[Closed] 2019 Loan Charge

Have you got a link to where it says they’ve been proven to be salary?

Loans are not taxable.
Salary is.
If they are asking for tax to be paid, you can be fairly sure they know it was salary and not an actual loan.

If they are asking for tax to be paid, you can be fairly sure they know it was salary and not an actual loan.

So again, where's the source for that? The Rangers ruling (not the Guardian article) was quite clear that they were legally loans.

And if "they know it was salary", there'd be no need for a new retrospective law to apply tax? They could just use the existing tax laws to collect the tax.

not retrospective. It is a new charge, arising at a future date, on loan balances outstanding at that date

Have you read that sentence out loud from HRMC? Sounds like absolute pure BS to me!
This is based on loan transactions that were undertaken up to 20 years ago.  When people took out those loans from 1999 there was nothing in tax law that made them taxable in the future. I don't see how that isn't retrospective taxation.

Sorry for all the follow up. Once I start reading about something and start pulling the threads, I can't let go!

This is based on loan transactions that were undertaken up to 20 years ago. When people took out those loans from 1999 there was nothing in tax law that made them taxable in the future.

These are, technically speaking, not completed loan transactions. The loans were never repaid, so remain live in 2019. Technically, not practically...

Anyhow, I thought HMRC already had the power to go after folk retrospectively in respect of schemes later judged to be tax avoidance schemes?

It's Tax avoidance, and they would have known about that. Simple.

The rest of us that pay PAYE, and know about these schemes, but don't use them, well, tough shoot, what comes around, goes around.

Don't get me started on 'Directors' that run everything through their companies, house refurbs, kit in the house, and 'lose' it in the company. Then if caught, get the company to give them a bigger dividend to pay the tax.... and around it goes.... I know many Directors that did this...

I may be missing something re the Rangers case and loans but the rulings seems fairly clear;

Lord Drummond Young said HMRC’s argument “accords with common sense.

“If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay…

“The funds are ultimately derived as consideration for the employee's services, and on that basis they are properly to be considered emoluments or earnings.”

I may be missing something re the Rangers case and loans but the rulings seems fairly clear

So, my understanding is the money counted as earnings when it was paid into the trust funds (from where the loans were eventually paid); which is why HMRC went after Rangers rather than the individual players. And that there was no issue with the loans (which then aren't taxable)

"They said that Rangers should have deducted Income Tax and National Insurance contributions from payments they made to the scheme, which was an employee benefit trust (EBT)." Link to HMRC website

"The majority of the FTT found that the trusts and the loans were valid and were not shams." Rangers vs HMRC

Have you read that sentence out loud from HRMC? Sounds like absolute pure BS to me!

It's a great deal less whiffy than "I've received no salary from this employment but fortuitously a specially set up vehicle has been making me regular loans which I will never be required to repay. I'm sure you'll agree that this is in no way Disguised Remuneration M'lud."

THe Rangers case was a PAYE and NIC case, it was determining whether Rangers should have deducted PAYE when making the payment into the trust, Rangers lost so had a huge PAYE liability they didn't have the money for and went bust.

Separately, you then look at an individual and my previous analysis comes in point.

Whilst, there are many on here who think tax avoiders deserve anything they get, I am not one of them. i think retrospective legislation, except in exceptional circumstances, is a fundamental breach of the relationship between the governed and the government. However, this is not retrospective legislation for the reasons I have already given. It is not uncommon for people to complain about retrospective legislation when they have entered into deferral trades, but to do so is to fundamentally misunderstand the nature of the transaction they entered into.

So again, where’s the source for that?

The fact that it was Salary and not an actual loan will do for me. And the HMRC I would imagine.

Asking for a “source” for something that literally everyone knows is a true seems a bit ..... desperate?

The Rangers ruling (not the Guardian article) was quite clear that they were legally loans.

They were legally loans yes, when they were set up, I’m sure all the paperwork was correct and they looked just like loans, but when they were never paid back, they became ..... “not loans”

I guess HMRC are sending a message that you might get away with something for a while but we can catch up with you anytime in the future.

Does seem to be similar to anti-doping agencies retrospectively testing for drugs in frozen samples.

Asking for a “source” for something that literally everyone knows is a true seems a bit ….. desperate?

