AM Limited COP8 HMRC Investigation Letter..

[Waldorf]

If you read the National Audit Office report on mass marketed tax avoidance, a huge portion of it is contractor related.
Tax avoidance: tackling marketed avoidance schemes - National Audit Office

These schemes did not exist prior to IR35, and there can be no doubt IR35 created the market for them.

From the National Audit report, this seems to describe how these dodgy schemes work:

The scheme

The scheme is used mainly by individuals working as contractors (the ‘scheme users’) and earning at least £50,000 a year.

The scheme users became employees of an offshore employer for the 2011-12 tax year. The offshore employer seconded employees to a UK intermediary, which invoiced the companies using the scheme users’ services.

The offshore employer paid the scheme users the minimum wage. The scheme users would have been liable to pay the small amount of income tax and national insurance contributions due on this. The offshore employer loaned the scheme users the rest of the money they had earned as interest-free loans. Interest-free loans are a benefit in kind, and generate only a small tax charge. Thus, the scheme users received their full income, less any administration costs, but will have paid tax only on an amount equal to the minimum wage plus a small charge for the benefit in kind.

HM Revenue & Customs response

The scheme was notified to HMRC via DOTAS in July 2011. In August 2011, HMRC began investigating the scheme and issued a warning about this type of scheme on its website. The promoter met HMRC and explained how the scheme operated. HMRC also invited some of the scheme users to meet so that it could gather information about how the scheme worked and target its formal requests for information. HMRC could not oblige people to attend these meetings and none chose to do so.

HMRC knows that this scheme had approximately 1,500 users because the offshore employer would have had to submit a year end return listing its employees. HMRC received this information in May 2012. As HMRC has received scheme users’ tax returns, it has begun to open enquiries. It is investigating how much was received as loans, and whether these will in practice be repaid.

So HMRC knows about how these work but is taking its time to ged around to them all and close them down, it seems certain that the scheme providers will soon be looking for something else to do with their time.

[Wanderer]

From the National Audit report, this seems to describe how these dodgy schemes work:

I could never work out what the end game is for these loans. What if:


HM Revenue & Customs successfully challenges or attempts to challenge the scheme. The scheme provider makes a big bluff and bluster about fighting it but then suddenly ceases trading and goes into liquidation.

Contractor is left with a huge tax bill because the loan is released or written off.

Even if the scheme isn't successfully challenged or the loan is not written off the contractor is left with a BIK charge for the rest of their life on the outstanding loan. How can that be tax efficient?


Meanwhile the scheme provider takes the money and disappears only to reappear with a new scheme and the slow motion game of whack-a-mole with HMRC starts all over again. This could go on for years. Considering the scheme brings huge fees (say 10% of the contractor turnover) and low costs, it's going to be very attractive for the scheme promoter.

[cojak]

I could never work out what the end game is for these loans. What if:


HM Revenue & Customs successfully challenges or attempts to challenge the scheme. The scheme provider makes a big bluff and bluster about fighting it but then suddenly ceases trading and goes into liquidation.

Like this you mean?
http://forums.contractoruk.com/accou...ml#post1678612

Hi all,

I've just seen this string of posts re the former Sandfield - Overseas Consulting scheme. Unfortunately, I'm one of the unlucky few caught up in the whole mess as well. Of course, like you, am getting frustrated as there seems to be no resolution in sight.

I noted your earlier posts re taking legal action against Sandfield and was wondering if that option got any traction. It appears that we have been left out to hang as it seems that Sandfield has been dissolved; and Chilterns has been bought by BDO.

Does anyone know if we still have representation? Who we should be speaking to?

[TonyT]

AML HMRC letter

Hi,
I too have received one of those letters.
From my understanding AML have advised that
it is a compliance check. However I have
attempted to contact AML about this and all
they advise is that they are taking care of this matter.
They don't give too much away.
I have a colleague who is with AML and he also
received one of these letters.
We wait in hope.
Cheers
Tony T

[TonyT]

I (stupidly) fell into the trap of the EBT/PBT structures and was taken in with the 'it's 100% legal' and the 'Counsel Approved' sales pitches, along with the 85%+ take home! Fortunately, I changed to running my own Limited Company as of the beginning of this year, mainly direct to clients now.

I was hoping that my naivety (and to be honest, my stupidness) wouldn't come back and bite me in the butt. I finally saw that it wasn't as 'legal' as they made out and was not worth the risk.



Today, I have received a letter from HMRC, which starts with "Thank you for your Tax Return for the year ended 5 April 2011." The letter goes on to say "I would now like to check your return. My check will be made under Section 9A Taxes Management Act 1970, and under HMRC Code of Practice 8 - cases where serious fraud is not suspected."

They go on to explain few general things about how they will conduct this check fairly, and go on to say;

"I note that during the year you took part in arrangements whereby you had entered into a contract of employment with an offshore employer AM Limited and in due course received sums of money in the form of loans or expenses."

Would you please let me know

• What sums you received in the form of loans or expenses during this year endded 5 April 2011, either directly or indirectly with your engagement with AM Limited.
• What amounts of loans you have since repaid, and on what dates.

As you can imagine, I am very worried, haven't properly slept since I got the letter and not sure what happens next. I have asked AM Limited what to do next as I am assuming that it is not just me that is been asked these questions. A tax specialist has advised that this is a 'Project case' and HMRC will be targeting everyone who usedAM Limited.

I have a few questions...

1. I have already provided them the amounts on my Tax Return, why are they asking for the same figure again?
2. Obviously I haven't paid any of the loan back -I am trying to find out what I should answer this question with.
3. When I provide this information, are they going to straight away slap me in the face with a bill for PAYE and NI against the loan amount, or will that come once they have challenged the AM Limited EBT structure/vehicle in a court?
4. If they do send me a tax bill for PAYE/NIC against the loan, for example, for around £60,000, and I cannot afford it (which I can't!), can I pay them monthly? I don't want to go bankrupt.
5. I expect that if AM Limited will not help me, I will need some professional representation to deal with HMRC, and hopefully get across to them, that I was an idiot. Does anyone have any sort of idea how much someone like this would cost to do the communication between me and HMRC?

Constructive comments only please. I know I was naive, I know I was stupid to even go near these companies, but I saw this and changed things earlier this year.

Really grateful in advance. I hope the questions above will be helpful to anyone else in my situation.

Thanks,
(a very worried) Neo222

Hi Neo, I too am with AML and received the same letter.
You have already paid off the loan.
HMRC are doing compliance checks.
I suggest you leave all your TAX affairs for AML to respond to.

[cojak]

I missed this thread so I'm moving it to the HMRC Scheme Enquiries forum.

[d000hg]

Hi mudskipper,

I've just been doing some workings and looking at my tax return that I submitted. THe cash benefit was approximately £6000 for the tax year and the loan amount was approximately £110,000.

How many years were you using this scheme? Maybe I am being simplistic here, but if they gave you take-home of 85% rather 70-75% as would be more normal, isn't the amount you potentially owe 10-15% of what you earned during those years?

Anyone?

[fullyautomatix]

Hi Neo, I too am with AML and received the same letter.
You have already paid off the loan.
HMRC are doing compliance checks.
I suggest you leave all your TAX affairs for AML to respond to.

It depends on what evidence you can show that the loan was paid off.

[LisaContractorUmbrella]

How many years were you using this scheme? Maybe I am being simplistic here, but if they gave you take-home of 85% rather 70-75% as would be more normal, isn't the amount you potentially owe 10-15% of what you earned during those years?

Anyone?

Plus interest plus penalties

[d000hg]

Plus interest plus penalties

Would they do that in the first instance, if you agree to cough up?