector for "the correct amount of tax".

I believe the 4% interest is to ensure the loan is at a "commercial" rate - in effect it will never be paid. The promoters took between 10 and 15% typically for all the "work" they put in to disguising the remuneration for you.

[Raymondo]

Raymondo, I think the clue is in the fact that you cannot repay the loan.

If somebody gives you money and does not create an obligation on you to give it back in due course, I suggest that it fails the test of being a loan.

The tax legislation dealing with loans as benefits, section 173 et seq ITEPA 2003, contain a number of exemptions if loans meet certain tests on interest rate, comparable terms to those offered non employees etc.

What the law does not do, if define a "loan".

Given that is a very tricky definition to arrive at, I'm not surprised.

I would however say that the loan you have would vary from what the man on the Clapham Omnibus might say is a loan in a number of important aspects.

First, it is made in instalments. Some loans are, but usually where they are funding something being paid for in instalments - probably not the case here?

Second, when is it repayable? If it is not repayable at all, hard to see it's a loan.

If it is not a loan, then it becomes a question of ascertaining the facts behind the transfer of money and deciding which piece of tax law might apply to it.

HMRC clearly say that you have had the money as a direct consequence of performing work that the lender has charged a client for. If that is true, then prima facie the money would fall within section 62 ITEPA and be classified as remuneration from employment.

That argument I have simplified enormously rather than recount the decisions in Boyle and Rangers. Suffice to say that the exact circumstances leading to payment and the consequences of that payment need to be considered carefully.

The promoter seems to be saying that they have met one or more of the exemptions within the benefit code and have ignored the fundamental question of whether it was a loan. On the basis of the exemption being met, you are free of tax. I would disagree with that analysis on the few facts I have so far.

I would also suggest that you get them to commit their argument to writing rather than a deniable telephone call. If they believe their position is correct, why would they not be prepared to share it with a client? If they believe it, why would they not guarantee to pay your tax if they are wrong?

Webberg - I do have their argument on email - I pretty much copied and pasted their response which you have read. I have asked them for this all in writing as well as a guarantee of reimbursement should the loan charge be applied to me - they said no-one will indemnify me completely for my tax - I have responded twice since but they have gone silent. They are not going to offer a guarantee of reimbursement - but they will offer support if HMRC come calling apparently! Great

[Raymondo]

I believe the 4% interest is to ensure the loan is at a "commercial" rate - in effect it will never be paid. The promoters took between 10 and 15% typically for all the "work" they put in to disguising the remuneration for you.

I have no idea what their cut was.

I'd get a invoice with my full weekly salary - then they added VAT. I Then got a payslip which was minimum wage with some NI, ENI and PAYE deducted. After this I would get my loan.

All a mystery to me to be honest - I just thought it was aabove board and as my Umbrella company they could take care of it. Ignorance is certainly not bliss!

[Raymondo]

Can you prove to HMRC you are repaying it with interest. Also note the £10K annual limit so if you are paid min wage +£10k loan - is your total annual earnings within that? I doubt it.

I don't know if I can prove it as I didn't even know of it until this morning. I asked if I can have it explained what facilities are available for repayment - they have not responded. I obviously haven't been paying it back with interest. I fear my naivety s on show here!

[Aki1]

Raymondo I would seek advice - Webberg or Phil are both good people to advise you

[Fred Bloggs]

Webberg - I do have their argument on email - I pretty much copied and pasted their response which you have read. I have asked them for this all in writing as well as a guarantee of reimbursement should the loan charge be applied to me - they said no-one will indemnify me completely for my tax - I have responded twice since but they have gone silent. They are not going to offer a guarantee of reimbursement - but they will offer support if HMRC come calling apparently! Great

Apologies if this is teaching granny to suck eggs, but - You are repeating what just about all the scheme promoters said. But let's be clear, the responsibility for paying the right tax on your income is yours. Spend a few minutes just looking at all the promoters who promised the earth. Where are they now? When Hector comes knocking, those guys promising to help will be nowhere to be seen. You are doing the right thing, get out of the scheme immediately and settle all your outstanding tax. Then get on with your life. You're doing your colleagues a great favour too telling them to do the same.

[Dmac]

Apologies if this is teaching granny to suck eggs, but - You are repeating what just about all the scheme promoters said. But let's be clear, the responsibility for paying the right tax on your income is yours. Spend a few minutes just looking at all the promoters who promised the earth. Where are they now? When Hector comes knocking, those guys promising to help will be nowhere to be seen. You are doing the right thing, get out of the scheme immediately and settle all your outstanding tax. Then get on with your life. You're doing your colleagues a great favour too telling them to do the same.

Good advice. But don't beat yourself up, Raymondo, there are literally thousands of us sold these schemes, who were duped into believing they were all above board (most in fact were, at the point they were entered into).

[Raymondo]

Good advice. But don't beat yourself up, Raymondo, there are literally thousands of us sold these schemes, who were duped into believing they were all above board (most in fact were, at the point they were entered into).

Cheers mate. Appreciated!