No desperation here. But you're stating something as fact that goes against every legal opinion that I've been able to find; I don't think it's unreasonable to ask for a source to that claim.

I guess HMRC are sending a message that you might get away with something for a while but we can catch up with you anytime in the future.

And that's my concern. Something that was legal and not subject to tax at the time regardless of morality (and appears to still be legal, unless trust law has changed), is now retrospectively taxable.
What's next? I'm seeing things about IR35 retrospection, changes to inheritence tax on already settled estates. It's pretty scary that the government can just turn around and start taxing things form the past!

And that’s my concern. Something that was legal and not subject to tax at the time regardless of morality (and appears to still be legal, unless trust law has changed), is now retrospectively taxable.

Or has been pointed out by not paying back the loan its still an active tax dodge. So its not retrospective is it (as has been explained)

Isn't tax based on transactions? e.g. the point at which buy something from a shop is the point at which VAT must be paid.
This legislation wasn't in place when the loans were taken out (i.e. when the transaction took place) and there was no provision in the law at the time for this future tax, so I don't see how it's anything but retrospective. It's a new law that changes the tax that needs to be paid on a past event.

Apparently that's a view held by the president of the chartered institue of tax too. Found a transcript of when he was discussing this in parliament:
‘I would say that it is worse than retrospective legislation, because it displaces all of protections that parliament has put in place'

This legislation wasn’t in place when the loans were taken out

Yes it was.
The law said you had to repay the loan.
20+ years later people haven't paid the loan back.
They were given 3 years warning to repay, or make a start on repayment.
These people didn't.
The 'change' was to clarify that this was indeed tax avoidance.
You've a choice - 20% or 40% tax, or take loan then repay loan in full.
As the law said in 1990's.

[s] elephants [/s] HMRC have very long memories it seems.

Isn’t tax based on transactions? e.g. the point at which buy something from a shop is the point at which VAT must be paid.

Sounds like you are trying to confuse things - how many of these do you have!!

This legislation wasn’t in place when the loans were taken out (i.e. when the transaction took place) and there was no provision in the law at the time for this future tax, so I don’t see how it’s anything but retrospective. It’s a new law that changes the tax that needs to be paid on a past event.

The loan isn't a transaction, it's an agreement though, people were lent money, they got that legally but had no intention of paying it back - hence it has become a disguised earning

The law said you had to repay the loan

I'm calling this one. There's no law that says loans must be paid back. Just the same as (until this loan charge) there was no law that says a loan is taxable.

The ‘change’ was to clarify that this was indeed tax avoidance.

Are you confusing avoidance and evasion? One is legal, the other very much not.

HMRC have very long memories it seems

They also only have certain time periods in which they can go back and check things to collect tax (4 or 6 years, I think). A new law allowing HMRC to look back 20 years sets a worrying precedent.

they got that legally but had no intention of paying it back – hence it has become a disguised earning

So then you tax it as earnings under income tax laws, rather than creating a new law. No?
Unless it was never earnings, and then you do need to create a new law to tax it...

how many of these do you have

I'm just here for the discussion...

There’s no law that says loans must be paid back

Well, it's the definition of "loan". The only other such loan I can think of would be something like an interest-only mortgage, but even that has a term and a repayment vehicle. How were these EBTs structured? I assume there was some concept of having to pay it back at some point in the future?

There’s no law that says loans must be paid back

How would you feel about someone who was never paid a salary - just loaned all the money they needed? They never pay a penny in tax, ever.

I'm getting lost in the minutae of terms and things - but at a fundamental moral place, these loans are wrong and either should be repaid or taxed. End of.

Arguing for a morally wrong thing isn't great.

They are not taxing the loans, they are deeming an amount to be distributed from the trust which is equal to the amount of any loan outstanding, what is being taxed is the deemed distribution.

With the best will in the world, Ray McCann's logic is all over the place.

Sorry, just had to google what a "deemed distribution" is. In this case are you saying that HMRC are creating a fictional transaction, which they can then tax?
Doesn't that just reinforce the arguement that HMRC can't tax this under existing income laws, so they had to make a new law up?

Arguing for a morally wrong thing isn’t great.

The only thing I'm arguing is the legality of things (and I haven't seen anything to sway me yet that these are/were illegal).
But setting a precedent where HMRC can change the laws in the future is a dangerous place to be.

