HMRC Enquiry letters on Loans from EBT and other schemes

[webberg]

Appreciate the detailed response on this webberg.

Indeed its difficult trying to make any form of progress on this and working out the best steps to take. Most advice so far from various accounts companies has been lacking in real knowledge of the schemes and the real predicament we are in.

Has anybody actually settled with HMRC that you are aware of whilst their provider is still active?

Yes. We are helping a number of people right now.

We suspect that because we ask for certain things to be included (guarantee that the DR charge will not apply; clarification where an earlier settlement was used; etc) that we are making life difficult for ourselves and HMRC. However the client pays us to be difficult and to get as close as we can to a the "final" position that is promised.

In some instances we had the loan obligation removed last year. In others we have a view that the loan is ultra vires. In others we have a good relationship with the current owner of the loan.

In some instances, the loan was not removed last year. Some loans are definitely real. Some owners refuse to acknowledge us and will not pick up the phone or let us in their office.

[Finalwhistle]

Worth the money?

Hello,
I have received an enquiry letter about a loan I received and am in a position whereby a tax advisor is offering to respond to the enquiry for 12 months for a charge. Fine.
However these enquiries are notoriously slow and I don’t really see how such an enquiry will be concluded within the next 15 months prior to April 2019 (loan tax day). Come April 2019 I’m guessing I will be affected by the loans tax irrelevant of what stage of the enquiry is, is this correct?
My arrangement involves receiving a loan from the employer with a guarantee that I repay within 10 years. It is not DOTAS or otherwise EBT registered.
So am I throwing money down the drain on dragging the enquiry out or should I instead be planning the cheapest exit strategy possible in time for April 19?
Anyone else in a similar position?
Thanks

[Finalwhistle]

final position?

Yes. We are helping a number of people right now.

We suspect that because we ask for certain things to be included (guarantee that the DR charge will not apply; clarification where an earlier settlement was used; etc) that we are making life difficult for ourselves and HMRC. However the client pays us to be difficult and to get as close as we can to a the "final" position that is promised.

Webburg,

what do you mean by "final"position. What is the final end game? do you mean a position whereby HMRC have run out of challenges on the loan agreement and therefore in affect failed to qualify the loan as tax deductible? I can't imagine there is ever as case whereby HMRC will give an "ok" in which case all loan agreements remain either "in dispute" or remain "unchallenged". Either way do either of these outcomes even matter by the time April 2019 comes along???

appreciate your thoughts.

[webberg]

Webburg,

what do you mean by "final"position. What is the final end game? do you mean a position whereby HMRC have run out of challenges on the loan agreement and therefore in affect failed to qualify the loan as tax deductible? I can't imagine there is ever as case whereby HMRC will give an "ok" in which case all loan agreements remain either "in dispute" or remain "unchallenged". Either way do either of these outcomes even matter by the time April 2019 comes along???

appreciate your thoughts.

You need to spend some time researching the threads.

I'll give you a brief summary here but there is a lot of detail that you can get only by studying the threads.

You have three choices here.

Settle via CLSO 2 - i.e. HMRC's preferred version of the truth

Litigate - don't know what schemes you have so I can't say if there is a group going for this

Resolve via our or another's resolution process.

You have asked about CLSO 2, so I'll stay with that.

HMRC claim that if you treat the sums paid to as income instead of loans, add that to your income in the relevant years, calculate the tax and NIC for some years, add interest for those years that are open (see threads numerous), add IHT based on their analysis and pay that sum after signing an agreement, then that is a final settlement.

We have our doubts.

HMRC claim that if you do not have the loans written off within 90 days of that agreement, then more IHT might be due when the loans are written off or otherwise removed.

HMRC say that if the loan is written off later, this might be another occasion of charge under Part 7a.

HMRC say that settlement should protect you from the DR charge in 2019 but will not confirm this in the contract.

HMRC say that if the loan is repaid and the money (after no doubt fees) is distributed to you as a trust payment, more tax could be due and they will not confirm otherwise.

There are other areas of uncertainty but the above are perhaps the main ones.

You should now be braced for claims the above is a scare story designed to drive you into our books as a fee paying client. It's not. It's a list of issues that we have encountered for those we have settled for. Some advisers here will say that we are too cautious. Perhaps we are. There are lots of advisers and you can choose.

[Finalwhistle]

Aloanisaloanisaloan

You need to spend some time researching the threads.

I'll give you a brief summary here but there is a lot of detail that you can get only by studying the threads.

You have three choices here.

Settle via CLSO 2 - i.e. HMRC's preferred version of the truth

Litigate - don't know what schemes you have so I can't say if there is a group going for this

Resolve via our or another's resolution process.

You have asked about CLSO 2, so I'll stay with that.

HMRC claim that if you treat the sums paid to as income instead of loans, add that to your income in the relevant years, calculate the tax and NIC for some years, add interest for those years that are open (see threads numerous), add IHT based on their analysis and pay that sum after signing an agreement, then that is a final settlement.

We have our doubts.

HMRC claim that if you do not have the loans written off within 90 days of that agreement, then more IHT might be due when the loans are written off or otherwise removed.

HMRC say that if the loan is written off later, this might be another occasion of charge under Part 7a.

HMRC say that settlement should protect you from the DR charge in 2019 but will not confirm this in the contract.

HMRC say that if the loan is repaid and the money (after no doubt fees) is distributed to you as a trust payment, more tax could be due and they will not confirm otherwise.

