Reply to: Self Assessment Tax Return 2018/19 and Loan Charge

[starstruck]

If we listened to Matt Hall over the last 18 months there would have been no political progress made at all. He believed only litigation of schemes could save anyone.

That said, we have to be realistic about JRs and their historical success on tax issues, but there may well be a tipping point and the indiscriminate application of the Loan Charge could be it. It can also be viewed as simply another possible line of attack.

There are also other aspects to this which are more closely guarded.

Yeah sorry, I certainly wasn't saying listen to MH, it was the legal case that he was referencing that I thought would be of interest. I can see in there all the main arguments against the LC that we have expressed over the years and the judge pretty much dismissed them all and said there is nothing wrong with retrospection when dealing with tax avoidance and it doesn't breach your human rights (my paraphrasing).

[webberg]

If we listened to Matt Hall over the last 18 months there would have been no political progress made at all. He believed only litigation of schemes could save anyone.

That said, we have to be realistic about JRs and their historical success on tax issues, but there may well be a tipping point and the indiscriminate application of the Loan Charge could be it. It can also be viewed as simply another possible line of attack.

There are also other aspects to this which are more closely guarded.

I agree that success rates of JRs against HMRC are very low. In our view money and energy was better directed at the sort of lobbying done so effectively by LCAG and their supporters.

Unfortunately, many promoters talked up JRs as a means of (in my view) distracting attention away from the question of how the substantive issue of potential liability would be dealt with. Now that we see many of the JRs falling away and exposing the question of whether a liability exists or not, we also see calls for funds to press on with the litigation. What's more a litigation that some will propose be based on the original analysis which has been widely discredited in the cases that have been heard.

[webberg]

But this is also true if you settle.

Remember, there are only 3 choices available.

1) settle now
2) pay the LC now
3) fight the LC and the underlying tax liability

Even with (3) you may have to pay the LC and fight to try and get the money back. You're certainly risking penalties, and enforcement action, if you refuse to pay it. Is there any right of appeal against the LC?

If you settle there is no LC and thus no potentially non refundable amounts.

[dammit chloe]

With regards to flighting LC, anyone seen Matt Hall’s twitter post on this ?... “Anyone still within #LoanCharge & awaiting JR challenge will read this decision with interest & disappointment.” Dropbox - R-oao-Cartref-and-ors-v-HMRC (2).pdf - Simplify your life

If we listened to Matt Hall over the last 18 months there would have been no political progress made at all. He believed only litigation of schemes could save anyone.

That said, we have to be realistic about JRs and their historical success on tax issues, but there may well be a tipping point and the indiscriminate application of the Loan Charge could be it. It can also be viewed as simply another possible line of attack.

There are also other aspects to this which are more closely guarded.

[starstruck]

But this is also true if you settle.

Remember, there are only 3 choices available.

1) settle now
2) pay the LC now
3) fight the LC and the underlying tax liability

Even with (3) you may have to pay the LC and fight to try and get the money back. You're certainly risking penalties, and enforcement action, if you refuse to pay it. Is there any right of appeal against the LC?

With regards to flighting LC, anyone seen Matt Hall’s twitter post on this ?... “Anyone still within #LoanCharge & awaiting JR challenge will read this decision with interest & disappointment.” Dropbox - R-oao-Cartref-and-ors-v-HMRC (2).pdf - Simplify your life

[DealorNoDeal]

Not sure if I'm reading this correctly or not - but isn't it also the case that the Loan Charge will not be refunded if it later turns out the underlying tax was never due to begin with (eg. if the scheme is ever litigated and HMRC lose).

But this is also true if you settle.

Remember, there are only 3 choices available.

1) settle now
2) pay the LC now
3) fight the LC and the underlying tax liability

Even with (3) you may have to pay the LC and fight to try and get the money back. You're certainly risking penalties, and enforcement action, if you refuse to pay it. Is there any right of appeal against the LC?

[webberg]

Not sure if I'm reading this correctly or not - but isn't it also the case that the Loan Charge will not be refunded if it later turns out the underlying tax was never due to begin with (eg. if the scheme is ever litigated and HMRC lose).

I think I agree that if the loan charge is paid and it is in excess of the final liability for the year, then the excess loan charge is not refunded.

I would hope that any judgement from Tribunal which says that tax is not due from the individual, will be because the cause of the tax charge (the loan payments) were in fact payments of remuneration that were taxable under general tax rules, i.e. without needing recourse to the anti avoidance rules in Part 7a.

If so, given that the loan charge relies upon sums falling into Part 7A, the loan charge should also fall away.

Clearly any case going into Tribunal and seeking to argue that the tax is due from another party should be raising this point.

Unfortunately the limited number of cases so far heard and published have been constructed so narrowly as to prevent this being argued and members of the schemes in question may in due course need to start (and fund) a new litigation on this point.

[RickG]

Be very clear

HMRC is NOT permitted, under current legislation, to substitute the liability for the year with the loan charge.

Not sure if I'm reading this correctly or not - but isn't it also the case that the Loan Charge will not be refunded if it later turns out the underlying tax was never due to begin with (eg. if the scheme is ever litigated and HMRC lose).

[webberg]

* I guess you might take issue with my use of the word "might", and that it should be "will"

The law is clear.

HMRC say tax is due.

If that is correct or if it is challenged and that is lost, then tax is due.

The loan charge just seeks to collect some of that tax via a new and different tax.

Ultimately however agreement of the tax due in any one year MUST be reached.

When it is, the loan charge paid is offset against that liability.

Be very clear

HMRC is NOT permitted, under current legislation, to substitute the liability for the year with the loan charge.

[DealorNoDeal]

As Mr Deal or Non Deal suggests, I would not agree that his plan amounts to a sensible strategy.