But setting a precedent where HMRC can change the laws in the future is a dangerous place to be.....

.....for anyone unwilling to just pay the proper tax that is due on their wages.

I'd give this a read thorugh:
https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge

The loan charge will only apply to outstanding loans

The loan charge was announced in 2016, giving loan scheme users 3 years to get their affairs in order

Less than 1% of scheme users have an outstanding loan before 2003 and about half of scheme users have received a loan within the last 7 years

Of those affected, 65% work in business services, which includes IT consultants, financial advisers, and management consultants

Reasonableness and HMRC are 2 phrases which arnt usually mentioned in the same sentence.....

But you’re stating something as fact that goes against every legal opinion that I’ve been able to find; I don’t think it’s unreasonable to ask for a source to that claim.

They
Were
Never
Loans.

That is a fact.
I don’t need a source for it, it’s just a simple truth. Literally everyone knows this (involved or otherwise)

You can call them loans all you like, but they were wages. And should always have been taxed as wages

Now it looks like they will be.

IMO anyone looking to defend this sort of thing should be having a good long look at at their moral compass and checking for faults.

People far more educated in the ways of tax law than anyone on this thread are no doubt bitch slapping each over this but cut to the chase - a bunch of people tried to find a loophole to get out of paying their fair share of tax. They got away with it until the pretence that it was a loan is beyond unlikely and no being asked to pay tax on what they earned. Not a fine mind - just their fair share.

To feel that this is not the right outcome says something a bit grubby about you imo.

Doesn’t that just reinforce the arguement that HMRC can’t tax this under existing income laws, so they had to make a new law up?

I think they dispute whether they can tax it anyway, but yes the 2016 law ensures they can whatever. The mechanism of deemed distributions is a fairly commonly used tool in tax legislation dealing with avoidance scenarios.

People far more educated in the ways of tax law than anyone on this thread are no doubt bitch slapping each over this

I doubt they are.

The only thing I’m arguing is the legality of things (and I haven’t seen anything to sway me yet that these are/were illegal).
But setting a precedent where HMRC can change the laws in the future is a dangerous place to be.

First, everything is a "legal" but this is a rather naive word, tax doesn't necessarily follow the legal form, there may be specific legislation that treats things as something else, a deeming provision, the courts introduced a substance over form doctrine many years ago, and finally there is a General Anti Avoidance Provision.

Tax law changes every year and it is very rare that when there is a change, there will be grandfathering (i.e not to apply the provisions to transactions which happened before the change) so there is no new precedent here.

Less than 1% of scheme users have an outstanding loan before 2003 and about half of scheme users have received a loan within the last 7 years

Most of the liability relates to the past 6 years and thats the usual time period for taxes to be reviewed.

Lie, damn lies and statistics... many of the people liable may be within the last 6 years, but not necessarily the liability.

Of those affected, 65% work in business services, which includes IT consultants, financial advisers, and management consultants

I’m sure most people will take the view that this group of people were aware of what they were doing, and how risky it was.

I'd guess the financial advisers would know what they were doing and the risks they were taking (and proceeded anyway). I wouldn't necessarily expect IT and management consultants to know about tax specifics.

They
Were
Never
Loans.

That is a fact.
I don’t need a source for it, it’s just a simple truth.

That's not a fact though is it? The Supreme court ruling in the Rangers case appears to disagree with you.

I think they dispute whether they can tax it anyway, but yes the 2016 law ensures they can whatever.

So, we're agreed that the legal position on whether this was taxable wasn't clear prior to the 2016 law?

IMO anyone looking to defend this sort of thing should be having a good long look at at their moral compass and checking for faults.

To feel that this is not the right outcome says something a bit grubby about you imo.

The Sunday Times article about Ryanair pilots suggested they didn't have a choice. Either work through this umbrella, or you don't work - and I got the impression that they weren't fully aware of what the arrangements involved.
I've never said whether this was right or wrong I'm just having a discussion on tax law, so you can keep your opinions of me personally to yourself. I'm only arguing from the legal standpoint, which from a tax perspective is the only opinion of interest.

And for the avoidance of doubt, I absoltely agree that these kind of tax structures should be shut down. But I do disagree with HMRC taking 20 years to do so.

