[Closed] 2019 Loan Charge

I feel a little bit for people affected, but it one of those things that was always sailing very, very close to the wind (I worked for a time for an accountacy firm that advised IT consultants and the like both with and without the benefit of an umbrella co). Most were paid very hansomly, far beyond what IT Pros would get paid PAYE (I work in the IT industry now) and we’re generally very smug about it.

Ultimately they could have accepted a slightly lower income and avoided the risk or put aside the savings in case HMRC ever came calling, but ‘everyone was at it’.

Did any of the people who are getting the bills for repayment now honestly think that there was nothing dodgy about getting their salary paid through a convoluted scheme without paying any tax ?

I don't believe for a minute that the majority of people entering into these schemes weren't aware of what the aim of them were, therefore I have limited sympathy.

However, this quote here is spot on.

Why, he argues, is HMRC not going after the promoters of the schemes, many of which made millions, but have subsequently dissolved their companies?

Was wondering if I'd be in a minority with my views but I agree with P-Jay and nealgover. It must have been obvious at the time that what they were doing was exceptionally dodgy. For the most part I tend to see tax avoidance* as pretty much equivalent to tax evasion.

It must be morally obvious that to duck out of paying your fair share back into society in order to take home a higher income is wrong, not least of all because anyone on PAYE is directly subsidising it.

The only thing that makes me a bit uncomfortable is the suspicion that HMRC has targeted contractors because it's too difficult, politically, to go after Amazon/Google/Apple etc.

* I'd get rid of ISAs too. And the tax benefits on pension contributions.

Isn't this the same thing that brought down Rangers FC?

tricky one. I'm sure the vast majority of the people caught by this were advised to go down this route by people that were properly qualified and well regarded (qualified accountants, tax advisors etc), but ultimately the responsibility lies with the person that benefitted from reduced tax . The beneficiary should have recourse against the person/organisation that advised them to go this route, but I think making it stick will be tough (and expensive), I'm sure the advisors have the small print covered. I'd expect to see some accountants/advisors get damaged by this.

IMO - its not right that the revenue can go back 20 years on this though, 7 years should be the max. If the people who chose to use these 'vehicles' were prudent they would have held 7 years worth of tax back, just in case HMRC retrospectively decided that these were illegal. BUt even those that did this, are now going to get stung for taxes and penalties over a much longer period than is normally allowed.

HMRC should also go after the promotors, and those running the schemes, but thats not as easy as going after the little guy.

To be clear, it has never been illegal to be "paid" in the form of loans and still isn't. The issue is how, if at all, such loans should be taxed. Until relatively recently HMRC, despite being fully aware that contractors were being "paid" in this way, did not seek to levy tax and indeed it was not clear that there was a liability under existing legislation. As a result both the organisers of these schemes and contractors continued under the assumption that whilst at some point legislative changes might clarify the position, this clarification would not apply to past years.
As a long standing contractor I always felt that this was an overly optimistic stance to take and never got involved in any such schemes, irrespective any "moral" duty I might feel to pay the right amount of tax, whatever that might mean.
We now have a degree of legislative clarity (albeit only a degree tbh) and the facet that is causing anger, including among a number of MPs, is that not only is the legislation arguably retrospective (it certainly applies to years that had been assumed to be settled), it is potentially applying to loans made up to 20 years ago. How many of us would be confident of being able to convince HMRC that we have paid exactly the "right" amount of tax for the past 20 years, and produce documentation to back it up? In addition, the scheme organisers, upon whom in many cases the liability falls initially, have long since disappeared with their commissions, leaving contractors to pick up the tab.
No-one emerges particularly well from this entire debacle. Not HNMRC who turned a blind eye to these schemes for many years but are now making up for their relaxed attitude with a pretty draconian approach. Not the contractors who in the main were perfectly well aware of the low level of tax they were paying. And not the scheme organisers who have happily taken commissions for many a year, only to do a disappearing act when the proverbial has hit the fan.

Am I correct that this scheme worked like this:

- Funds from work get payed to an employee benefit trust
- Trust then 'loans' the money to the employee
- Employee never pays back the loan
- Profit.

And now HMRC have basically said, that's taking the piss, please pay back the loan, or we'll assume it was actually a form of remuneration and tax it. And since the loan is still in theory current (as it's never going to be paid back), it's not retrospective?

Assuming that's the case, I can't see how anyone would think that was anything other than massively taking the piss? No matter what a dodgy accountant told them.

I can see how this could cause massive difficulties for families, but at the same time, depriving the country of that tax means that schools weren't funded and hospitals had longer waiting lists.