There are other areas of uncertainty but the above are perhaps the main ones.

You should now be braced for claims the above is a scare story designed to drive you into our books as a fee paying client. It's not. It's a list of issues that we have encountered for those we have settled for. Some advisers here will say that we are too cautious. Perhaps we are. There are lots of advisers and you can choose.

Thanks webberg for your time/ response. Yes I have read the clso conditions.. I just didn’t realise there was an extension I.e clso 2.
May I ask how confident you are that HMRC will actually be able to implement the April 2019 legislation? It seems like a good scare tactic but (as my scheme providers are still active) should I start paying my loans back within the agreed 10 year slot then how can it be argued that they are anything other than legitimate loans (not via a trust).
I’m braced for the views from other advisors but it appears they are not taking your bait

[webberg]

Thanks webberg for your time/ response. Yes I have read the clso conditions.. I just didn’t realise there was an extension I.e clso 2.
May I ask how confident you are that HMRC will actually be able to implement the April 2019 legislation? It seems like a good scare tactic but (as my scheme providers are still active) should I start paying my loans back within the agreed 10 year slot then how can it be argued that they are anything other than legitimate loans (not via a trust).
I’m braced for the views from other advisors but it appears they are not taking your bait

The DR charge is not a "scare tactic".

It was announced in March 2016 and is now in legislation that has passed in Parliament.

It's the law and HMRC will implement it. No question.

IN terms of repaying your loans, that's obviously your choice. I would caution sending money to promoters who have already shown themselves willing to mislead you because once they have it, what guarantee have you got that it will be returned?

Further, a distribution from a trust or from the lender is almost certainly a taxable event under the disguised remuneration rules. Therefore all you're doing is swapping a liability from a previous year in the year you get the money back. (If you get it back). Oh, and no doubt paying a heavy fee in the middle.

Further a plan to repay loans in order to avoid the DR charge but where you get the money back, will be ignored for the purposes of the DR charge. Absent double tax relief therefore you run the risk of a DR charge or an HMRC investigation into the "avoidance" scheme you used to avoid the charge.

Believe these are scare stories if you wish.

I believe that the above is all real.

[stonehenge]

Suppose you had loans of £200k. And you paid them back now. That would remove you from the LC.

You could then leave the money in the Trust and say get it back as £20k/year income in retirement and pay tax on it. This would greatly reduce the overall tax because you could make use of allowances every year.

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Trouble is, who would trust their providers to honour this? I certainly wouldn't trust mine; they're border line crooks. Chances of ever seeing the money again would be virtually nil.

[stonehenge]

I suppose the above might be viable if you could somehow get the current trustees to transfer your loan to another Trust with proper independent trustees. Maybe the new trust could buy the debt for a reasonable fee. This might incentivise awkward scheme providers to cooperate.

Then you could repay the loan and have some confidence that the money wouldn't get misappropriated.

[Finalwhistle]

Pay loan back

The DR charge is not a "scare tactic".

It was announced in March 2016 and is now in legislation that has passed in Parliament.

It's the law and HMRC will implement it. No question.

IN terms of repaying your loans, that's obviously your choice. I would caution sending money to promoters who have already shown themselves willing to mislead you because once they have it, what guarantee have you got that it will be returned?

Further, a distribution from a trust or from the lender is almost certainly a taxable event under the disguised remuneration rules. Therefore all you're doing is swapping a liability from a previous year in the year you get the money back. (If you get it back). Oh, and no doubt paying a heavy fee in the middle.

Further a plan to repay loans in order to avoid the DR charge but where you get the money back, will be ignored for the purposes of the DR charge. Absent double tax relief therefore you run the risk of a DR charge or an HMRC investigation into the "avoidance" scheme you used to avoid the charge.

Believe these are scare stories if you wish.

I believe that the above is all real.

Wow webberg, so many (negative) assumptions!! If the loan is paid back then the loans tax doesn’t apply. Factually correct I believe, not subjective.. How about if there is evidence that the loan is being paid back so that the loan is cleared by the term of the Loan agreement (6 years from April 2019)? I’m not discussing a trust fund here, just a commercial loan between a company and a person who has a legitimate reason for taking a loan.

[Finalwhistle]

Efficient (legitimate!!!) ways of avoiding the LC

Suppose you had loans of £200k. And you paid them back now. That would remove you from the LC.

You could then leave the money in the Trust and say get it back as £20k/year income in retirement and pay tax on it. This would greatly reduce the overall tax because you could make use of allowances every year.

------------------------------------------------

Trouble is, who would trust their providers to honour this? I certainly wouldn't trust mine; they're border line crooks. Chances of ever seeing the money again would be virtually nil.

I agree Stonehenge there are legitimate ways of getting the loan money back through PAYE/NIC if went through the payroll of the provider or through pension contributions. Webberg seems to jump to the conclusion that the only way is to use another scheme which is surprising seeing as he is supposed to be advertising WTT as a promoter of options. If these are more tax efficient ways of avoiding the LC then why not be explored. Yes there is an element of trust involved with the provider but from what I’ve heard (webberg again) even if we pay all these loan charges there is still no guarantee from HMRC that that will be the end of it..but let’s ignore that for the time being and just explore options. Once all the options are on the table the element of risk against each one can be evaluated. As I may have said before I speak to be provider on a weekly basis so feel comfortable approaching them with options.