I wouldn’t necessarily expect IT and management consultants to know about tax specifics

I would expect most people, when offered a 'magic beans' way of paying no tax, to understand that's likely to be iffy, high risk and morally wrong. You have a choice to not enter the scheme or take the job.

You do make a good point about much of this having been weak in word and law, and in effect HMRC have beefed that up retrospectively.

That said, I'm still of the view the that tax needs paying on an income they enjoyed.

Are you personally affected or involved in this scheme in some way?

That said, I’m still of the view the that tax needs paying on an income they enjoyed.

Yep, I'm happy to be a Scottish taxpayer just inside the higher rate tax band, so I pay about £1000 more in tax than my English counterparts. I'm happy to do that, especially when I see the benefits of the better NHS, etc sevice I get than the English NHS provide.

That’s not a fact though is it? The Supreme court ruling in the Rangers case appears to disagree with you.

Didn’t Rangers lose that case, and were found to be paying salaries as bogus loans and avoiding Tax and ordered to repay it, but didn’t as they have already gone bust?

(Possibly not. I’ve not trawled through The legal decisions to find out the finer details. But that seemed to be the end result)

Yep HMRC won the Rangers case, but I seem to remember that they'd already gone bust due to other debts?

The Supreme Court in the Rangers case said that payments from Rangers into the trusts were 'emoluments' and should be taxed at that point; but the loans coming out of the trusts were legally loans (the decision said in legal-speak they were "not a sham") - and therefore not taxable.
I guess either way, that decision was in 2017 and HMRC are now applying it all the way back to 1999.

Is no one else concerned about the government deciding that they can turn the clock back 20 years and tax things that happened in the past?

I'd sort of like to turn that question on its head, do you feel that if you've managed to hide un-taxed income from HMRC for a certain period (say over 10 years?) you should just be allowed to keep it all just because you've been really clever or something?

Personally, I don't think they're "turning the clock back" work was done and paid for, correct? And by using a sneaky little wheeze that misused a trust and a loan the tax due at the time on that income was deliberately not paid but the individual received payment into their bank account and spent that money as they would have any normal remuneration, it shouldn't really matter if it was twenty years or twenty months...

Something that was legal and not subject to tax at the time regardless of morality (and appears to still be legal, unless trust law has changed), is now retrospectively taxable.

Was it legal though?
Firstly, what is the purpose of a trust as a legal/financial body?
They're more popular in the states I believe, but they're generally used where assets and/or beneficiaries require protection either from undue influence, their own poor judgement or because they are a minor...

So, what were these EBTs "protecting" the beneficiaries (the loan recipients/employees) from? (aside from paying income tax).
And is it normal for trusts to make Loans (to the beneficiaries)?

They can often invest financial assets where it is in the interest of the beneficiaries, but making open ended, unrepayable loans would seem like an abuse by the trustee(s) under other circumstances... Do you really want the conduct of those "trusts" examining?

Whilst, there are many on here who think tax avoiders deserve anything they get, I am not one of them. I think retrospective legislation, except in exceptional circumstances, is a fundamental breach of the relationship between the governed and the government.

No, I am perfectly comfortable with someone 'avoiding' tax i.e. taking advice and exploiting legally available methods to pay <u>less</u> tax on their income, often this is done by billing through a company that they own, that's fine and well within the law and brings other compromises for the individual, I would consider doing this myself...

There is a distinction though between "Avoidance" and "Evasion"...

These EBT loan schemes were rather obviously intended to help the loan recipients evade tax, the only way to convince me otherwise is for the individuals concerned to repay the loans in full (unlikely I'd have thought), or to simply declare the loan as having been intended to simply "defer" tax payments to a later date (still a bit of a wheeze you might argue), then volunteer the owed tax and wind up the EBT which as a "Trust" probably has very little left in the way of assets anyway...

I don't want to see anyone go to jail, but unless or until they pay what they owe it seems a lot like 'evasion' not 'avoidance'...

A trust is a very flexible legal entity that can be used for a very wide range of purposes, again, the use of is it legal? is very naive for the same reasons as I previously stated.

This is quite clearly avoidance, unless there was some purposeful intent not to disclose some of the terms of the transaction, of which I am not aware. The ones that I know about were fully disclosed.