Well… they could choose to pay back the "loans" instead to the body they "borrowed" from… and then they could get a pay out from that body… dividends, deferred wages… whatever they want. If they choose to do so in one year… I suspect their tax bill will be much higher.

I sympathise that such arrangements organised for tax issues are also used by big businesses, and are harder to sort… (companies paying huge fees to "separate" offshore companies, that are wholly owned by the same group, for use of brand assets or for rent on properties are the most used examples)… but the fact it is individuals rather then multinational companies that have done this doesn't mean it can be ignored, and doesn't mean that the rest of us should pay the tax that they have sought not to pay.

I had the chance to use such a scheme way back in time… I said no… and all these individuals could have as well.

A few points:

(1) It is not really a retrospective change, the schemes involved money being paid into a vehicle and then those funds being lent to the taxpayer. Those loans never went away legally, although because many had their hands on the money they didn't worry about them. They were only ever deferral schemes.

(2) HMRC haven't been sitting on them, they have fought cases, the Rangers case being notable, and also introduced legislation over a series of Finance Acts.

(3) Many people unwittingly enter these schemes on the false assumption that they are accepted by HMRC and are willing to enter into them because everyone else is doing them without taking independent advice. This was very much the case with the film schemes too. It isn't only the ignorant, I know plenty of financially sophisticated people who have misunderstood what they were getting into.

EDIT: Ewan, you posted while I was writing, but your analysis in the first para is correct in my view.

Burned by suggestions that it is chasing low-income locum nurses and social workers, HMRC analysed the occupations of the people sent charge notices. “We estimate that of the 50,000 people affected, 3% are nurses and less than 2% are social workers.”

So, thousands then!

There will be quite a few who may not have realised what they were signing up for, but presumably should have noticed that they did not appear to be paying tax.

On another note, HMRC have just refunded us three years worth of fines we got handed for being blissfully unaware of the child benefit high earners clawback, so the poor souls have got to make that up from somewhere.

Hmmm. Seems shady as hell.

From doing some reading on it, wasn't the Rangers decision that the loans were all legal and not taxable, but the employers should have paid tax when the funds went into the trust?

It looks like the promoters took healthy fees from these arrangements (Doug Barrowman's name keeps popping up - and he's a billionaire getting married to Baroness Mone, the underwear tycoon)

I'm also not sure how you can argue that this is not retrospective.
If the transactions happened in the past (loans being paid to individuals) when no tax was due at the time as Jate says, but then the government have introduced a new tax to make them taxable now - that's sounds like retrospection to me.

I assume the counter argument is that loans are meant to be repaid - since HMRC gave them three years to pay them back (and these people haven't) it's now clear that the loan is not in fact a loan, it's a payment, so tax needs to be paid.

But does the fact that it's not been paid off yet mean that it's not a loan?
I've got a mortgage on my house. If the bank asked for all of that to be paid off in 3 years I wouldn't be able to.

I too am torn, but fall into the 'on balance, you were avoiding tax' view.

Back in the day we were all advised to do this - I nearly did, but chose not to. I paid income tax, on all my earnings. It was tough at the time, but needed doing.

My issue is the HMRC were not more active in warning lots of folk that these were only ever a loan scheme. I've also an issue with the companies that promoted and sold these schemes and umbrella companies.

I'm also not understanding folk who earned many, many extra thousands of pounds, clearly enjoyed spending the additional money, and now claim 'poverty' after three years to sort out repayment.

Crap situation - but tax should be paid.

If the bank asked for all of that to be paid off in 3 years I wouldn’t be able to.

No, but you would have three years to find another loan, sell the house or other solution. I think the point others have made on this thread is that those with the big bills have had time to find a solution to repaying loans.

They deem a distribution to take place from the trust equal to the outstanding loan

From doing some reading on it, wasn’t the Rangers decision that the loans were all legal and not taxable, but the employers should have paid tax when the funds went into the trust

They were aiming to attack the employers using these schemes at time so this was a good result. There is no question of the loans not being legal and indeed the receipt of a loan is generally not a taxable event. However, there are certain circumstances when the tax law deems loans to be disguised remuneration, this is especially the case where the individual is in "control" of the lender. The law changed a few years ago to say loans from these vehciles would in future be treated as disguised remuneration, if they had been repaid, no charge would arise, hence it ain't retrospective.

But does the fact that it’s not been paid off yet mean that it’s not a loan?

Does if you never intend to repay it. To be honest, i'd not have a massive issue if this was held as a charge on their estate for when they die - subject to deprivation of assets rules like people with assets who need long term care. That seems about as much as they could hope for given at some point they must have wondered why they weren't paying tax but everyone else was...

