Reply to: HMRC webinar on disguised remuneration - 1 May 2018

[me206et]

I would not get your hopes up.
I am sure somewhere in the legislation it expressly says that loans written off, by any means, but not paid off will not be accepted as paid off by HMRC.
all the way back to 1999.

[Joolsey86]

Ray of hope

Hi StarStruck,

I noted them saying this 3 times, about CASH repayment for loans only being from March 17 2016, and other mechanisms of loan repayment being valid before this date (i.e. Wavers)

A ray of hope. It could possibly be, they know legally, they cannot bring back a loan from the dead. But fingers crossed.

[starstruck]

ILikeTax/Phil - at 34:38 minutes into the webinar, there is a question about loans written off before the loan charge legislation was introduced and the answer seems to suggest that loans written off before 17 March 2016 may not be caught by the loan charge at all. The answer states that loans written off "some time ago" possibly will prevent the loan charge applying, although it may not have got rid of earlier enquiries or ongoing liabilities that are still running (what are ongoing liabilities?). What do you make of this? Is this some ray of hope that loans deprecated and waived decades ago might not be caught?

[phil@pmtc]

Really- you’re winding me up, right? Please say ‘no’!

I can confirm this case - I’ve seen the agreement

[Loan Ranger]

You might be right. But I believe that HMRC's processes will mean that they will pursue cases further. I don't see anyone at HMRC being prepared to stand in front of the PAC and say that they are not going to follow up.

Now at the edges (e.g.very small loans) they may well take a pragmatic view. But for material amounts I don't see that there is a simple, low risk approach for HMRC to give up what it believes is owed. You can imagine the PAC: "So Mr Thompson, in these days of continued cut back, low growth and a need to make huge investments in the NHS, what cosy deal did you do to let 40,000 highly paid contractors off of hundreds of millions of pounds of interest that they owed? Do you know how many free school dinners that could have provided?"

By all means hope that open years will not be pursued. But you might well get a letter that encloses a closure notice with a request for the tax and interest due on the earlier years and inviting you to make a claim for double tax relief if you have paid the April 2019 loan charge. It would also set out the process for taking things to the FTT if you wanted to.

If they pursue the cases in the same way as they have the last nearly 20 years then this may be a mute point.

In any case, overall, the LC may raise more revenue than is actually assessable because it brings unprotected years into scope. This may more than offset the loss of interest.

I guess we'll have to wait a couple of years to find out.

[Iliketax]

For those of us with only closed years considering pension contributions, do you think there is any chance HMRC will close this option or something unexpected might happen?

No, I don't think that is likely.

[Iliketax]

Do you really believe that they will go to any effort continuing to pursue cases after they've collected the LC, even if there is a shortfall versus full settlement (tax & interest)? Because I don't!

You might be right. But I believe that HMRC's processes will mean that they will pursue cases further. I don't see anyone at HMRC being prepared to stand in front of the PAC and say that they are not going to follow up.

Now at the edges (e.g.very small loans) they may well take a pragmatic view. But for material amounts I don't see that there is a simple, low risk approach for HMRC to give up what it believes is owed. You can imagine the PAC: "So Mr Thompson, in these days of continued cut back, low growth and a need to make huge investments in the NHS, what cosy deal did you do to let 40,000 highly paid contractors off of hundreds of millions of pounds of interest that they owed? Do you know how many free school dinners that could have provided?"

By all means hope that open years will not be pursued. But you might well get a letter that encloses a closure notice with a request for the tax and interest due on the earlier years and inviting you to make a claim for double tax relief if you have paid the April 2019 loan charge. It would also set out the process for taking things to the FTT if you wanted to.

[starstruck]

if I had open years then I would not make the 2018/19 pension contributions

For those of us with only closed years considering pension contributions, do you think there is any chance HMRC will close this option or something unexpected might happen?

[Iliketax]

Hi Iliketax,

I didn't manage to make the call yesterday (had a meeting over lunch), but how clear were they on this point? Did they actually say "double tax relieving rule won't relieve the tax due for the earlier years"?

I have made considerable steps (remortgaged my house, etc.) towards the strategy of using a large pension contribution to reduce LC19 taxable income. However, nearly all my years are open; so if this really is the case, then I will have to re-think my strategy entirely.

Is your analysis that this is definitely the case, or that the risks are too high here to go down this path...?

I'm just reporting what I thought I heard HMRC say. I will admit to surfing the internet while the webinar was happening. But I think I reported the substance accurately.

You can listen / look at the recording yourself here: https://attendee.gotowebinar.com/rec...urce=Agent-GTW with a fake name if you want to. The pensions bit was, from memory, the first part of the Q&A.

Is HMRC right? I can certainly see what they are saying. When you talk to your tax adviser about it, make sure you point them to the legislation: Finance Act 2017 In particular what the "Chapter 2 paid amount" is.

