Trust Fees for settling loans

[howcanigetyoualoan]

DontSettle is trying to be my pet troll.

Is it ok if I pm you?

[nobody123]

Can someone tell me whether settlement of loans apply to EIGHT TRUST (technically a dividend scheme not loan) and if so, does anyone know whether they are likely to release them?

Also, can someone PM me the trust contact details so that I can make that request?

Thank you

[Dmac]

IHT

No. IHT is more complicated than that.

Have a read of this: https://www.gov.uk/government/public...nheritance-tax

Thanks for that. Lucky for me (a layman) it is in plain English! NOT!

Your comment "IHT is more complicated than that" - yes, I agree!

[Iliketax]

Is it ok if I pm you?

Sorry, no. I don't do personal advice. If you want to put something on here then if I see it I will try to reply. But you will be better off getting your own personal tax advice.

[RickG]

A few things have become clearer to me:

- Trustees seem to be acting in their own interests, rather than the beneficiaries. My trustee, for example, has inquired in detail about my financial position to settle with HMRC. I'm not sure what relevance this has to them in their capacity as trustees. Rather, it seems a way for them to target those who they can fleece more money out of.

- Many of the people associated with my trust are the very same people associated with the companies which provided the scheme in the first place. Hardly surprising.

- All of the people above have now resigned. And gone onto setting up specialist tax consultancies to "assist" with settling with HMRC.

Some questions I have:

- Why would a trust only agree to "settle", "write-off" or "close a trust" once tax has been settled with HMRC? Is there a legal basis for them insisting on tax affairs being settled? Or is this a way of protecting themselves from being charged tax by HMRC?

- The trust I was involved with had a final compulsory strike off order, subverted at the last minute for unknown reasons. I'm trying to speculate what may have happened here - was the trust trying to dissolve itself and HMRC stopped them? Or did they forget to file their annual return?

[RickG]

Yes



I've mentioned s554Z5 a number of times, but you've declined to explain why you think it does not apply. That's obviously your choice.

But for people who want to play along at home (or with their own tax adviser), let's pretend:

<snip>

If you want to read more about this on the forum, google "site:forums.contractoruk.com/ s554z5"

Thank you for the above - very insightful reading. I have a specific question which I'm hoping you can help with.

Where a company has undergone an insolvency, and a Reg 80 determination has been made on the tax due, which has been included in the liquidation, does S554Z5 or S554Z11B allow the amounts which would have been due by the company (but not paid) to be used to be offset against the Loan Charge, due to double taxation rules?

Reading: Tackling disguised remuneration: draft guidance for changes to Part 7A - GOV.UK

It seems it is possible:

Example: Reg 80 paid in full
An employer placed £100 into an Employee Benefit Trust (EBT) in September 2010 for the benefit of one of its directors. This was subject to an earnings charge under Section 62 ITEPA 2003. This is sum Q. A Reg 80 determination was raised on the employer in January 2012 and was paid in full.

The funds were left in the EBT until October 2017 when the trustees of the EBT made a loan of £100 to the employee which was chargeable as a relevant step under Pt 7A. This is sum P.

The Pt 7A step is taken on the same amount of money as was originally settled in the EBT. The loan (sum P) therefore fully overlaps with the amount of money which was the subject of the earlier tax liability (sum Q). The value of the relevant step is therefore reduced by the amount of the overlap. This reduces the value of the step from £100 to £0.

The earlier tax liability does not have to be an earnings charge under Section 62. The overlap can be between two relevant steps, provided that the tax due on the earlier relevant step has become due and payable and has been paid or has been the subject of an agreement for the discharge of the liability.

Section 554Z11B – Earlier Tax Liability Due but Unpaid – Identification of Sums or Assets P and Q
ITEPA 2003 – Sections 554Z11B
As noted in the previous paragraph Section 554Z11B details the circumstances which need to apply for relief to be given.

Whereas Section 554Z5 deals with paid liabilities or those which have not become due and payable, Section 554Z11B requires that the earlier tax liability has become due and payable and is either wholly or partly unpaid at the time the relevant step is taken. Also the person liable for the tax will have not agreed terms with HMRC for the discharge of the liability.

