Hypothetical - No data scenario

[Contractor198]

What if scenario - entertain me

LC letter received. As with them all, there is no detail on what you owe, or what they think you owe. Play this through:

Request SAR as you don't know your total loans exactly - rough calculations show 100k as you don't have bank records that far back.

1) They have no data - I don't think this is likely as they have sent a letter
2) They have data, it shows 60k. Go with this option, settle that amount or put off to the formal LC in 2019 - you know your exposure
3) They have data, it shows 100k. Same as 2, settle or put off to LC.

The bit that is interesting is point 2.

Stealing a point from Webberg in another post (hope you don't mind Webberg!):
4. You have a legal obligation to disclose loans that are caught. If you do not, that's your choice but be aware of the penalties. You can be all means send HMRC a SAR to discover what they know about you but playing games with what should be or should not be disclosed is potentially expensive.

How expensive? Is it possible to quantify? Surely that would drive the decision on do nothing, something or everything.

40k gap in above scenario - what would be the penalty?

I think the above could apply to many innocent scenarios where people genuinely don't know exact numbers.

[Calmbeforethestorm]

What if scenario - entertain me

LC letter received. As with them all, there is no detail on what you owe, or what they think you owe. Play this through:

Request SAR as you don't know your total loans exactly - rough calculations show 100k as you don't have bank records that far back.

1) They have no data - I don't think this is likely as they have sent a letter
2) They have data, it shows 60k. Go with this option, settle that amount or put off to the formal LC in 2019 - you know your exposure
3) They have data, it shows 100k. Same as 2, settle or put off to LC.

The bit that is interesting is point 2.

Stealing a point from Webberg in another post (hope you don't mind Webberg!):
4. You have a legal obligation to disclose loans that are caught. If you do not, that's your choice but be aware of the penalties. You can be all means send HMRC a SAR to discover what they know about you but playing games with what should be or should not be disclosed is potentially expensive.

How expensive? Is it possible to quantify? Surely that would drive the decision on do nothing, something or everything.

40k gap in above scenario - what would be the penalty?

I think the above could apply to many innocent scenarios where people genuinely don't know exact numbers.

We live in a country where tax for those, other than those on a payroll, is levied by means of Self Assessment.

The clue is in the title....its done by ones self. They trust you to be honest and take reasonable care over declarations so they are as accurate as possible.

If you deliberately under declare as in your point 2...it s fraud. The penalty could be severe but it would depend on if you got away with being careless or they found out you had wilfully lied.

Its no different from declaring any other type of income.

That said, if you have a loan that you genuinely believe is outside the scope of LC and you dont declare it because of this ( I dont think there is a requirement to necessarily declare such a loan) or you declare it and are prepared to fight your case should HMRC disagree and they already know about it , that might be different.

There doesn't seem to be a process whereby you can get your case adjudicated other than by entering into settlement negotiations or putting info on this years tax return.

What do the tax experts here think?

[webberg]

This is a tricky area.

If you are asked to make a declaration and after taking advice or doing you own research, you decide that your situation lies outside what both the words and the intention of the law are, then the penalty for getting that decision wrong can be high.

There is a penalty for non declaration which in the grand scheme of things may not be significant.

There is a penalty for continued non declaration which is a daily amount of £60.

There is then a tax based penalty should the sum not disclosed ultimately be taxable. That could be 60% of the tax due.

If you are obliged to disclose or you consider it sensible to do that and then fight the position from there, then you need to be careful on numbers.

If you have supplied HMRC with everything you have and they come back with numbers that have undertaxed the position, then that is their error and I would say generally that you are not obliged to correct them.

If you have information on numbers that has been requested and you do not supply it, then the position you reach with HMRC - reflected in the loan charge assessment - is worthless in terms of defending the imposition of a penalty should the true position come to light.

If you have information that has not been requested by HMRC but which should be supplied as part of your legal obligation, but you choose to withhold it, again, if a penalty arises you have no defence.

So, will a penalty arise?

It can arise only if you have not disclosed when you were obliged to or have knowingly disclosed an incorrect value.

How will HMRC ever know?

The agency does have a lot of data. They know that some schemes invariably paid loans as a multiple of salary and they will have PAYE records. They have asked some lenders and trusts for data and have received it. They have extensive powers to ask the IOM and Jersey etc for data.

Does HMRC have the staff to run checks or chase potential defaulters? Probably not but they do have algorithms which will mine their data and throw out exceptions. If 200 people are reporting a loan of 5x salary and you are reporting 3x salary, then you might expect a question perhaps?

The deliberate evading of a legal obligation and subsequent reliance on a defence of "HMRC didn't ask" is not a sensible strategy - indeed not a strategy at all. No competent adviser will tell you to do this.