The dude with a £300000 bill but only £100000 assets to his name.....so he avoided paying £300000 worth of tax therefore presumably getting paid a reasonable legitimate wage too and he still has only managed to accrue £100000 of assets by the age of 54.

He has either just had is financial nuts chopped off in a divorce, had a pretty amazeballs lifetime of holidays or has an impressive coke and hookers habit (or all 3).

Despite having done it in reasonable faith and under advice I think I'm still in the hard lines camp. If you had gone years without paying your way surely your moral compass would be twitching that this was not right.

As an aside I had an enlightening evening with a 3 generational family in the building trade the other week. Genuinely lovely people despite being a bit brexity. Started to feel very uncomfortable when conversationed got into 'honest british family that has always paid its way' but were very open and honest about the amount of cash flowing through the system. Youngest daughter works for a materials supplier friend and is paid a nominal peppercorn PAYE wage but every month meets her boss in the local cafe and is given her real wage cash in a brown envelope. They have grown up and lived in this environment and genuinely don't see that this is wrong or unusual. Or that it doesn't sit well with their UKIPy views that foreign workers are a burden on the state.

I think it all highlights my naive middle class PAYE employed status understanding of what is normal.

My issue is the HMRC were not more active in warning lots of folk that these were only ever a loan scheme.

It is not their job, if you are interested in reducing your tax bill, it is not unreasonable for society to expect you to pay for your own advice.

I think it all highlights my naive middle class PAYE employed status understanding of what is normal

No, I think it highlights a number of selfish people who are happy to rip off our country when it suits them - in cash, in morals and future opportunity.

There will be quite a few who may not have realised what they were signing up for, but presumably should have noticed that they did not appear to be paying tax.

This. The "I thought I'd found a perfectly legal way not to pay" is a poor approach to tax on your earnings… and any advice that promotes it should always raise alarm bells.

Or that it doesn’t sit well with their UKIPy views that foreign workers are a burden on the state.

Probably the types that blame the EU for the financial state of the governments of Southern European countries … (nothing to do with the ubiquity of the cash in hand tax dodging economy, no sir).

The dude with a £300000 bill but only £100000 assets to his name…..so he avoided paying £300000 worth of tax therefore presumably getting paid a reasonable legitimate wage too and he still has only managed to accrue £100000 of assets by the age of 54.

He has either just had is financial nuts chopped off in a divorce, had a pretty amazeballs lifetime of holidays or has an impressive coke and hookers habit (or all 3).

I think he would be getting zero sympathy if he revealed how much tax he had paid over the period and what he was taking home. If he was that good at shifting his income around there is a chance he managed to move some of it elsewhere too before calculating his assets.

How far they can go back is a worry for some people but mostly due to the fact that most of them knew it was a way to pay less tax.

It's always been a dodge - I was contracting with a company for a while and my 'agency' wanted us to join the scheme - I refused (I'm an accountant). It is a dodge, but it was perfectly acceptable.

To go back 20 years is bad, but these people possibly should have paid all this tax.

There will be quite a few who may not have realised what they were signing up for, but presumably should have noticed that they did not appear to be paying tax.

With a hint of sympathy I can see how someone working for an agency could be hoodwinked.

Employee: do I need to pay tax and NI? Should be about 30%?

Agency: No you pay us a fee of xx% which includes any tax (or none) to handle all that, just sign this.

Hmrc 20 years later : you owe us 30%, never mind that you paid xx% to the agency.

Ignorance is no defence, and I suspect that those NHS examples are more at the go and consultant level trying to hide four figure day rates rather than agency nurses just scraping by (although some might be and those have my sympathies).

Little sympathy here - it was never a 'legal' arrangement plus its the fact that the loans are still outstanding that makes them eligible for tax. But they should also be going after the people who facilitated the arrangements too

One of the main reasons that this got my interest was the clearly retrospective nature of it - and that if this goes through, what next?
I'm a Ltd co contractor and there are rumours that some form of retrospective IR35 law is next.

The loan arrangements were apparently legal at the time, but the government appear to want a second bite of the cherry. What's to stop the government retrospectively declaring that I'm inside IR35, when I've assessed myself to be outside of it?

It's not retrospective tho is it? Three years ago they said 'we don't believe those were really loans, but feel free to pay them back or get a new loan and then we'll believe you'. Those people that didn't have effectively proved they werent loans so now need to pay tax.

I’m a Ltd co contractor and there are rumours that some form of retrospective IR35 law is next.