The charge to tax on the relevant step is again described as being on sum of money or asset “P”. The earlier tax liability is on sum or asset “Q”. It needs to be reasonable to conclude that P and Q are the same sum of money or asset or that P directly or indirectly represents Q. Both charges to tax are effectively on the same income.

It may be that capital growth has been added to sum Q before the relevant step on sum P is taken. Due to Section 554Z11B(4), the provisions detailed in Section 554Z5 – other provisions in relation to the identification of the overlap between P and Q also apply where an amount of growth is included in a relevant step.

Example 1:
2008 to 2009 - Contribution to EBT £100,000 – Sum Q – charged under s62 – £40,000 2014 to 2015 – Loan made £50,000 – Sum P – charged under Pt 7A £20,000

The amount of the loan originates from the amount contributed to the EBT. It is therefore reasonable to conclude that the original contribution and the loan are the same sum of money.

Example 2:
2011 to 2012 – Loan made £100,000 – item charged under Pt 7A – £50,000
2012 to 2013 – Loan made £100,000 – item charged under Pt 7A – £50,000
2018 to 2019 – Loan charge £200,000 – item charged under loan charge provisions – £90,000

The 2011 to 2012 and 2012 to 2013 loans are still outstanding at 5 April 2019 so the FA 2017 loan charge provisions apply. It is reasonable to conclude that the 2018 to 2019 loan charge is on the same income as was charged under Pt 7A in the earlier years.

However, reading this article suggests it may not be, as the relief has been legislated out in the 2018 FB: http://www.qubictax.com/cmsfiles/qub...20Jennings.pdf

Double tax
Paragraph 4 also confirms that no overlap relief can be
claimed if any earlier event has not led to the tax being paid,
rather than simply being payable. This removes any argument
that could apply under the older definition of overlap relief in ITEPA 2003, s 554Z5 which allowed relief if tax was payable.
Relief can be claimed only if tax has been paid in full.
Legislation was also introduced (new s 554A5B introduced
by FA 2018, Sch 1 para 1) at the same time to put beyond doubt
that any earlier part of the transaction (such as the employer
contributing to a trust) that might be said to have been a
‘redirection of earnings’ per the Rangers judgment, will not
prevent tax being due under the loan charge rules unless it has
already been paid in full on the redirection of earnings. This
is important because the redirection argument was brought
up only recently in litigation and HMRC had not always raised
the requisite enquiry or assessment in time to backdate this
approach to older cases. This amendment, therefore, now
ensures the department is not shut out from applying the loan
charge rules if a taxpayer may have tried to argue they should
not be taxed twice.

But then this article contradicts the above and suggests it may still be possible: https://www.taxjournal.com/articles/...n-requirements

Sections 554Z11B–554Z11G mitigate against ‘double taxation’ if a relevant step is taken within the disguised remuneration (DR) rules, and there have been earlier unpaid DR or ‘re-directed earnings’ charges. These rules afford credit, for tax paid on that relevant step, against earlier tax charges (whether or not HMRC is in time to recover them), but only insofar as the amounts on which those earlier charges arose overlap with the amount on which the later charge arises. They are less generous than those (in ITEPA 2003 s 554Z5) which apply to relevant steps taken after settlement has been reached with HMRC or income tax on the earlier liability in respect of the same money or asset has been paid in full or is not yet payable.

I'd be interested to hear your thoughts on this specific scenario. Let me know if I've missed anything out.

Thanks.

[Iliketax]

Thank you for the above - very insightful reading. I have a specific question which I'm hoping you can help with.

Where a company has undergone an insolvency, and a Reg 80 determination has been made on the tax due, which has been included in the liquidation, does S554Z5 or S554Z11B allow the amounts which would have been due by the company (but not paid) to be used to be offset against the Loan Charge, due to double taxation rules?

Short answer: No, the tax must have actually been paid (or HMRC must have actually given time to pay). Which makes sense as the rules are designed to stop two lots of tax actually being paid on what is really the same amount.

