The stuff you need to know about loan schemes......

[LisaContractorUmbrella]

Loan scheme companies work by paying you a small salary and loan you the balance of income, less their fees which are typically high and calculated as a percentage of your earnings.

The problem is that as soon as the loan is written off it becomes taxable in full. If the loan is not written off, then you obviously still owe the money to the scheme provider – this money can be called in at any time and at any point in the future.

A number of contractors signed up to this type of scheme in good faith after promises that, when they left the loan would be written off. The problem is, now these people are receiving letters from the scheme provider reclaiming the debt.

There is also the risk of being hit twice for the debt. The ‘loan’ is a benefit in kind (BIK) and if it’s not declared on your tax return as income, you also potentially face a huge tax bill and fine, on top of repaying back the original loan.

Most loan scheme providers will state that they have 'QC opinion', this is not the same as a guarantee that the scheme users will not be subject to additional tax in the future and it is also no guarantee that legislation will not be imposed to stop the particular avoidance vehicle you are using and then apply tax collection and penalties retrospectively.

HMR&C are well known for targeting tax avoidance schemes which they consider to be a sham so it is wise to think about whether or not the service you are being offered accurately reflects reality - if not then you should be prepared for attention from HMR&C in the future.

[cojak]

Loan providers are also highly secretive as they all have 'new' schemes that are, of course, 'checked' by Tax QC's and 'approved' by HMRC.

I'd ask for evidence of this and see what they say.

[sal626]

The problem is, now these people are receiving letters from the scheme provider reclaiming the debt.

Lisa, which scheme provider(s) have issued letters reclaiming the debt?

[ChimpMaster]

Lisa, which scheme provider(s) have issued letters reclaiming the debt?

I'd like to know to - not because I give a damn but because I reckon it's very unlikely!

[Emigre]

Lisa, which scheme provider(s) have issued letters reclaiming the debt?

This is a very good question, for more than one reason. Firstly, it is not the scheme providers that are making the loans, it is typically a trust. Secondly, there is more than one type of "loan scheme" dependent not least upon the nature of employment. Contractors to some schemes were, pre-DR legislation, employed (PAYE) by an IOM business while others are now typically self-employed. Thus some but not all of the trusts, as I understand it, were Employee Benefit Trusts.

A loan is either a loan or it is not. If it is a loan then it is not income. If you were an employee and you got a loan from an EBT then I believe that you would have been liable for BIKs which of course would mount exponentially for every year that you are in the scheme. On a self-employed basis a loan from a trust would I think be an unrelated event and would not necessarily even have to have an interest rate attached.

In support of Lisa here I did hear that N***a either closed or changed the structure of a scheme that falls into this category. I did not hear exactly how this was done or what happened to the loans. Anyone?

[cojak]

Watch this space... Rangers FC and the tax case | Forbes Young Contractor Accountants

Another point to remember. The trust has been making “loans” to the individuals concerned. Who is to say the trust will not recall the loans now HMRC have come sniffing around for their due and proper??

[porrker]

Watch this space... Rangers FC and the tax case | Forbes Young Contractor Accountants

The Rangers FC EBT was not setup correctly. The players had contracts stating how much they would be renumerated and when hence disguised renumeration. A properly setup EBT and employment contract does not state amounts or when.

The December 2010 legislation was introduced to stop Trusts being used in an Employee/Employer relationship. We wait to see if they will take this legislation a step further in April 2013 when the GAAR is released.

[BrilloPad]

Loan providers are also highly secretive as they all have 'new' schemes that are, of course, 'checked' by Tax QC's and 'approved' by HMRC.

I'd ask for evidence of this and see what they say.

+1

And of course double taxation scheme (see s58 thread - latest is http://forums.contractoruk.com/accou...ct-2008-a.html ) had all the above. If you really have to do a loan scheme then put all the tax into a CTD.

[Bumfluff]

+1

And of course double taxation scheme (see s58 thread - latest is http://forums.contractoruk.com/accou...ct-2008-a.html ) had all the above. If you really have to do a loan scheme then put all the tax into a CTD.

Sorry to go off topic on the CTD thing I was reading about them and how they cannot be used for PAYE liabilities, so I assume if you get investigated for IR35 and fail and they sting you for the PAYE and NIC class 1 there is no point getting in a CTD or am I missing something ? Taken from HMRC site >

"Taxes you can pay with your deposits
You can only use your tax deposits to pay your liabilities relating to the following taxes:

Income Tax (Self Assessment)
Class 4 National Insurance contributions (NICs)
Capital Gains Tax
Corporation Tax (Series 6 or earlier only)
Petroleum Revenue Tax
Petroleum Royalty
Inheritance Tax

Note that tax deposits can't be used to pay PAYE (Pay As You Earn), or Corporation Tax liabilities, other than those listed above."


thanks

[BrilloPad]

Sorry to go off topic on the CTD thing I was reading about them and how they cannot be used for PAYE liabilities, so I assume if you get investigated for IR35 and fail and they sting you for the PAYE and NIC class 1 there is no point getting in a CTD or am I missing something ? Taken from HMRC site >

"Taxes you can pay with your deposits
You can only use your tax deposits to pay your liabilities relating to the following taxes:

Income Tax (Self Assessment)
Class 4 National Insurance contributions (NICs)
Capital Gains Tax
Corporation Tax (Series 6 or earlier only)
Petroleum Revenue Tax
Petroleum Royalty
Inheritance Tax

Note that tax deposits can't be used to pay PAYE (Pay As You Earn), or Corporation Tax liabilities, other than those listed above."


thanks

You are correct. Link is HM Revenue & Customs: The Certificate of Tax Deposit scheme

In the case of s58 it is self assessment income tax. Not sure if it would be the same for loan schemes or not.