HMRC Enquiry letters on Loans from EBT and other schemes

[Iliketax]

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.

You might want to read s554B ITEPA 2003 (and get professional advice on that and mention that s554R won't apply because of s554R(1)(c)) before you think that is a good idea.

(1) A person (“P”) takes a step within this section if—

(a) a sum of money or asset held by or on behalf of P is
earmarked (however informally) by P with a view to a later
relevant step being taken by P or any other person (on or
following the meeting of any condition or otherwise) in
relation to—

(i) that sum of money or asset, or
(ii) any sum of money or asset which may arise or derive
(directly or indirectly) from it, or

If the trustee did earmark the £200,000 then it is immediately taxable. Just to be clear, the 2011 disguised remuneration rules mean that somone thinking about something can create a tax charge.

[stonehenge]

So, what you are saying is, if you repaid the £200,000, none of that (not even £1) could ever come back to you without you immediately getting hit for tax on the whole £200,000?

[Iliketax]

So, what you are saying is, if you repaid the £200,000, none of that (not even £1) could ever come back to you without you immediately getting hit for tax on the whole £200,000?

No, I'm not quite saying that. I'm saying if the trustee earmarks that £200,000 to come back to you (your partner, your kids, etc) at some stage in the future then you will be taxed on the whole £200,000 immediately. It doesn't matter if its not been worked out the details (e.g. £20,000 per year for ten years, random amounts at random times, whatever), it doesn't matter if you don't know who is going to get it, who is going to pay it or whether there are conditions for it to be paid or not.

What you have to remember is that the disguised remuneration rules are incredibly widely drafted. The loan aspects that contractors think about is a tiny, narrow part of the legislation. I would bet that no one who advises contractors will know what s554R is without looking it up. They just do not need to go to that part of the legislation.

So while I am not saying that, the practical point is that HMRC will say that there is earmarking. And I think that they would be right. There is no reason on earth why you would repay the loan unless you know or suspect that you (or your partner, mum, kids, dog, whatever) will get it back. So you will think the £200,000 is earmarked for you. The trustee will earmark it by thinking ah, must remember to make sure stonehenge is ok on that £200,000 (otherwise, give me their phone number and I'll ask for someone of it). And HMRC will basically think that there has been some earmarking being done by the trustee. So you will have the tax charge.

But the good news is that (unlike the loan charge) HMRC can let you off an earmarking charge if you never get anything.

I'm quite happy for you not to believe me. But for completeness, this is what HMRC say: https://www.gov.uk/hmrc-internal-man...anual/eim45095

[webberg]

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.

No, not negative. Factual and based on law.

The loan pay back to avoid the DR charge is anticipated and dealt with in the legislation. It very specifically says that unless you can get within the "commercial loan" exemption (and I would be amazed if any loans in this situation could) then any arrangement which sees the loan being repaid and the cash coming back to the borrower in some form can be ignored.

Like I said, almost certainly the cash coming back is taxable under Part 7a.

I think you have some valid points that in a reasonable world should be taken into account. You have to realise here however that HMRC consider you have perpetrated a tax avoidance scheme and as such tax must be paid. Therefore applying logic and common sense is not going to get you far in dealing with the complex web of law that exists. I think you need to realise the situation you are in and understand that what you were sold probably no longer achieves what you were told and indeed may never have done so. Until you come to terms with the realities of life here, I and other specialists here are going to struggle to remove you rose tinted glasses.

[webberg]

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.

Let's be clear. WTT is NOT a "promoter of options".

We have an analysis that we believe is sustainable based on current law and decisions. We are working towards that.

If you are tempted by "tax efficient ways of avoiding the LC", then you are absolutely correct that WTT is not for you.

[stonehenge]

No, I'm not quite saying that. I'm saying if the trustee earmarks that £200,000 to come back to you (your partner, your kids, etc) at some stage in the future then you will be taxed on the whole £200,000 immediately. It doesn't matter if its not been worked out the details (e.g. £20,000 per year for ten years, random amounts at random times, whatever), it doesn't matter if you don't know who is going to get it, who is going to pay it or whether there are conditions for it to be paid or not.

What you have to remember is that the disguised remuneration rules are incredibly widely drafted. The loan aspects that contractors think about is a tiny, narrow part of the legislation. I would bet that no one who advises contractors will know what s554R is without looking it up. They just do not need to go to that part of the legislation.

So while I am not saying that, the practical point is that HMRC will say that there is earmarking. And I think that they would be right. There is no reason on earth why you would repay the loan unless you know or suspect that you (or your partner, mum, kids, dog, whatever) will get it back. So you will think the £200,000 is earmarked for you. The trustee will earmark it by thinking ah, must remember to make sure stonehenge is ok on that £200,000 (otherwise, give me their phone number and I'll ask for someone of it). And HMRC will basically think that there has been some earmarking being done by the trustee. So you will have the tax charge.

But the good news is that (unlike the loan charge) HMRC can let you off an earmarking charge if you never get anything.

I'm quite happy for you not to believe me. But for completeness, this is what HMRC say: https://www.gov.uk/hmrc-internal-man...anual/eim45095

No, I believe you alright.

And in my case, it's purely hypothetical because I certainly wouldn't trust the current trustees with any money.

Presumably, the Govt only included the loan repayment option to make LC19 seem more legitimate. In reality, anyone who actually does repay their loans will be treated with immediate suspicion.

[ChimpMaster]

The only way to avoid the charge is by death - as I understand from HMRC's own notes. Just goes to show how much of a damn they give about anyone.

[Safe]

No, I'm not quite saying that. I'm saying if the trustee earmarks that £200,000 to come back to you (your partner, your kids, etc) at some stage in the future then you will be taxed on the whole £200,000 immediately. It doesn't matter if its not been worked out the details (e.g. £20,000 per year for ten years, random amounts at random times, whatever), it doesn't matter if you don't know who is going to get it, who is going to pay it or whether there are conditions for it to be paid or not.

What you have to remember is that the disguised remuneration rules are incredibly widely drafted. The loan aspects that contractors think about is a tiny, narrow part of the legislation. I would bet that no one who advises contractors will know what s554R is without looking it up. They just do not need to go to that part of the legislation.

So while I am not saying that, the practical point is that HMRC will say that there is earmarking. And I think that they would be right. There is no reason on earth why you would repay the loan unless you know or suspect that you (or your partner, mum, kids, dog, whatever) will get it back. So you will think the £200,000 is earmarked for you. The trustee will earmark it by thinking ah, must remember to make sure stonehenge is ok on that £200,000 (otherwise, give me their phone number and I'll ask for someone of it). And HMRC will basically think that there has been some earmarking being done by the trustee. So you will have the tax charge.

But the good news is that (unlike the loan charge) HMRC can let you off an earmarking charge if you never get anything.

I'm quite happy for you not to believe me. But for completeness, this is what HMRC say: https://www.gov.uk/hmrc-internal-man...anual/eim45095

So what's the solution then? There is a key for any lock! Must be a way for all of this.

[Safe]

The only way to avoid the charge is by death - as I understand from HMRC's own notes. Just goes to show how much of a damn they give about anyone.

For tax you might be right however for repaying back your loan, it depends on your contract with promoter. Mine says that I've to pay back the loan within 50 years or death whichever is sooner.

[Finalwhistle]

progress

Can anyone recommend an Accountant or Tax Specialist who has experience of dealing with EBT's & particularly employee loans (post Dec 2010).

Please PM me or recommend here (I believe this is ok in the forum rules mod?).

Hello Jimbob,
how did you get on with this? Did you find anyone to represent you in the end? PM me if possible please?