Settled in full with HMRC, loan written off. Now Ltd Co has tax enquiry???

[here4beer]

i'll be refreshing this thread constantly, please keep us updated.

I'm currently settling via declaration on my SA. I had no idea my ltd co. would be looked at separately. If i knew that - i don't think i'd have bothered settling.



So frustrating when I'm sat next to people still using the scheme, no letters from HMRC at all, and completely uninterested by the DRLC.

[Dmac]

i'll be refreshing this thread constantly, please keep us updated.



So frustrating when I'm sat next to people still using the scheme, no letters from HMRC at all, and completely uninterested by the DRLC.

Can't believe anyone is still using these schemes. Have you told them to exit now? They will be caught once the promoter advises the HMRC, which they will (or will shortly be obliged to) do.

[here4beer]

Can't believe anyone is still using these schemes. Have you told them to exit now? They will be caught once the promoter advises the HMRC, which they will (or will shortly be obliged to) do.

The salesmen/women are excellent. They almost caused me to change my mind a handful of times...

I'm showing them open book what I'm going through, point them to this forum, and how 'easy' it is using a reputable TA. They slowly start to come round, until news like this thread pops up - they laugh at how expensive it is to be honest and own up, and carry on.
(then they see me sat here almost in tears, remortgaging my family home, while they're looking at winter wheels for a Ferrari, etc)

The DRLC alone will cripple me(us). And that doesn't even remove the loan. To then apply a Corp Tax bill too (probably just as big as the personal bill), I literally can't believe it's allowed to happen to someone 'settled'.


Good luck OP, I hope this whole Corp Tax situ gets squashed ASAP, and they instead focus on those who are still hiding.

[webberg]

The schemes in question here have a cash flow that looks something like this.

End client pays your Own Co (£100)
Own Co pays you a small amount (£10)
Own Co pays promoter (£90)
Of that £90, you see perhaps £75 in the form of a loan from promoter or some other entity connected to them legally or otherwise under their influence.

Look at the Own Co accounts/tax.

Own Co has £100 of income based off you working at End Client. Sometimes there is a direct contractual link that obliges you to work at End Client, sometimes not.

That is treated for accounts purposes as Own Co income.

The amount Own Co pays you (£10) is undoubtedly a business expense, unless it is paid as a dividend.

That leaves Own Co with a potential profit of £90.

The claim is that £90 paid to promoter co for "services" is deductible for CT purposes.

We have been saying for a long time now that the ability to deduct that £90 is debatable.

What is it for? What services? Is it really just a payment for a tax avoidance scheme (not allowable). There are a number of arguments that HMRC might use here.

For balance there are arguments that say that the Own Co was never entitled to the £100 either but that is not for a public forum.

Consequently however, HMRC claim that the £90 is not tax deductible. Therefore the CT return is wrong, tax is due, interest is due and perhaps a penalty.

If the £90 was in fact remuneration paid to you (note £90, not £75 - the £15 fee in this instance is never going to be allowable) then CT relief is due, but probably only when it is taxed as remuneration, i.e. 2019.

The settlement terms sort of nod to this in principle but come up with a practical solution that essentially taxes the remuneration in the year the loan was made and allows CT relied on that remuneration in the same year. Not quite legally correct but sensible.

We then move on to what happens if you pay or the company pays the tax. That is a bit tricky and it's coming up to G&T time on a Friday (or as it's dry January a T&T) and I'll post more on this over the weekend.

[here4beer]

If the £90 was in fact remuneration paid to you (note £90, not £75 - the £15 fee in this instance is never going to be allowable) then CT relief is due, but probably only when it is taxed as remuneration, i.e. 2019.

The settlement terms sort of nod to this in principle but come up with a practical solution that essentially taxes the remuneration in the year the loan was made and allows CT relied on that remuneration in the same year. Not quite legally correct but sensible.