Would you pass the old IR35 quiz that was going about? Or are you just doing it as a disguised employee?
Rechecking the rules or investigating people doesn't always make it retrospective. A lax application of the rules doesn't mean it should stand.

It’s not retrospective tho is it? Three years ago they said ‘we don’t believe those were really loans, but feel free to pay them back or get a new loan and then we’ll believe you’.

So HMRC saying "we don't believe you" 3 years ago makes it not retrospective?
Surely if the transaction (loan disbursment) happened in the past and wasn't taxable at the time (as I understand from jate's comment above), but a new law is then made which makes that historical transaction now subject to tax - that's got to be retrospective!

I think it all highlights my naive middle class PAYE employed status understanding of what is normal.

Indeed. You have a point. It's only getting towards the end of February and I've already had two clients ask me to "knock a bit off if I pay cash." I've explained to each of them that I'd prefer to invoice by email and have them pay by bank transfer (please!). And I'm the one kinda apologising!

Of course, what I'd like to say is, "Oh right, I see...so if you pay me cash, you expect me not to declare the income, save myself 20-25% tax and pass the saving on to you, is that it? So, yeah fine, I'll evade tax just so you can save a few hundred quid or so on your invoice. And if Mr. HMRC ever finds out, you'll split the difference with me won't you...plus interest?"

So, yeah, it appears that middle class PAYE workers don't get what is normal sometimes.

(Yeah, apologies, slightly outside of the thread topic...and I haven't a great deal of sympathy for those who've been caught out - you can't go whistling through life earning a shitload without paying a penny in tax and think that somehow it's all ok. 20 years though! That's harsh!)

There is a fundamental difference between the two scenarios. In your case you have been paid in a certain way and paid tax accordingly, but there are no outstanding financial arrangements, you have received all the money and paid tax on it according to your understanding. Broadly, HMRC can investigate you and decide your understanding is incorrect and go back four years, but that's it. You do have appeal rights etc.

These schemes aren't complete, because there is still a trust with an asset, the loan to the individual, until that is unwound it is open to HMRC (with the support of Parliament) to change the way they tax such arrangements on a current basis, which is what they have decided to do three years ago with effect from this April.

I've worked with a number of contractors over the last twenty odd years. TBH most operate as Ltd companies and seem to try and keep things relatively straightforward to avoid getting into hot water with HMRC, but there's always a few who seem a bit keener on "tax efficient" arrangements.

You know the sort, always looking for a wheeze to get round bits of IR35, apparently paid under £12k with an awful lot of "company assets" and "expenses", the missus and kids and the cat are on the board of directors somehow this means that they live a relatively luxurious life style but the old trade off of no staff benefits or employment security is still there... But I can't think of many who would be comfortable with one of these EBT loan arrangements. Feels like outright evasion rather than sitting in that grey area of "avoidance" and they have had a bit of a heads up too TBF...

The dude with a £300000 bill but only £100000 assets to his name…..so he avoided paying £300000 worth of tax therefore presumably getting paid a reasonable legitimate wage too and he still has only managed to accrue £100000 of assets by the age of 54.

He has either just had is financial nuts chopped off in a divorce, had a pretty amazeballs lifetime of holidays or has an impressive coke and hookers habit (or all 3).

If he's been at it for the full 20 years that's 'only' £15k's worth of tax a year it soons builds up...

I'd guess the missing 2/3rds of his unpaid tax, have long ago been spent on family holidays, car payments and if he's at all sensible overpaying the mortgage, and I'd not be shocked if the house was in the wife's name only to try and put it beyond the tax man's reach...

The fact that he still has £100k worth of assets that can be directly tied to him is sort of surprising...

that’s ‘only’ £15k’s worth of tax a year

So he earned £50-60k a year for 20 years.

As you say, more amazing he still has anything in his name. I think he spent last three years putting the house and Audi in the dogs name, while maxing pension pot.

So he earned £50-60k a year for 20 years.

It's all guesstimation of course and ignores any kind of variations but, he would potentially been taking home mid to high £60k's (avg) rather than the mid £40k's someone on PAYE would have been taking home... Of course shorten the period and the annual take home (and corresponding tax dodged) increases...

I'm sure if you gave an accountant his unpaid tax bill and the number of years they'd be able to work back to his actual take home far more accurately.

Many of the contractors I know keep some money saved (in their business's accounts) to pay corporation tax, other bills and for just such situations as this where they are liable for an unforseen cost that just has to be stumped up for... It's not really a coke 'n' hookers lifestyle.

