All you people with EBT/Loan/Dodgy Umbrella schemes - what you gonna do?

[TykeMerc]

There is a bit of a difference between a scheme that exploited the way the dual tax rules worked, declaring full income but paid in a different jurisdiction and bunging a Jimmy wig and big nose glasses on income and calling it a never ending set of loans that never have to be repaid. The reason I rejected using any loan scheme was that they all appeared to be begging to be battered repeatedly with a rusty nail filled club.

To be honest I've been more than a little amazed that the loan schemes weren't stamped out ages ago, at least with the depreciating currency loans they were repaid so did at least look a bit loan like, the EBT ones just don't make sense. I've no idea how it could be argued that those loans aren't just income, but that's something the lawyers have undoubtedly got lined up.

[pastalista]

There is a bit of a difference between a scheme that exploited the way the dual tax rules worked, declaring full income but paid in a different jurisdiction and bunging a Jimmy wig and big nose glasses on income and calling it a never ending set of loans that never have to be repaid. The reason I rejected using any loan scheme was that they all appeared to be begging to be battered repeatedly with a rusty nail filled club.

To be honest I've been more than a little amazed that the loan schemes weren't stamped out ages ago, at least with the depreciating currency loans they were repaid so did at least look a bit loan like, the EBT ones just don't make sense. I've no idea how it could be argued that those loans aren't just income, but that's something the lawyers have undoubtedly got lined up.

Quite a few of the EBT trustees would periodically settle the loans stating that they had been made in a devaluing currency and could now be paid off for very small sums.

I still don't understand why somebody saying "no, you can live and work in the UK but be taxed in the IOM at 0% and because you can't be taxed on the money twice, HMRC won't be able to take any cash from you" is somehow more sophisticated and "believable" than somebody saying "no, you can live and work in the UK but because the bulk of your fees are returned to you as a commercial loan you don't have to pay tax on it because it isn't income". When viewed with hindsight, perhaps it could be said that both approaches were stretching the point, but were simply using existing loopholes.

Both approaches relied on applying tax law in a specific way - both were legal structures but in the BN66 case, HMRC said they had stated the rules previously and were "clarifying" the position in 2008. In the case of EBT, the new law comes into effect in April 11 but with the anti-forestalling announcement it has effect from 09/12/2010.

This doesn't mean that there will be no retrospection with EBT. It merely means that there has been no official attempt by HMRC to enforce retrospection as there was no previous law to "clarify". I can, however, just picture the discussions between Hector and the unfortunate consultants when the matter is raised during an investigation. It will be a case of "guilty until you prove yourself innocent" and that could be tricky because of Hector's "aggressive avoidance" approach.

Pastalista

[pastalista]

Not sure I totally agree. The risks have been well publicised for many years, going back to the hordes of people flying over to the Isle of Man to cash their Matabele Gumbo Bean postal orders in the 80s. All these schemes depend on a QC's opinion on a convoluted set of otherwise unlikely commercial arrangements, and QCs are very good at saying what you want them to tell you.

However it is also fairly clear HMRC are keeping away from the retrospective application this time around, else they wouldn't have bothered with the 9/12 anti-forestalling regulations. All they've done is put a line in the sand and said "All these schemes stop here, and we will get round to all of them as soon as we can."

So past users should be grateful they got away with it as long as they have, but anyone staying in one now needs their head read.

See my answer to the next post but I agree, HMRC is drawing a line in the sand for future use, but just because they haven't stated that the rules will be applied retrospectively doesn't mean they won't try to do it. Unless there is a mass action as with the BN66 case, there could be a vast number of consultants spending all of their money trying to prove they did nothing wrong. In an HMRC investigation, the money can run out very quickly leaving little choice but to try to settle.

Aggressive avoidance covers a multitude of sins.

All of these folks, BN66 and EBT both have my undying sympathy.

Pastalista