I've not got the time or inclinication to go through a whole heap of legislation and case law to come to a different view at the moment. If your adviser wants to think about it, they would need to look at what "is paid" actually means. It's easy to come to the view that it means what it says (off the top of my head, see Westmoreland at the House of Lords where "paid" was considered). I'm guessing it will be a lot harder to come to a reasonable view that it means the tax "I would have paid but didn't because I got pensions tax relief".

What would I do? I'm lucky in that I am not in the position of having to think about it for real. As things stand now (i.e. a clear, publicly stated HMRC view), if I had open years then I would not make the 2018/19 pension contributions. For me the extra tax potentially due (effectively no tax relief on pension contribution, plus tax on 75% of eventual payments plus LTA issues) would be way above my risk appetite.

If I had a letter from HMRC with my name on confirming, unamibguously, that what I had clearly set out that I was going to do, worked then that would be different. I struggle to see how you will get that now HMRC have publicly stated this. And bear in mind that the first few questions on that webinar were stage managed (listen to the way the question-master asks the first few questions vs the last few) and so HMRC clearly wanted to make this point. It was not an unrehearsed ad hoc response.

[Loan Ranger]

Hi Iliketax,

I didn't manage to make the call yesterday (had a meeting over lunch), but how clear were they on this point? Did they actually say "double tax relieving rule won't relieve the tax due for the earlier years"?

I have made considerable steps (remortgaged my house, etc.) towards the strategy of using a large pension contribution to reduce LC19 taxable income. However, nearly all my years are open; so if this really is the case, then I will have to re-think my strategy entirely.

Is your analysis that this is definitely the case, or that the risks are too high here to go down this path...?

What HMRC say in public doesn't always correspond with reality.

CLSO2 and LC is going to bring in a few £billion. That's the low hanging fruit for HMRC.

After that, it's diminishing returns.

All their effort over the next couple of years will be on tracking down individuals who've had loans. There will be people who don't declare them because they are unaware of the LC and others who are deliberately trying to fly under the radar.

Do you really believe that they will go to any effort continuing to pursue cases after they've collected the LC, even if there is a shortfall versus full settlement (tax & interest)? Because I don't!

[Runster]

You might do ! We are caught by the APNs over Montpelier and have until 2049 to repay, when we will both be in our 80s. Sorry to cheer you up in this way !

Really- you’re winding me up, right? Please say ‘no’!

[SummerhillLass]

TTP

I need about 10 years. Think they’ll buy that? I have young children.

You might do ! We are caught by the APNs over Montpelier and have until 2049 to repay, when we will both be in our 80s. Sorry to cheer you up in this way !

[shevlane]

Can pension contribution be used to offset *open* years

1. Making a pension contribution is fine for the April 2019 loan charge if you have closed years (i.e. reduces the 2018/19 tax due). If you have open years, HMRC says as less tax actually paid in 2018/19, the double tax relieving rule won't relieve the tax due for the earlier years. They did not say this, but this effectively means you don't get tax relief for pension contributions to the extent that there are open years.

Hi Iliketax,

I didn't manage to make the call yesterday (had a meeting over lunch), but how clear were they on this point? Did they actually say "double tax relieving rule won't relieve the tax due for the earlier years"?

I have made considerable steps (remortgaged my house, etc.) towards the strategy of using a large pension contribution to reduce LC19 taxable income. However, nearly all my years are open; so if this really is the case, then I will have to re-think my strategy entirely.

Is your analysis that this is definitely the case, or that the risks are too high here to go down this path...?

[Loan Ranger]

I agree that if the old tax is not due then the point goes away.

But HMRC's view substantially increases the risk of (i) the individual getting no effective tax relief on their pension contributions where there are open years, and (ii) the pension income (less 25%) will be taxed at marginal rates.

As for going to the tax tribunal, you've got to want to go, afford to go (alone or as part of a group), not lose (which has got harder following the RFC Supreme Court decision) and hope HMRC will not be successful by the time the last appeal is over. But by then you cannot undo those pension contributions.

I'm not saying HMRC's view is right or wrong, just that the implications of it completely skews the playing field where there are open years.

Fair point.

[Iliketax]

HMRC may say this but 2010/11 is still in dispute.

HMRC would have to go to a tax tribunal, and win, to get the £100.

I agree that if the old tax is not due then the point goes away.

But HMRC's view substantially increases the risk of (i) the individual getting no effective tax relief on their pension contributions where there are open years, and (ii) the pension income (less 25%) will be taxed at marginal rates.

As for going to the tax tribunal, you've got to want to go, afford to go (alone or as part of a group), not lose (which has got harder following the RFC Supreme Court decision) and hope HMRC will not be successful by the time the last appeal is over. But by then you cannot undo those pension contributions.

I'm not saying HMRC's view is right or wrong, just that the implications of it completely skews the playing field where there are open years.