HMRC Enquiry letters on Loans from EBT and other schemes

[AnotherContractor]

Am I right in thinking that HMRC can only issue APN's against open enquiries / DA's?

If I have a return that's now outside the window (ie 6 years) then, in theory, they can't check this?

According to the Q&A leaflet, the HMRC can open inquiries in the preceding 6 years to Apr-2011

[PeterF]

According to the Q&A leaflet, the HMRC can open inquiries in the preceding 6 years to Apr-2011

I'm not so sure. Q15 says "where we have an open enquiry or assessment for a year, we will need to consider those in our calculations for settlement".

As things stand today I suspect it's only years which have an enquiry or such against them already which are eligible for APN/Settlement discussion, with anything older than 6 years without an enquiry or assessment being out of touch for HMRC. I'd suggest they negate to make that clear since it wouldn't fit in with their desired shock tactic.

That said, will the bully boys at the top invent some new laws at some point which mean 6 years can be extended to whatever timescale they fancy? Will they bulltulip another law through parliament which gets approval to go back 20 years? Who knows, nothing would surprise any longer.

[malvolio]

I'm not so sure. Q15 says "where we have an open enquiry or assessment for a year, we will need to consider those in our calculations for settlement".

As things stand today I suspect it's only years which have an enquiry or such against them already which are eligible for APN/Settlement discussion, with anything older than 6 years without an enquiry or assessment being out of touch for HMRC. I'd suggest they negate to make that clear since it wouldn't fit in with their desired shock tactic.

That said, will the bully boys at the top invent some new laws at some point which mean 6 years can be extended to whatever timescale they fancy? Will they bulltulip another law through parliament which gets approval to go back 20 years? Who knows, nothing would surprise any longer.

If they suspect wrong or insufficient information has been supplied deliberately, they can go back as far as they like; 20 years is the usual term, but is not the limit.

[dangerouswhensober]

Have HMRC appealed the Rangers judgement yet ?

On 9th July 2014 the HMRC lost the UTT appeal in the Rangers case (which involved an EBT scheme). In my understanding, HMRC has one calendar month to appeal this decision (to the next level, which is the Court Of Appeal). (A previous post stated: It will be an interesting call for HMRC on whether they appeal the Rangers UTT decision. They only have two weeks or so to seek permission to appeal. They might not appeal and they might not get permission).

Does anyone know whether HMRC has lodged an appeal yet, and, if so, on what grounds ?

[Rob79]

On 9th July 2014 the HMRC lost the UTT appeal in the Rangers case (which involved an EBT scheme). In my understanding, HMRC has one calendar month to appeal this decision (to the next level, which is the Court Of Appeal). (A previous post stated: It will be an interesting call for HMRC on whether they appeal the Rangers UTT decision. They only have two weeks or so to seek permission to appeal. They might not appeal and they might not get permission).

Does anyone know whether HMRC has lodged an appeal yet, and, if so, on what grounds ?

The case was remitted back to the FTT for certain issues. Until they are resolved I suspect that the appeal period will not start.

Normally in such cases the appeal period is 42 days. That said, the deadline would fall into the summer recess. In that case it is normal to basically start your appeal period on a "working" day for the judiciary and ignore any non working days. Therefore a 42 day period from 8th July which ignores August, could extend to mid September. Could be longer if the appeal period starts only when the FTT has considered the issues before it.

Even if the prospect of collecting any cash in the event of a "win" by HMRC is low, I think this will go all the way to Supreme Court.

[dangerouswhensober]

The case was remitted back to the FTT for certain issues. Until they are resolved I suspect that the appeal period will not start.

Normally in such cases the appeal period is 42 days. That said, the deadline would fall into the summer recess. In that case it is normal to basically start your appeal period on a "working" day for the judiciary and ignore any non working days. Therefore a 42 day period from 8th July which ignores August, could extend to mid September. Could be longer if the appeal period starts only when the FTT has considered the issues before it.

Even if the prospect of collecting any cash in the event of a "win" by HMRC is low, I think this will go all the way to Supreme Court.

