Edge EBT thread

[Michael J Perry FCA]

Tribunal decisions imminent

Tax Tribunal judgements on hearings held in May 2013 have been delayed but these are expected soon and we will update on the possible effect on individual scheme arrangements. Permission to appeal any decision is likely to be granted and therefore these matters may be further protracted.

Bear in mind that cases on Edge Consulting commenced around January 2007.

[kincaide]

It was a shock for me to discover that Edge had been under investigation since 2007 (- certainly something that wasn't highlighted to me when I joined in 2009)! The recent HMRC letters refer to "Part 13, Chapter2, Income Taxes Act 2007" - mainly regarding 'Transfer of Assets'.

Coincidence that both are from 2007? Although I am surprised it is still rolling on six years later - are these tribunals at a very advanced stage?

[FHP143]

P11D

I feel we have been too.

I got my letter yesterday, relating to 2009/10. Luckily I was only with them for 4 months, before I moved on, but HMRC knew to the very penny, exactly how much was in the EBT loans. I wonder where they got that information from ...

Edge will have supplied this information to HMRC using your P11D (they had to do this, it was a legal requirement!). You're all forgetting that HMRC are not saying that EBT's were illegal. They were reported structures that any company using them had to register for. Edge and many other companies were DOTAS registered so HMRC were fully aware of how an EBT worked. HMRC are not saying EBT's wrong or unlawful, they are changing their minds about how the loans were paid. They are now trying to state retrospectively that the loans were revenue.

[malvolio]

They are now trying to state retrospectively that the loans were revenue.

Not quite, AIUI (but happy to be proved wrong) they are applying the provisions of the anti-avoidance measures introduced in 2009 and are trying to tax you on the benefit of having the loan available for use. This is not retrospective taxation (as it is in the BN66 case) but deferred taxation.

[FHP143]

Not quite, AIUI (but happy to be proved wrong) they are applying the provisions of the anti-avoidance measures introduced in 2009 and are trying to tax you on the benefit of having the loan available for use. This is not retrospective taxation (as it is in the BN66 case) but deferred taxation.

Nope, they are not applying benefit-in-kind tax here which was always due and paid on EBT's anyway. HMRC are charging you FULL income tax on the loans. They have reclassified the loan payments as income. At the time, the loans were fully declared as loans and treated as beneficial loans by HMRC. They have now decided that the loans should never have been loans in the first place and want to class them as income. In December 2010 HMRC changed the law and stopped EBT's from being used, they are now retrospectively seeking to change how they treated the loans up to that point so it may not be retrospective tax "as such" like it was with BN66 but it is a retrospective act of changing how HMRC are treated loan previously.

[kincaide]

.... In December 2010 HMRC changed the law and stopped EBT's from being used, they are now retrospectively seeking to change how they treated the loans up to that point so it may not be retrospective tax "as such" like it was with BN66 but it is a retrospective act of changing how HMRC are treated loan previously.

This is the part I don't really understand. How can HMRC expect to do this? The law changed in Dec2010, so I would have thought they can't apply that law to anything prior to that time. However, HMRC do seem to be rather bullish about the fact that they can.

[Tweedle]

Nope, they are not applying benefit-in-kind tax here which was always due and paid on EBT's anyway. HMRC are charging you FULL income tax on the loans. They have reclassified the loan payments as income. At the time, the loans were fully declared as loans and treated as beneficial loans by HMRC. They have now decided that the loans should never have been loans in the first place and want to class them as income. In December 2010 HMRC changed the law and stopped EBT's from being used, they are now retrospectively seeking to change how they treated the loans up to that point so it may not be retrospective tax "as such" like it was with BN66 but it is a retrospective act of changing how HMRC are treated loan previously.

My latest assessment actually states the rules they are applying are the "transfer of assets" rules - part 13, chapter 2, income taxes 2007. Which is to do with the fact the money was earned in the uk but moved out of the uk then paid back into the uk....not sure if this can only be applied because they are still asserting this was income and not a loan or if this Transfer of Assets rule can be applied to loans....anyone able to enlighten me?

[meanttobeworking]

I received a request for information from HMRC in February (to which I replied), but have not yet received a request for payment as some others have (I'm sure it's on the way). I was only with Edge from May 2010 to December 2010, so I'm in the relatively fortunate position that the amount they are likely to demand would not be crippling (although it would be very inconvenient!). This opens up the option to me (however unsavoury) of just paying the bill and relaxing, rather than appealing and waiting years in the hope that somehow I can wriggle out of it. Is there a third option of paying the money now to avoid interest and penalties, but having the potential for that money to be returned in the unlikely case that it turns out that HMRC don't win? I'm sure I remember This type of arrangement being mentioned in the past.

[Living life on the Edge]

a third way?

Is there a third option of paying the money now to avoid interest and penalties, but having the potential for that money to be returned in the unlikely case that it turns out that HMRC don't win?

You could consider lodging a Certificate of Tax Deposit (CTD):

The money lodged as a CTD with HMRC Cumbernauld will prevent interest accruing on the equivalent amount of the liability from the date that the CTD is created by HMRC...you would still be potentially liable for any interest accrued up to that point from the due date of the assessment and for any interest on liability amounts above the amount lodged as a CTD.

Note the following -
1) interest is currently accruing - last time I looked - at 3% per annum (simple interest, not compound, i.e. not interest on interest)
2) Unless you lodge an amount of £100,000 or more in a single deposit, your CTD does not earn interest whilst it is with HMRC so if you were to subsequently redeem your CTD (e.g. if you were no longer liable for the tax for some reason), it would not have earned interest in the meantime.

This option is not for everyone (i.e. you obviously need readily available funds to do it), but could be considered as a way of preventing the interest from spiralling.

[meanttobeworking]

Thanks very much for the reply. It's odd because at the moment, they've not actually asked me for any money so I don't have a figure to use for a CTD, but it's good to know what the options are ahead of time. Thanks again for the advice.