Longer answer: For double tax relief to be available under s554Z5 a number of conditions need to be satisfied. These include the requirement that either the "payment condition" or the "liability condition" is met:

(3) Where either the payment condition or the liability condition is met, the value of the relevant step is reduced (but not below nil) by an amount equal to so much of the sum of money, or (as the case may be) the value of so much of the asset, as is within the overlap.

These two conditions are:

(4) The payment condition is that, at the time the relevant step is taken—

(a) the earlier tax liability has become due and payable, and

(b) either—

(i) it has been paid in full, or

(ii) the person liable for the earlier tax liability has agreed terms with an officer of Revenue and Customs for the discharge of that liability.

(5) The liability condition is that, at the time the relevant step is taken, the earlier tax liability is not yet due and payable.

If a reg 80 determination has been raised then the tax has already become due and payable (because it is the employer not paying the PAYE that is due that causes the reg 80 determination to be raised). So the liability condition is not satisfied.

So as the tax is still outstanding (and assuming there is no "time to pay" agreed with HMRC) then the tax must have been "paid in full". That won't have happened (unless the liquidator has actually paid the PAYE by 5 April 2019) and the the payment condition is not satisfied.

For completeness:

a. there are no deeming rules that the PAYE is treated as having been actually paid for the disguised remuneration legislation, and

b. HMRC accepts that the PAYE on the April 2019 charge is not an expense of the liquidation (so the liquidator does not have to pay it out of their own pocket, just out of the assets of the company like any other creditor of the company).

With s554Z11B and s55Z11C, s554Z11C(2) requires that an amount "is paid". So the fact that tax is due (or is due and a reg 80 determination has been raised) is neither here nor there. Once the reg 80 is paid (or the individual pays the tax) then the amount "is paid" and double tax relief is available.

In relation to the HMRC guidance you linked to, I've highlighted some bits that focus on the actual payment of the tax.

Example: Reg 80 paid in full
An employer placed £100 into an Employee Benefit Trust (EBT) in September 2010 for the benefit of one of its directors. This was subject to an earnings charge under Section 62 ITEPA 2003. This is sum Q. A Reg 80 determination was raised on the employer in January 2012 and was paid in full.

Section 554Z11C gives relief by treating the payment of that liability as a payment on account of the other. The single payment will frank both charges to tax to the extent that they arise from the same amount of income.

The start point for any such calculation has to be to identify which charge is being paid by the taxpayer. If the earlier tax liability is being paid, it is necessary to consider how much of that liability relates to the income included in the later charge on the relevant step. If the relevant step charge is being paid, it is necessary to consider how much of the income included in that charge relates to the earlier tax liability..

[RickG]

Thank you for that comprehensive reply. Just one question:

(ii) the person liable for the earlier tax liability has agreed terms with an officer of Revenue and Customs for the discharge of that liability.

Is this condition not met in a liquidation, because implicitly the reg 80 due has been discharged by way of the liquidator deeming the tax liability cannot be paid?

Isn't this the whole point of a liquidation - that the debt is included in the final report because it cannot be paid?

Edit - and to add, in case it lends any more weight. Hmrc have allowed the liquidation to complete, accepting the liability cannot be paid. Ie. The company is allowed to dissolve?

[Iliketax]

Thank you for that comprehensive reply. Just one question:

(ii) the person liable for the earlier tax liability has agreed terms with an officer of Revenue and Customs for the discharge of that liability.

Is this condition not met in a liquidation, because implicitly the reg 80 due has been discharged by way of the liquidator deeming the tax liability cannot be paid?

Isn't this the whole point of a liquidation - that the debt is included in the final report because it cannot be paid?

Edit - and to add, in case it lends any more weight. Hmrc have allowed the liquidation to complete, accepting the liability cannot be paid. Ie. The company is allowed to dissolve?

No.

If that is right (which it's not) what are the terms that HMRC have agreed? The fact that HMRC cannot get the cash because the company is insolvent and has now disappeared is different from agreeing terms. For there to be an agreement, you'd need to look at contract law (e.g. consent, consideration, etc).

[RickG]

Deleted