Employers loan/ Commercial Loan Arrangements - thoughts please

[WTFH]

It would appear from this forum that there maybe a few more than you think!

Are you directly, or indirectly, an officer in that company (or were you at the time the loan was made?)

[webberg]

Can anyone answer this, do HMRC try and get the money from the employer that it has stopped completing liquidation OR do they come straight for the employee?

Nobody knows yet.

To date HMRC has focused on the employee, where the employer is "unlikely to be able to pay".

We have some instances of assessments going to employers.

We have some instances of HMRC going for intermediaries.

Best to describe HMRC's "strategy" as scattergun and just trying their luck with anybody still standing.

[webberg]

Why did the employer make you a loan and not just pay you a salary?
I spotted a personal investment strategy whereby I could only enter with a minimum of £120k and could not received this amount as salary in a quick enough timescale; so taking a loan was the quickest way of drawing funds.

If the making of the loan is linked to being an employee but it's not to help you with say a season ticket, car/house purchase, etc, then why was it paid?
see above. I need the loan to claim a place in an investment opportunity.

The short (and correct in my opinion) answer is that the loan was a form of reward.
this cannot be proven until the end of the loan arrangement. I'm contractually permitted to pay the loan back after 10 years. Whether I can do that is based on the investment. Just because i'm not making repayments now doesn't mean I have no intention to. HMRC can't enforce me to pay anything in April 2019 as I could pay back the entire lot in 10 years. So they are charging me an extra fee on top of the interest rates i'm already paying on a loan. bonkers.

A reward for working - as an employee.
yes, a reward in the form of a loan from my employee to enable me to exploit opportunities I wouldn't have otherwise had. The employee also benefits from the beneficial interest rates. it can not be proven whether this was a real loan or not until the end of the loan agreement... if the loan is written off then yes it becomes tax deductible. if its paid back then all is good.

I think before you get into the detail of loan terms etc, answering the above is necessary

Hmmm.

My final contribution to this subject.

1. Did you receive the whole £120k in one amount so that you could enter the investment opportunity? Can you show the credit in your bank account and the subsequent debit to the investment opportunity?

2. What was that investment opportunity? How did you find out about it? What DD did you do? How did you monitor it?

3. Why would an employer fund that opportunity? What was in it for them? Did they get interest etc?

4. If you repay the amount, does this "prove" it was a loan? It's helpful but not conclusive.

5. Can HMRC prove it was not a loan and do they have to? No to both. HMRC will seek to convince a Judge that on the balance of probabilities, there never was a loan but instead, using the tests laid out in the Rangers case, it was a payment which was a reward for working. If you disagree it is for you to convince the Judge that because of your future intentions to repay etc, and the conditions around the investment opportunity when you took the loan, it really was a loan. That will involve the lender being able to demonstrate the circumstances from their perspective.

Clearly a lot of the above is subjective. A Judge will however try to bring objectivity and will compare this situation with what he/she sees as being a loan and the market for these.

However, as you say, individual circumstances may prevail and if the above is your defence, I wish you luck.

[WTFH]

Are you directly, or indirectly, an officer in that company (or were you at the time the loan was made?)

Follow up:
Is the company still trading or has it ceased to trade?

[Finalwhistle]

Hmmm.

My final contribution to this subject.

1. Did you receive the whole £120k in one amount so that you could enter the investment opportunity? Can you show the credit in your bank account and the subsequent debit to the investment opportunity?

2. What was that investment opportunity? How did you find out about it? What DD did you do? How did you monitor it?

3. Why would an employer fund that opportunity? What was in it for them? Did they get interest etc?

4. If you repay the amount, does this "prove" it was a loan? It's helpful but not conclusive.

5. Can HMRC prove it was not a loan and do they have to? No to both. HMRC will seek to convince a Judge that on the balance of probabilities, there never was a loan but instead, using the tests laid out in the Rangers case, it was a payment which was a reward for working. If you disagree it is for you to convince the Judge that because of your future intentions to repay etc, and the conditions around the investment opportunity when you took the loan, it really was a loan. That will involve the lender being able to demonstrate the circumstances from their perspective.

Clearly a lot of the above is subjective. A Judge will however try to bring objectivity and will compare this situation with what he/she sees as being a loan and the market for these.

However, as you say, individual circumstances may prevail and if the above is your defence, I wish you luck.

Thanks. I think we have gone away from my original question. Yes it was a loan, yes it may be in the form of tax avoidance..I just wondered whether there was a grey area whereby certain arrangements, by the way they are implemented.. are not caught by LC19. I think the answer is no. The only way is to show that the loan was not DR.

[webberg]

Thanks. I think we have gone away from my original question. Yes it was a loan, yes it may be in the form of tax avoidance..I just wondered whether there was a grey area whereby certain arrangements, by the way they are implemented.. are not caught by LC19. I think the answer is no. The only way is to show that the loan was not DR.

There are grey areas.

I think though that the legal format is not one of them.

I don't know what scheme this was, but if it was something that allegedly worked by the promoter receiving funds from an agency/end client which were then distributed partly to you and partly to a lender who then loaned you money, then think on the following.

Ignoring the tax analysis completely, how can anybody prove that the lender ever had access to funds which were alleged to be lent to you?

If they did not have access to funds from which to make a loan, how could a loan have been made?

Most of the trust schemes were said to work by the promoter making a contribution and the trustees subsequently meeting to consider making a loan. I have seen minutes from trustee meetings which consider entering a loan agreement with a beneficiary and making the initial loan, but never anything other than a mass generated email which says the trustees have considered further advances.

Given that from around 2008, most banks were making charges for moving money around and if this was done so that the original recipient (the promoter) transferred funds to an entity they did not control, the fees were high. A subsequent transfer from trust to you would also have attracted fees.

How did the trust pay for those?

I suspect (and have limited evidence) that the transfer from promoter to trust/lender never happened.

Instead, the promoter turned money around very quickly (and remember in 2008 a cheque needed a minimum of 3 days to clear, so the full journey may have require 6 to 9 working days and this did not happen) because they never paid money to the lender.

Instead they paid you but papered it as a loan from a trust.

If that is true, is there a loan and is there a third party for the purposes of the DR legislation?

I have to say that the chances are in many schemes the answers to the above are both "no".

In which case splitting hairs on loan terms and intentions is unnecessary.

[lowpaidworker]

Nobody knows yet.

To date HMRC has focused on the employee, where the employer is "unlikely to be able to pay".

We have some instances of assessments going to employers.

We have some instances of HMRC going for intermediaries.

Best to describe HMRC's "strategy" as scattergun and just trying their luck with anybody still standing.

OK I thought HMRC after the Rangers case the ruling stated the money became taxable once the employer paid the funds. I.e. the tax was payable the time that the employer or trust decided to pay the money. That surely means the law was broken by the Employer and not Employee and the Employer is accountable ?

[webberg]

OK I thought HMRC after the Rangers case the ruling stated the money became taxable once the employer paid the funds. I.e. the tax was payable the time that the employer or trust decided to pay the money. That surely means the law was broken by the Employer and not Employee and the Employer is accountable ?

That may be the case, (HMRC remain in denial) but they also argue that where the employer cannot pay, then they can chase the recipient of the funds.

That is a separate argument based on different law.