Go and get some personal advice.

As long as Jedi007 is fully aware that, if he pays the LC, he might* have to pay more at some later date, then I can't see any harm in going down this route.

* I guess you might take issue with my use of the word "might", and that it should be "will"

[webberg]

As Mr Deal or Non Deal suggests, I would not agree that his plan amounts to a sensible strategy.

Go and get some personal advice.

[DealorNoDeal]

As webberg says, paying the loan charge (LC) doesn't resolve the underlying dispute. (Settling, on the other hand, would put the matter to bed once and forall.)

However... (and this is where he will probably disagree)

If you pay the LC, I doubt HMRC will be beating down your door, anytime soon, to finalise the dispute. They will be focusing all their attention on those who haven't paid anything.

Even if they do eventually revisit your case, you can still settle and the LC you've paid will count towards this.

You can get advice but, at the end of the day, the choice is yours.

a) settle in full now (and be done with it)
OR
b) pay the LC and potentially have to pay a bit more at some later date

[webberg]

You should go and speak with an adviser.

Let me explain the loan charge/settlement situation with an example.

You had a loan in 2012/13 of £50,000.

If that was taxed in that year, you would owe HMRC say £20,000 tax.

HMRC has opened an enquiry into that year and raised an assessment showing that tax due.

You have appealed the assessment and asked for the tax to be postponed.

The loan charge will apply to that £50,000. It is taxable in say 2018/19, 2019/20 and 2020/21. Because you have no significant other income let's say the loan charge sum due is £15,000, falling due 31/1/20, 31/1/21 and 31/1/22 in equal instalments.

At some point, you will need to agree the liability for 2012/13.

That might be via just removing your appeal; using some form of formal settlement process; going to litigation and applying the final decision of a judge.

If you elect for the first, removing your appeal, tax falls due of £20,000 on 31.1.14. Presumably (I'm guessing) this is paid £5,000 on 31/1/20, 2021 and 2022 respectively and the balance around 30 days after you have removed the appeal. Interest will be calculated on the amounts from the due date to the date paid.

(It may be that if you remove your appeal prior to the spread of the loan charge - we call this LC3 - then the loan charge is adjusted to NIL but the whole of the tax in 2012/13 falls due 30 days from removing the appeal. I'm sorry but I don't know quite how this will work).

If you sign a settlement, then I think that the loan charge will be removed and the tax falls due 30 days from settlement contract date. Again interest is calculated from the due date.

If you decide to litigate, the loan charge may fall due as above, UNLESS you have an argument to resist it backed by a process of declaration etc that allows the loan charge tax to be postponed. then once the decision is final, if tax is due, interest is again calculated from original due date to date tax is paid.

[webberg]

If anyone cane give some guidance on the below would be much appreciated. I have contact HMRC but no response and SATR deadline fast approaching.

Go and get advice from a competent adviser rather than rely upon anonymous posters here. I have answered as best I can but in the absence of a proper review of the situation including reading all correspondence with HMRC, it cannot and should not be relied upon.

I have outstanding loans all of which were taken between, 2010 and 2015.
Two of the years are open I.e. HMRC have open enquiry.
I applied for early settlement under CLSO2, I have received figures from HMRC but have not settled yet as was awaiting outcome of the parliamentary review.

1- Will declaring the outstanding loans on me SA and paying the tax due take care of the open enquiries. ? No. To do that you need to remove any appeals you have made and ask HMRC to assess you to the loans in the year received -or - complete the settlement. I ask as that now that the loan charge liability can be split over three years, and the fact I have stopped working makes paying the loan charge via self assessment more attractive. This is NOT a choice between settling via the usual means and loan charge. The loan charge is essentially a payment on account system and DOES NOT settle anything. IN yous case, the open years will need to be settled and the others may be outside the scope of any further tax adjustment. Go and get advice.

2- Will HMRC charge penalty or interest on outstanding loans declared on SA? No. How is it calculated?. See many, many threads on the subject of interest here. Interest is due on late paid tax. If you owe tax for say 2012/13, the due date was 31/1/14. That tax paid now will attract close on 6 years interest (around 18% of the tax due).

3- I saw somewhere that paying the loan charge will not take care of the underlying tax dispute? What does it mean? That is true. The loan charge does NOT settle the liability for a year in which loans were received as income. This has been said time and again by the adviser community here and pretty much everywhere else.

4- I have loans spanning over 4 years, should I divide the total amount by 3 and enter figures on the SATR? And then provide next 3rd in next year return and so on? Nobody knows until we see the legislation. I suggest declaring ALL the loan values and saying in the white space that you want to divide them in three.

Many thanks all..

You should go and speak with an adviser.

[Jedi007]

Agreed that the rant was off topic.

Agreed that the safest solution is a SATR submitted before 31st January 2020.

If anyone cane give some guidance on the below would be much appreciated. I have contact HMRC but no response and SATR deadline fast approaching.

I have outstanding loans all of which were taken between, 2010 and 2015.
Two of the years are open I.e. HMRC have open enquiry.
I applied for early settlement under CLSO2, I have received figures from HMRC but have not settled yet as was awaiting outcome of the parliamentary review.

1- Will declaring the outstanding loans on me SA and paying the tax due take care of the open enquiries. ? I ask as that now that the loan charge liability can be split over three years, and the fact I have stopped working makes paying the loan charge via self assessment more attractive.

2- Will HMRC charge penalty or interest on outstanding loans declared on SA? How is it calculated?.

3- I saw somewhere that paying the loan charge will not take care of the underlying tax dispute? What does it mean?

4- I have loans spanning over 4 years, should I divide the total amount by 3 and enter figures on the SATR? And then provide next 3rd in next year return and so on?

Many thanks all..