I understand and accept that it makes sense for many people to run their financial life as a business, most are aware of the compromises and understand that HMRC will always seek to recover whatever is due. As such what they can actually do with "their" money is constrained by a different set of rules. Let's be honest paying yourself an untaxed wage via a "loan" that will forever remain un-repaid is very clearly taking the piss...

It’s not really a coke ‘n’ hookers lifestyle.

Although £50-60k+ is three times the average UK salary in 1999.

I'd also wager the same folk had thier wife on the books as admin, any meal out as a family go through the books etc.

That big, untaxed, salary will have been spent on a nice house, car and holiday. They've more than enjoyed a lifestyle that many wouldn't have done, partly by not paying tax.

So HMRC saying “we don’t believe you” 3 years ago makes it not retrospective?
Surely if the transaction (loan disbursment) happened in the past and wasn’t taxable at the time (as I understand from jate’s comment above), but a new law is then made which makes that historical transaction now subject to tax – that’s got to be retrospective!

Not really.
The loans were made in the past, and loans are not taxable as income (they still aren’t)

The fact that these were never actually loans (they were salary) means that they were always taxable.
It’s just that as the “loans” are still active, and were never paid off, means that the money paid is proved to be salary and not a loan and is taxable.

If it was paid off, like a genuine loan would be, then the tax issue goes away.

The fact that these were never actually loans (they were salary) means that they were always taxable.
It’s just that as the “loans” are still active, and were never paid off, means that the money paid is proved to be salary and not a loan and is taxable.

If it was paid off, like a genuine loan would be, then the tax issue goes away.

I assume also that the companys making the unpaid loans can't just write off these unpaid "loans" as losses, at least not without it being made clear that it should be recognised as income for the recipients during that period...

The other question has to be around credit rating, surely someone with (potentially) upwards of £1m worth of unpaid loan debt, who has less than 10% of the value of those loans in assets and is (I'd assume) approaching retirement age is basically knackered for obtaining anymore credit? Or have these loans not been appropriately reported to the relevant credit vetting agencies either?

TBH being asked for owed income tax is probably being let off easy, if you had a "controlling interest" in a loan company that then loaned you money without any obligation to repay could that be considered a fraudulent act?

Hmm, seems like I've got a minority view here...
There were a couple of articles in the Times today about this too; including a story about one of the promoters (Doug Barrowman that I mentioned above) posing with his Ferrari.

means that the money paid is proved to be salary and not a loan and is taxable

Looking at the Rangers case, the Supreme court agreed that the payments were in fact loans.
Have you got a link to where it says they've been proven to be salary?

As far as I can see these arrangements were all above board and legal at the time (how far above the board is irrelevant in tax law), but the government have implemented new legilsation to make them taxable now.
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?

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?

A little. I've been HMRC investigated before (I was on balance 34p out over 3years), and that feeling when they came up with two missed NI payments from 8 years earlier was just odd...

That said, I paid all my tax via PAYE and self assessment, without using any odd shelter company or similar. I claim only what I have receipt for etc.

I also didn't set something up that was a perpetual arrangement to avoid tax, hoping it would all pass by with time.

So unless they decide that the 2005 income tax rate just doubled, I'm good.

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?

Yep,it's a big problem. but I don't think you'll get much sympathy from most on here.

It's also wrong that hmrc decided that you can be an employee for tax purposes, but not for employment rights purposes. You're either an employee or you're not imo.

My accountant advised me to use one of these loans schemes in about 2006. I had a look into it and decided it looked too risky. It fell into the if it looks too good to be true then it probably is category for me. Despite the fact at the time it was tax free.

preme court agreed that the payments were in fact loans.
Have you got a link....

Not seen the Timesarticle but dos this not say the Rangers machinations were adjudged not to be loans;

Lord Hodge and four fellow judges agreed with HMRC’s contention that any payments made through EBTs should be considered taxable income rather than loans.
https://www.theguardian.com/politics/2017/jul/05/hmrc-wins-case-against-rangers-fc-entity-in-tax-avoidance-crackdown

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?

HMRC maintain that there's nothing retrospective about it, and if they're correct and the loans are indeed DR then they've just been accumulating tax liability since they began. HMRC quoted in the linked article -

“The charge on disguised remuneration (DR) loans is not retrospective. It is a new charge, arising at a future date, on loan balances outstanding at that date. It does not change the tax position of any previous year or the outcome of any open compliance checks. Its announcement at budget 2016 provided scheme users with a three-year period to repay their DR loans, or to agree a settlement with HMRC before the charge takes effect.”

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.