Promoters are telling people that their scheme is not disclosable because the loan is from an employer and not a third party. There is some merit in that position, but it will turn on details and what happened to the loan subsequently. Just bear in mind that the promoter is protecting themselves and you are not their client and a penalty will be yours and not theirs. I would not therefore include a promoter in the category of a competent adviser for this purpose.

Whilst I know this will attract criticism, there is no substitute for having your scheme analysed by an adviser and understanding the pros and cons of disclosing or not.

No adviser will tell you to evade an obligation but equally no adviser will force you to disclose so long as they are happy that you understand the consequences. It's not our job to make a decision for you.

[Calmbeforethestorm]

Thank you for an excellent summary.

Challenge.

Please give an example (s)of a loan (s), other than ones on a commercial arms length basis that might not be caught.

[webberg]

Thank you for an excellent summary.

Challenge.

Please give an example (s)of a loan (s), other than ones on a commercial arms length basis that might not be caught.

I'd rather not do that here.

We have an extensive library of perhaps 120+ schemes from 2000 to date. Some of those schemes use methods other than a loan to achieve their aim. Whilst I may not agree that they achieve that aim, in some cases it's difficult to see a "loan" in the conventional sense.

HMRC saw this coming and the legislation refers to "other forms of credit". In our view that creates a problem for HMRC in that they argue that loans were made which were never intended to be repaid and therefore cannot be seen as loans, at least not at the point the money became available. With "other forms of credit" that argument gets even further stretched and we believe that it becomes unsustainable.

I'm pretty sure that if I laid out an example here, I'd see countering legislation in November, so I'll not do that and reserve my thoughts for my clients. I hope you understand.

[Calmbeforethestorm]

I'd rather not do that here.

We have an extensive library of perhaps 120+ schemes from 2000 to date. Some of those schemes use methods other than a loan to achieve their aim. Whilst I may not agree that they achieve that aim, in some cases it's difficult to see a "loan" in the conventional sense.

HMRC saw this coming and the legislation refers to "other forms of credit". In our view that creates a problem for HMRC in that they argue that loans were made which were never intended to be repaid and therefore cannot be seen as loans, at least not at the point the money became available. With "other forms of credit" that argument gets even further stretched and we believe that it becomes unsustainable.

I'm pretty sure that if I laid out an example here, I'd see countering legislation in November, so I'll not do that and reserve my thoughts for my clients. I hope you understand.

For sure, they are going to be pissed when they find out they missed some tricks.

[webberg]

For sure, they are going to be pissed when they find out they missed some tricks.

C'est la Guerre!

[LaurieDriver]

I am brand new to this, just received my letter and i have no data because this was 15 yrs ago !!! I like your line - "You can by all means send HMRC a SAR"

but i need to know what a SAR is because i think this is the only way i am going to know how much i had and how much i am going to be expected to pay..

Thanks

What if scenario - entertain me

LC letter received. As with them all, there is no detail on what you owe, or what they think you owe. Play this through:

Request SAR as you don't know your total loans exactly - rough calculations show 100k as you don't have bank records that far back.

1) They have no data - I don't think this is likely as they have sent a letter
2) They have data, it shows 60k. Go with this option, settle that amount or put off to the formal LC in 2019 - you know your exposure
3) They have data, it shows 100k. Same as 2, settle or put off to LC.

The bit that is interesting is point 2.

Stealing a point from Webberg in another post (hope you don't mind Webberg!):
4. You have a legal obligation to disclose loans that are caught. If you do not, that's your choice but be aware of the penalties. You can be all means send HMRC a SAR to discover what they know about you but playing games with what should be or should not be disclosed is potentially expensive.

How expensive? Is it possible to quantify? Surely that would drive the decision on do nothing, something or everything.

40k gap in above scenario - what would be the penalty?

I think the above could apply to many innocent scenarios where people genuinely don't know exact numbers.

[piebaps]

SAR = Subject Access Request and refers to Data Protection law or more specifically the new General Data Protection Regulations which came into force in May this year.
You may ask for a copy of all data held about you. However if the only info held is that you participated in a scheme, then you're no better off. So yes, you can by all means send a SAR, but don't count on it being the silver bullet to your problems.

[dammit chloe]

I am brand new to this, just received my letter and i have no data because this was 15 yrs ago !!! I like your line - "You can by all means send HMRC a SAR"

but i need to know what a SAR is because i think this is the only way i am going to know how much i had and how much i am going to be expected to pay..

Thanks

https://www.tax.service.gov.uk/shortforms/form/DPU_SAR

I have sent one in, supposed to be completed within 28 days. Not sure what form it comes back in.