Loan charge - who tells whom

[webberg]

There are a lot of threads here where people say things like:

"I've heard nothing from HMRC, what should I do?", or

"HMRC has not contacted me regarding the loan charge".

Let's be VERY CLEAR.

If you have had loans that are within the definition of "loan" for loan charge purposes, YOU are obliged to tell HMRC about them before 1st October 2019.

In theory, you have to tell your employer (the one involved when the loan were made) but in the majority of instances, they are not around and you have to tell HMRC.

We are told that there is a form to be completed (we have not seen one yet) and probably a box or two on the SATR. However the last date for telling HMRC is 30th September 2019.

Whether you have had a letter from HMRC or not (bear in mind that they claim 50,000 impacted but have sent only 23,000 letters) YOU HAVE A LEGAL OBLIGATION to report.

Failing to report because HMRC has not contacted you is not a reasonable excuse and will not exempt you from penalties for that failure.

If you choose not to report on the grounds that HMRC has not been in touch and probably does not know you exist and/or had loans, think carefully. HMRC almost certainly has records of loans from lenders and will in due course get around to matching them with declarations.

[ChimpMaster]

If you choose not to report on the grounds that HMRC has not been in touch and probably does not know you exist and/or had loans, think carefully. HMRC almost certainly has records of loans from lenders and will in due course get around to matching them with declarations.

The only part I disagree with is in bold above.

HMRC had no idea of the loans I had. So for CLSO2 they chose completely ridiculous multipliers to take a wild guess at what loans I might have had. Their numbers were so far off that my annual contract value wasn't even close to the annual loans they guessed at.

I had declared the loans and paid BIK on them many years ago, so HMRC had the information on my tax returns for those (closed) years.

[Finalwhistle]

The only part I disagree with is in bold above.

HMRC had no idea of the loans I had. So for CLSO2 they chose completely ridiculous multipliers to take a wild guess at what loans I might have had. Their numbers were so far off that my annual contract value wasn't even close to the annual loans they guessed at.

I had declared the loans and paid BIK on them many years ago, so HMRC had the information on my tax returns for those (closed) years.

Totally agree with this. I don’t see how HMRC can know what the loan amounts are unless they were declared or the employer has since provided them as part of an information request... which is highly unlikely if they closed down some time ago.
I know people with no enquiries for arrangements as far back as 2008 and they aren’t declaring anything. I can totally see their basis for doing that.. especially as the retrospective nature of LC19 is totally flawed in its own right anyway.

[dammit chloe]

Totally agree with this. I don’t see how HMRC can know what the loan amounts are unless they were declared or the employer has since provided them as part of an information request... which is highly unlikely if they closed down some time ago.
I know people with no enquiries for arrangements as far back as 2008 and they aren’t declaring anything. I can totally see their basis for doing that.. especially as the retrospective nature of LC19 is totally flawed in its own right anyway.

My understanding is the trusts have to disclose the loans by September 2019 to HMRC. So HMRC may not know at the moment but unless the LC is beaten they will know a lot by then plus they will have more info to phish through from those that have disclosed. Some may be lucky but a lot who are hiding will be caught eventually.

[Iliketax]

My understanding is the trusts have to disclose the loans by September 2019 to HMRC. So HMRC may not know at the moment but unless the LC is beaten they will know a lot by then plus they will have more info to phish through from those that have disclosed. Some may be lucky but a lot who are hiding will be caught eventually.

I can imagine a situation where HMRC gets someone to:

1. Find the details of all the schemes where someone has settled. By details, I mean employer and lender.

2. Find the details of all the schemes where someone has reported that their loans are outstanding as at 5 April 2019. This will be by 30 September 2019.

3. Add details of any other ones that they are aware of. This may be schemes that they have tried to litigate (Phones 4U, Sempra Metals, RFC ...) or are aware of but they only have closed years.

4. Take off that list all of those schemes where the trustee has given full details (either historically or after the trustee hasn't been able to contact the former employer within ten days and so was required to tell HMRC that they haven't been able to).

Then they would ask the lenders on those lists (perhaps nicely, then perhaps more formally) for all the loans that have been made. They may even be able to find the P11Ds for all those employers on the list who have reported loans to employees to get a few more names.

So now they are able to pull together a list of employees with loans and amounts. They can take off those that have settled the full amount of those loans and those that have paid the April 2019 loan charge on the full amount. Presumably, HMRC would then ask questions about those that have left on their list and ask why they have not reported the loan charge?

For the self-employed, they can do something similar. If someone is a partner in a Singaporean LLP who has settled / reported the loan charge, then why not search through other people's tax returns to see if they were a partner too?

I have no idea if they will do that. But if they use a spreadsheet for the first bits and something like Connect for the rest, it doesn't seem to be that hard: Connect (computer system) - Wikipedia

Then there is also the info that Connect already has. For example, why not ask it who had big loans reported on P11Ds and send some letters out to those people too, just in case? From a costs-benefits perspective, that's got to be very good value for money. If they find one individual with a £100,000 loan then that will more than fund all the stamps that they need to buy for their letters. For good measure, they could also send a letter to the employer asking about the loans, about the April 2019 loan charge and, for more recent ones, the loans to participators tax charge. Might get enough to cover the envelopes.

They could also look at Companies House to see who mentions EBTs and loans. But that will be more hit and miss.

