Employers loan/ Commercial Loan Arrangements - thoughts please

[Finalwhistle]

I was involved in an arrangement where by a received a loan from my employer under commercial terms (a commercial loan agreement). I'm going through CLSO but I was wondering how other people are treating these loans? are others assuming they are "captured' within the LC19? or assuming that they are not?

I'm going through CLSO at the moment and i'm about to declare my loan values. But wondering whether i might state that I will not be settling these affairs as they are not part of the LC19 and therefore require a new ruling or judicial review before PAYE payments can be forced on them.

happy to listen to what others thoughts are advisors or otherwise...

[webberg]

To be a commercial loan for the purposes of the loan charge you have to have an HMRC approval for it.

(I think - I'm not in office or able to see the legislation at the moment).

HMRC's view is that loans connected to a tax avoidance arrangement (not that they can accurately define either term) are never going to be "commercial", instead owing more to tax avoidance than anything else.

Commercial terms attached to such loans are more often observed by their absence and HMRC would need a lot of convincing that they were genuine loans that could sit outside disguised remuneration rules.

We have seen and examined claims from a number of promoters of schemes who claim this defence/exemption. In our opinion, none of them are likely to be able to meet the tests of being anything other than a means to pay remuneration.

Other advisers will no doubt have other opinions.

[nucastle]

I was involved in an arrangement where by a received a loan from my employer under commercial terms (a commercial loan agreement). I'm going through CLSO but I was wondering how other people are treating these loans? are others assuming they are "captured' within the LC19? or assuming that they are not?

I'm going through CLSO at the moment and i'm about to declare my loan values. But wondering whether i might state that I will not be settling these affairs as they are not part of the LC19 and therefore require a new ruling or judicial review before PAYE payments can be forced on them.

happy to listen to what others thoughts are advisors or otherwise...

Are those your words, or those of your scheme provider?

If it's the latter, remember they got you into this mess and will spare no time in ducking the blame should your assumed circumstances suddenly changed come 2019.

[Finalwhistle]

To be a commercial loan for the purposes of the loan charge you have to have an HMRC approval for it.

(I think - I'm not in office or able to see the legislation at the moment).

HMRC's view is that loans connected to a tax avoidance arrangement (not that they can accurately define either term) are never going to be "commercial", instead owing more to tax avoidance than anything else.

Commercial terms attached to such loans are more often observed by their absence and HMRC would need a lot of convincing that they were genuine loans that could sit outside disguised remuneration rules.

We have seen and examined claims from a number of promoters of schemes who claim this defence/exemption. In our opinion, none of them are likely to be able to meet the tests of being anything other than a means to pay remuneration.

Other advisers will no doubt have other opinions.

Let’s for argument sake say everyone agrees that the loans are tax avoidance loans. Does that automatically put them in the scope of the Loan Charge 2019 as currently defined?

[Finalwhistle]

Are those your words, or those of your scheme provider?

If it's the latter, remember they got you into this mess and will spare no time in ducking the blame should your assumed circumstances suddenly changed come 2019.

Lol yes the loan provider is claiming that defence.. and taking their side, why not? All of the commercial loans would have to be assessed on a case by case basis to determine whether they are actual loans or tax avoidance loans... is that likely to happen? Probably not.
I don’t believe the hype enough to continue with these arrangements of course.
I think the question I’m maybe asking is does the DR need to be through a third party as per the current definition/ scope of the LC19

[Iliketax]

I was involved in an arrangement where by a received a loan from my employer under commercial terms (a commercial loan agreement). I'm going through CLSO but I was wondering how other people are treating these loans? are others assuming they are "captured' within the LC19? or assuming that they are not?

I'm going through CLSO at the moment and i'm about to declare my loan values. But wondering whether i might state that I will not be settling these affairs as they are not part of the LC19 and therefore require a new ruling or judicial review before PAYE payments can be forced on them.

happy to listen to what others thoughts are advisors or otherwise...

If it was all 'plain vanilla' then a loan from your employer is not within the scope of the April 2019 loan charge. By plain vanilla I mean (i) your employer lent you the money directly, (ii) it really was your employer (e.g. if you have two employers (yourco and someone else) then that's not plain vanilla, also if you are self-employed it is different), (iii) it was not acting as trustee for anyone else, (iv) no one else has acquired the right to the repayment (e.g. your employer has not transferred the loan receivable and is not holding it on trust for someone else), (v) it has nothing to do with a pension-type of thing, and (vi) there is nothing else contrived about it (e.g you didn't get the cash by selling some gold that someone had kindly lent you).

How will you know if it is plain vanilla? There is no way that you can tell. You just can't unless you are the employer or have full access to everything.

If it is not within the scope of the April 2019 loan charge, there are lots of reasons why it could still be taxed under some other provision.

I have no idea what HMRC would say if you declare it and say you don't want to settle as you do not think it is within scope of the April 2019 loan charge. My guess is they will then raise an enquiry and ask you lots of interesting questions about it. That could get quite interesting for you if the loan is from an offshore person with the new "failure to correct" rules.

You also mention "commercial terms (a commercial loan agreement)". As far a the April 2019 loan charge (or any of the other provisions) they can call it want they want but it won't change the tax position. There is an exemption from disguised remuneration / April 2019 loan charge for loans made by banks and the like on exactly the same terms that anyone else could have got hold of. That exemption is incredibly narrow and wouldn't apply in this sort of situation. It would apply though if your employer had a notice on their noticeboard saying "Call Barclays for a mortgage on the same terms as everyone else". It wouldn't apply if it said "Call Barclays for a mortage, we've negotiated a £5 discount off of arrangement fees".