So from the £90 that was previously claimed as an expense to reduce company profit, are HMRC saying that 'settled people' will only be able to actually claim £75 as the deductible expense, so theres extra Corp tax to pay on the £15 left?

Or am I reading what I want to see with rose tinted specs.. and HMRC want Corp tax on the full £90? (Even though the person has settled already)

[webberg]

So from the £90 that was previously claimed as an expense to reduce company profit, are HMRC saying that 'settled people' will only be able to actually claim £75 as the deductible expense, so theres extra Corp tax to pay on the £15 left?

Or am I reading what I want to see with rose tinted specs.. and HMRC want Corp tax on the full £90? (Even though the person has settled already)

If you settle and accept that the £90 is remuneration, then the £90 gets allowed for CT purposes.

The question is when.

If the payment was in 2014/15 and is disallowed, the 14/15 CT bill goes up.

If the relief is in 18/19, the unless the company has profits, that's not much use.

If you settle, the settlement terms from November 2017 should allow a sensible position to be reached, but as I said HMRC have an issue converting principle to practice.

If you do not settle on those terms then the situation can get "interesting".

[here4beer]

If you settle and accept that the £90 is remuneration, then the £90 gets allowed for CT purposes.

The question is when.

If the payment was in 2014/15 and is disallowed, the 14/15 CT bill goes up.

If the relief is in 18/19, the unless the company has profits, that's not much use.

If you settle, the settlement terms from November 2017 should allow a sensible position to be reached, but as I said HMRC have an issue converting principle to practice.

If you do not settle on those terms then the situation can get "interesting".

Does this mean negotiate with HMRC? Or it's a simple 20% of all payments sent to the 'business trust' as Corp tax, and that's that?

Surely they still need to prove the payments were part of a disguised remuneration scheme? Registering loans on your self assessment as income, surely doesn't incriminate your ltd company's payments to a seperate entity?

Neither me as an individual or ltd Co has ever paid the promoter a penny.

[here4beer]

Ltd Co earns 100k.
Ltd Co pays 90k into tax deductible business trust.
Ltd co pays 10k salary to director.
corp tax bill, 0.

Director personally receives 75k loan (note, not 90k)
Director personally receives 10k salary.
Director settles with HMRC, and pays £28k tax and NIC.

HMRC now want the 90k recorded as company profit. So after settling, director is then issued with 17k tax bill (plus interest).

Ltd Co director, pays total tax of £45k, from £100k earned.
A PAYE permanent employee, all the perks/ guaranteed income/ zero risk, only pays £34k in tax.


Only estimates. But coming forward to settle of your own accord, it can't be worked so that you pay MORE tax than a PAYE employee?

[QUODM]

Corporate tax deductability for DR contribution change

Wasn't there a change (possibly in the Finance bill 2017 itself in a different section) that specifically excluded corporate tax deductibility of a contribution to a DR scheme? I remember reading about it but reading that it was applied from March 2017 onwards (sorry my memory is fuzzy on dates and this may not be right and I can't remember where I read it...). (I had stopped using schemes by then so thought it didn't apply to me).
It wasn't retrospective in application like the Loan Charge though and clearly stated it was from the date xx/xx forward.
Does this ring a bell with anyone?

I'd imagine if you're still on a DR scheme (aka crazy...) you might get hit by this but not for older dates prior to that start date?
Possibly also if you are still using a limited company that was using a DR scheme internally before it became a normal limited (i.e. you switched to pay divs and salary instead of these expense contributions) it is an investigation that would have a valid case from a given date forward. Maybe that was the breadcrumb HMRC followed?

Also what happens if you closed down your limited company like others have said here - surely a CT correction can't be passed to you (if it was actually closed)? The Reg 80/81 applies only for PAYE income ? And there are time limits on Reg 80/81 (other than in the case of the loan charge) anyway are there not?

[webberg]

Only estimates. But coming forward to settle of your own accord, it can't be worked so that you pay MORE tax than a PAYE employee?

Go and read the terms of the November 2017 settlement.