And if that all sounds a bit far fetched, have a look at para 20 of this case: Root2tax Ltd and Root3tax Ltd v Revenue and Customs (INCOME TAX/CORPORATION TAX : Anti-avoidance) [2017] UKFTT 696 (TC) (11 September 2017)

[here4beer]

I'm still confused as to how I'm meant to know if this rule applies to me? How do i find out if I'm actually caught? I thought it was agencies paying people via off shore loans. That's not how mine works, at all. Many users of my type think I'm an idiot for wanting to settle.

I have a loan from a Trust, yes. But I'm not employed by them, neither is my company, or any agency. I have no other dealings in anyway. Only a personal relationship...

I'm self employed by my own limited company. Agencies find me work for big companies, and i invoice the agency every week/month. My limited company then pays me small salary and dividends, and pays a large portion to a contractor UK wealth company. (This company helps my small company find new work, connections, contracts, other contractors etc to help me in IR35 situations).

That's it. I then personally belong to a trust, where i request a loan when i need money. It's a good rate, and they won't ask me to ever pay back until I'm ready. Or I'll die, and it dies with me. I plan on dying, and the loan dying with me btw...

Is this the loan they're trying to stop? Who knows for sure? the answer here ISNT HMRC, surely... "Hello HMRC, do i owe you for-" "Yes, yes you do."

[Calmbeforethestorm]

I'm still confused as to how I'm meant to know if this rule applies to me? How do i find out if I'm actually caught? I thought it was agencies paying people via off shore loans. That's not how mine works, at all. Many users of my type think I'm an idiot for wanting to settle.

I have a loan from a Trust, yes. But I'm not employed by them, neither is my company, or any agency. I have no other dealings in anyway. Only a personal relationship...

I'm self employed by my own limited company. Agencies find me work for big companies, and i invoice the agency every week/month. My limited company then pays me small salary and dividends, and pays a large portion to a contractor UK wealth company. (This company helps my small company find new work, connections, contracts, other contractors etc to help me in IR35 situations).

That's it. I then personally belong to a trust, where i request a loan when i need money. It's a good rate, and they won't ask me to ever pay back until I'm ready. Or I'll die, and it dies with me. I plan on dying, and the loan dying with me btw...

Is this the loan they're trying to stop? Who knows for sure? the answer here ISNT HMRC, surely... "Hello HMRC, do i owe you for-" "Yes, yes you do."

perhaps you need to ask yourself how the money which you borrow gets into the trust in the first place.

if there is no connection whatsoever with what you do then you have a magic money tree and we all want one....if there is some connection, however remote...IE...if you did nothing then no further money goes in there then you are possibly caught.

[here4beer]

perhaps you need to ask yourself how the money which you borrow gets into the trust in the first place.

if there is no connection whatsoever with what you do then you have a magic money tree and we all want one....if there is some connection, however remote...IE...if you did nothing then no further money goes in there then you are possibly caught.

Do I though? If i borrow money from the bank, I don't ask where they get it from. I borrow money because the repayment details suit me.

...But yes. that's the ignorant view, I know full well what you're saying. For clarity, I have started the settlement process. I just don't know if i actually need too, as my loan wasn't paid via an offshore agency in the 2000's.

[webberg]

You are conflating two issues.

One is whether you have a liability under the loan charge.

The other is whether the arrangement you have results in more tax than you presently (or previously) pay/paid.

The loan charge relies upon the gateway conditions in section 554A ITEPA being met. One of those conditions (554A(1)(d)) requires that a third party is used to pass funds from an employer to an employee.

Many schemes from perhaps 2013 onwards used one of two methods to allegedly escape this rule.

One was to make loans directly from an employer. The other was to separate the (legal) employer from the company charging the end client (or their agency) for work done. (We call this the "missing employer" route.)

HMRC has recently persuaded a GAAR Panel that a direct loan from an employer that was subsequently moved to a third party is abusive and that it falls within the "intent" of section 554A. (In fact within Part 7a ITEPA but I have shortcut this).

Where there is a "missing employer", the degree to which this meets all the gateway conditions is less certain. However it must be assumed that if HMRC has already persuaded a GAAR Panel that the correct way to view such schemes is not from the perspective of the employer, but from the perspective of the employee and their receipts, then a scheme such as this is vulnerable.

If such schemes are vulnerable to section 554A/Part 7a, then they are also vulnerable to being disclosable for loan charge purposes.

I would say that HMRC will expect disclosure in the circumstances and you can expect a fight if you do not.

The question of whether a liability arises at all in the missing employer scenario rests to a degree on the interpretation of the Rangers case. be under no illusion that HMRC is trying to write that decision out of history and the loan charge is part of that.

I would agree with comments above as to HMRC's ability to collect and correlate loan information. We know for a fact that some trustees holding loans have been approached by HMRC and have supplied data.

I would not agree that a sensible strategy would be to hope that information has not been supplied or that HMRC is unaware now or in the future of loans made and as such no assessment will be raised. That route is not only in breach of your legal obligations but risks significant penalties.

I also appreciate that tax advisers are putting out views and opinions that do little to provide clarity.

All you can do is ask either one adviser you trust for a view and stay with it or get views from more than one, make sure you understand the context in which the advice is given and come to a view based on the collective opinion.

What you should not do is seek opinions from those who have a potential conflict of interest (usually links to a promoter or operator of a scheme) or go shopping for an opinion that suits your way of thinking.