Newbie. Just found out about the Loan charge. Help

[NotAllThere]

Didn't Mel Stride recently tell the House that these scheme were illegal? One of the schemes should sue him for libel

Parliamentary privilege.

[Raymondo]

Well - after being ignored quite reasonable requests for my pay to be recalculated PAYE from my Umbrella company they sent this email in response - essentially they are doubling down. I will seek advice of an accountant regarding this matter. For the benefit of others I'll post the letter - it would be interesting to hear what people think.

Dear ,

I am confused as to your references to self-employment. As per my previous email, you are employed under an overarching contract of employment with XX. This contract determines your hourly rate whilst under said employment to be equivalent to national minimum wage.

Your employer has also made a loan facility available to you.

Link to HMRC guidance notes as shown here:- https://www.gov.uk/expenses-and-bene...s/whats-exempt

As the loans you have drawn down are exempt there are no requirements to report to HMRC, firstly as it has interest at 4% which is 1% above HMRCS official interest rate and it is not a variable term loan.

Also there is no scheme number attached to this solution as it does not fall under DOTAS.

Please advise if you wish your future payments to be moved to a traditional umbrella model going forward, however there is no facility for you to repay any payments you have already received.

Further to the above my Sales Director would be more than happy to go over all of this with you on the phone.

Regards

I am illiterate to finances so have no idea if any of what they said is correct. So I am going to speak with an accountant.

[Raymondo]

What's exempt

Here is the HMRC guidance referred to by the Umbrella company which they say shows exempts me from the loan scheme

You might not have to report anything to HMRC or pay tax and National Insurance on some types of beneficial loans.

This includes loans you provide:
•in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
•with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year (£5,000 for 2013 to 2014)
•to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out
•under identical terms and conditions to the general public as well (this mostly applies to commercial lenders)
•that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief - see the technical guidance for an explanation of this complex area
•using a director’s loan account as long as it’s not overdrawn at any time during the tax year

[Fred Bloggs]

So, do I understand correctly? This so called brolly takes money off you to employ you, pays you minimum wage, pays you a loan every week/month which you then have to pay interest on? Presumably, the loans have to be paid back sometime too? What a state of affairs.

[NotAllThere]

...Presumably, the loans have to be paid back sometime too? ...

Possibly not.

...
Please advise if you wish your future payments to be moved to a traditional umbrella model going forward, however there is no facility for you to repay any payments you have already received.

Or possibly so

it is not a variable term loan.

What are the terms of the loan, Raymondo?

[Fred Bloggs]

Possibly not.

Hector would be correct then, a loan is only a loan if it has to be repaid, is it not?

[Delendog]

Hector would be correct then, a loan is only a loan if it has to be repaid, is it not?

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.

[GreenMirror]

Hector would be correct then, a loan is only a loan if it has to be repaid, is it not?

Hector wants you to pay the right amount of tax. Which means paying what they say.

[regron]

Hector wants you to pay the right amount of tax. Which means paying what they say.

I'ts all here in black and white, for all to see:

https://www.gov.uk/government/public...y/our-strategy

Some extracts:

Our vision is to be a world-class organisation – and our work is underpinned by our values:

We are professional
We act with integrity
We show respect
We are innovative

Absolute joke and utterly dillusional

Delivering our strategic objectives
This strategy explains the eight key decisions we have taken in order to help us achieve our mission and strategic objectives and become a ‘world class organisation’.

Maximise revenues due and bear down on avoidance and evasion

There it is in a nuthell, in 2 words.

[webberg]

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?