Thank you - that's a very clear explanation.

I also believe that HMRC will want to take this all the way to the Supreme Court, for two reasons:

(1) Giving up at any stage will cost them a significant amount (millions of pounds) of lost revenue (in terms of similar cases they will not be able to pursue), and
(2) As other people have noted, it's now in the interests of HMRC to push any final judgements as far as possible into the future, whilst collecting as much as possible (via APNs) as soon as possible. Even if they have to give back payments received now in a couple of years, it still makes their books look good between now and then.

One comfort seems to be that HMRC have to find a valid basis to appeal the UTT judgement, such that the Court Of Appear will consent to hear the case - and the same if they lose the CoA and want to go to the Supreme Court.

[meanttobeworking]

I'm sure greater minds than I have considered and dismissed this avenue way before now, but is there some arrangement that could be made to begin repaying the loans over an extended period, and at the end of that period draw the money out in some taxable way? Although this will no doubt cancel out any tax gain made, it would certainly confirm that they are indeed loans, and remove the time constraints APNs and so on impose?

Like I say, I'm sure I'm just missing something, but curious what it is.

[Rob79]

I'm sure greater minds than I have considered and dismissed this avenue way before now, but is there some arrangement that could be made to begin repaying the loans over an extended period, and at the end of that period draw the money out in some taxable way? Although this will no doubt cancel out any tax gain made, it would certainly confirm that they are indeed loans, and remove the time constraints APNs and so on impose?

Like I say, I'm sure I'm just missing something, but curious what it is.

I think that repaying the "loan" is pointless for tax purposes. HMRC's case is that these are not loans but remuneration. Consequently repaid or not, they constitute taxable income. Repaying the "loan" and drawing the value out again in some form is perhaps going to mean paying tax twice on the same amount, assuming HMRC stick to their argument.

Legally it would be interesting to see what happens. Presumably most of the loans are from a company or a trust. A loan from a company to shareholder and/or employee can require the company to pay 25% tax IF IT IS IN THE UK. I suspect most of these are not.

A loan from a trust to a beneficiary is perhaps more straightforward.

[meanttobeworking]

HMRC Enquiry letters on Loans from EBT and other schemes

Yeah I see what you're saying. It's just that when they wrote to me 18 months ago asking for what loans I had received, the specifically asked what were the loan amounts and what repayments had been made. If I had at that time made some repayments, no matter how small, I wonder if they would have any way of claiming the loans were not loans. These are all loans from trusts btw.

[Rob79]

Thank you - that's a very clear explanation.

I also believe that HMRC will want to take this all the way to the Supreme Court, for two reasons:

(1) Giving up at any stage will cost them a significant amount (millions of pounds) of lost revenue (in terms of similar cases they will not be able to pursue), and
(2) As other people have noted, it's now in the interests of HMRC to push any final judgements as far as possible into the future, whilst collecting as much as possible (via APNs) as soon as possible. Even if they have to give back payments received now in a couple of years, it still makes their books look good between now and then.

One comfort seems to be that HMRC have to find a valid basis to appeal the UTT judgement, such that the Court Of Appear will consent to hear the case - and the same if they lose the CoA and want to go to the Supreme Court.

I would agree with the above assessment and add that the sort of arrangement seen in this case is repeated with many football clubs and as such the potential tax at stake is enormous. HMRC will continue to the bitter end if only to narrow the grounds of a final defeat so that the precedent is limited.

My understanding is that APN's will begin to appear in September. I don't know what priority is to be applied but I suspect that a number of high profile tax avoidance cases in other sectors might get attention sooner rather than later.

Finding grounds for appeal looks straightforward. There are a number of areas in which the judgment looks soft. The key one though is that HMRC want to put aside the legal nature of the loans and have the advance treated as remuneration. That requires the sort of purposive approach seen in other tax avoidance cases. To date HMRC has been very successful with those (mainly because they've held back marginal cases and taken only the most egregious) but there remain hurdles for them to overcome.