[Finalwhistle]

If it was all 'plain vanilla' then a loan from your employer is not within the scope of the April 2019 loan charge. By plain vanilla I mean (i) your employer lent you the money directly, (ii) it really was your employer (e.g. if you have two employers (yourco and someone else) then that's not plain vanilla, also if you are self-employed it is different), (iii) it was not acting as trustee for anyone else, (iv) no one else has acquired the right to the repayment (e.g. your employer has not transferred the loan receivable and is not holding it on trust for someone else), (v) it has nothing to do with a pension-type of thing, and (vi) there is nothing else contrived about it (e.g you didn't get the cash by selling some gold that someone had kindly lent you).

How will you know if it is plain vanilla? There is no way that you can tell. You just can't unless you are the employer or have full access to everything.

If it is not within the scope of the April 2019 loan charge, there are lots of reasons why it could still be taxed under some other provision.

I have no idea what HMRC would say if you declare it and say you don't want to settle as you do not think it is within scope of the April 2019 loan charge. My guess is they will then raise an enquiry and ask you lots of interesting questions about it. That could get quite interesting for you if the loan is from an offshore person with the new "failure to correct" rules.

You also mention "commercial terms (a commercial loan agreement)". As far a the April 2019 loan charge (or any of the other provisions) they can call it want they want but it won't change the tax position. There is an exemption from disguised remuneration / April 2019 loan charge for loans made by banks and the like on exactly the same terms that anyone else could have got hold of. That exemption is incredibly narrow and wouldn't apply in this sort of situation. It would apply though if your employer had a notice on their noticeboard saying "Call Barclays for a mortgage on the same terms as everyone else". It wouldn't apply if it said "Call Barclays for a mortage, we've negotiated a £5 discount off of arrangement fees".

They are my employer and they lent me the money directly. Contractually speaking it is plain vanilla.
As webberg illudes to though it could still be challenged as DR due to the wider aspects of the arrangement I.e intention to pay back.
If the LC applies to any loan which is deemed to be DR then these loans will also be captured.. however I still believe that each one of the loans would need to be assessed on a case by case basis (as you also infer with your enquiry letters). I’m quite happy to deal with enquiry letters for the rest of my life if it never materialises into having to pay anything back. How would the enquiry go, something like this..
HMRC: have you had loans
Me: yes
HMRC: pay PAYE
ME: no they are commercial loans
HMRC: how are you planning on paying them back
Me: I have 10 years to figure that out (as per the terms of the loan arrangement). I’m in debt, took more loans than I should have done. That isn’t a crime. Better from my employer than a credit card! For all you know I could have invested the loan to make more money via investments over a 10 year period to pay the loan back
HMRC response: see you in 10 years then?

Btw, anyone know that this is about? Postponing the loan charge??

Disguised remuneration: postponing the loan charge - GOV.UK

[webberg]

You can postpone the loan charge if the value of the APNs paid exceeds the present loan balance.

Frankly I struggle to see how that helps.

Your argument as to the commerciality or otherwise of the loans becomes much more difficult if you have left that "employer" and no action was taken (and I mean none, like not even a letter acknowledging the debt at time of leaving) and that "employer" has subsequently gone out of existence without the shareholders trying to collect its assets (your loan) or advising you that they have been written off (taxable event).

The challenge you face here is not so much whether the loan was commercial or not, but whether it was in fact a loan at all.

Do a list of features that a loan has and see how many you can tick off.

For example:

Did the lender credit check your ability to repay?
Can you prove that?
Why was interest rolled up (unusual)?
Why was it both unsecured and long term (unusual)?
Where did the lender get the funds from?
Did those funds come from you?
Or from the entire employee population?
Was this loan mentioned by you in subsequent mortgage applications or credit card applications?

Etc.

I have examined hundreds of loan agreements and the circumstances behind them. I cannot think of one that would lead me to believe that - as measured in today's legislation and judicial decisions - they were loans.

I wish you luck in your quest for the commercial loan but it is a path strewn with obstacles and peril.

[Iliketax]

They are my employer and they lent me the money directly. Contractually speaking it is plain vanilla.
As webberg illudes to though it could still be challenged as DR due to the wider aspects of the arrangement I.e intention to pay back.
If the LC applies to any loan which is deemed to be DR then these loans will also be captured.

While the loan (and what happened before the loan was made) can be challenged under lots of rules, the April 2019 loan charge cannot apply if it is "plain vanilla" as I've described above.

Don't forget there are things you may not know about (see my earlier post) that may mean that the loan is not plain vanilla. Also, if your employer has been liquidated then the April 2019 loan charge may still apply because someone else has the loan receivable (e.g. a former shareholder or the crown) and so the quasi-loan rules apply.

[Delendog]

While the loan (and what happened before the loan was made) can be challenged under lots of rules, the April 2019 loan charge cannot apply if it is "plain vanilla" as I've described above.

Don't forget there are things you may not know about (see my earlier post) that may mean that the loan is not plain vanilla. Also, if your employer has been liquidated then the April 2019 loan charge may still apply because someone else has the loan receivable (e.g. a former shareholder or the crown) and so the quasi-loan rules apply.

what happens if the employer filed for voluntary liquidation but has been stopped completing it by claims from HMRC?