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Declaring depreciated ccy loans - some specific questions

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    Declaring depreciated ccy loans - some specific questions

    I understand that we need to declare outstanding loans by October to HMRC via an online form, I have a few questions specifically regarding foreign ccy loans:

    (1) For depreciating ccy loans that have been depreciated and waived before March 2016; is the current professional thinking still that you declare the original Sterling equivalent amounts received and ignore all depreciation? Or are any professionals out there of the opinion that loans depreciated and waived before 2016 need not be declared?

    (2) Where interest payments have been made in Sterling against the loans, do these count as "repayments"? The loan charge seems to be a simple difference between GBP received and GBP paid back.

    (3) What if some of the interest payments were then loaned back? Do these loan amounts also need reporting?

    #2
    I'll have a punt at your questions.

    1. The LC rules apply to "outstanding loans". If the loan is not "outstanding" then no disclosure is strictly needed. This relies upon the argument that the time of the relevant step is per para 1(2) of Sch 11 F(No2)A 2017.

    I would however expect HMRC to argue that most foreign currency loans fall within para 10 ibid. Whilst this also requires there to be an outstanding balance "at the relevant time" it starts from looking at the loan at the "reference date" - the time it is made - and converting the currency to sterling. Repayment amounts have a similar treatment. Thus a loan with an initial value of £100 which is repaid with the sterling equivalent of £5, leaves £95 outstanding. If that is the position and you have no piece of paper absolving you from legal obligation to repay £95, then I can see HMRC saying the loan is extant at the relevant date.

    If you have the above and a piece of paper saying you are absolved, you are perhaps in a better position to argue the point, but it would be a brave person who takes this on alone.

    Why do I say this?

    Partly because I think that in the vast majority of scenarios, the loans WERE NEVER IN A FOREIGN CURRENCY.

    You may have a statement saying that they are, may have signed papers permitting a loan to be "noted" in a non sterling currency.

    All I will say is that I have seen almost no evidence that the currency transactions required to move from sterling to whatever, and back again, actually happened.

    Think about it, why would a currency broker volunteer for a huge loss (in sterling) promising to sell at one price and buy back at another which guaranteed a loss?

    In short, I think HMRC could (and would) argue that the loans were at the relevant date (5th April 2019) extant to level of unpaid sterling, perhaps not in currency at all (rendering a waiving of a currency loan meaningless) and therefore liable to the loan charge.

    Certain actions by one of the major schemes offering this type of scheme have not helped either.

    In summary, whilst if you have the papers showing a write off or the lender giving up all legal obligations to the loan pre 16th March 2016, you have a chance but also a fight on your hands.

    2. Interest repayments that do not reduce the principal do not count towards reducing the value for the LC.

    3. Don't know. If I was HMRC I would argue that they would.

    Overall I think that the facts of most loans make the sort of approach suggested at best difficult and at worst, impossible.

    To avoid the loan charge via a route looking at the interpretation of historic facts and law needs a different approach.

    (Yes we have done that and we explained it to our BG members at our seminar 27th July. We will not be sharing this on a public forum for obvious reasons.)
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

    Comment


      #3
      I don't follow the first part of your answer, but I think you are saying you could argue that there is no need to declare fx loans waived pre-2016, but it would be a brave person that does that. Which is fine, I'm not that brave.

      In terms of declaring interest, so loan of £100 (sterling equiv), interest of £1 paid and £0.60 loaned back. Would you advise to declare loans = £100.60 and repayments = £0? Or would you advise just declaring the main 'employment income' loan of £100. The interest payments over many years are 7% of total loans, so it makes quite a big difference.

      Comment


        #4
        Originally posted by starstruck View Post
        I don't follow the first part of your answer, but I think you are saying you could argue that there is no need to declare fx loans waived pre-2016, but it would be a brave person that does that. Which is fine, I'm not that brave.

        In terms of declaring interest, so loan of £100 (sterling equiv), interest of £1 paid and £0.60 loaned back. Would you advise to declare loans = £100.60 and repayments = £0? Or would you advise just declaring the main 'employment income' loan of £100. The interest payments over many years are 7% of total loans, so it makes quite a big difference.
        You are correct in the first part.

        I think in most instances the loans were in sterling and that the currency never existed. I prefer therefore to see them as sterling loans.

        On the second part, I'm saying that I have never seen the scenario you describe and as such I have given it no thought and have no answer.
        Best Forum Adviser & Forum Personality of the Year 2018.

        (No, me neither).

        Comment


          #5
          Originally posted by webberg View Post

          On the second part, I'm saying that I have never seen the scenario you describe and as such I have given it no thought and have no answer.
          The scenario is Horizon, Contracting Solutions etc. Lutea charged interest on their loans but loaned back a large portion of the payment. You will no doubt have many clients who've made these interest payments who will need to declare them accurately. As I say, over the years, the interest payments loaned back add up to quite a bit, so make a significant difference.
          Last edited by starstruck; 4 August 2019, 18:04.

          Comment


            #6
            Originally posted by starstruck View Post
            I understand that we need to declare outstanding loans by October to HMRC via an online form, I have a few questions specifically regarding foreign ccy loans:

            (1) For depreciating ccy loans that have been depreciated and waived before March 2016; is the current professional thinking still that you declare the original Sterling equivalent amounts received and ignore all depreciation? Or are any professionals out there of the opinion that loans depreciated and waived before 2016 need not be declared?
            The legislation is intended to apply to such loans and was designed to apply to such loans.
            My guess is that the HMRC team that instructed Parliamentary Counsel had read Boyle - Boyle v Revenue & Customs [2013] UKFTT 723 (TC) (29 November 2013)

            And so that is why the April 2019 loan charge legislation is designed to apply where "everyone" thought that there was a loan (it covers "a payment that is purported to be made by way of a loan") even if it is not actually a loan in the strict sense. And also why it is deignsed to cover loans denominated in a foreign currency "whether or not that amount is paid in that currency".

            I've not heard of any "typo" type issues to say that the April 2019 loan charge does not apply to employees who are in your situation. There is quite a bit on the internet about the detailed rules where there are hints that there are issues with the legislation (e.g. https://www.pumptax.com/wp-content/u...236-1FINAL.pdf) but I've not seen anything similar on foreign currncy loans.

            Obviously, I've no idea what happened in your facts and what evidence you have to support this.

            Originally posted by starstruck View Post
            (2) Where interest payments have been made in Sterling against the loans, do these count as "repayments"? The loan charge seems to be a simple difference between GBP received and GBP paid back.
            Interest would seem to interest. A lot will depend on what actually happened and how it is documented. Although in a different context, have a look at this: EIM26260 - Employment Income Manual - HMRC internal manual - GOV.UK

            Originally posted by starstruck View Post
            (3) What if some of the interest payments were then loaned back? Do these loan amounts also need reporting?
            It's difficult to comment without knowing what actually happened in your facts. If cash left your bank account and you later got the same amount back then it would suggest that you got a new loan. If no money was ever moved then you may be able to argue that the interest was just capitalised (effectively an accounting fiction increasing the amount borrowed) and that may not be a new loan. But it is difficult to know one way or another without understanding the actual facts and seeing the actual documents.

            Payment of interest on the loan was presumably done to ensure that there was no benefit in kind. If that was the case, it supports the view that you actually paid the interest (and hence borrowed more money that would be within the scope of the loan charge). If you paid interest to someone with a place of abode outside the UK then, presumably, you also withheld income tax on the payment (like a bank used to do on interest) and paid the tax to HMRC? If you did then that's again evidence that you paid the interest and got a loan back. If you didn't, then that doesn't mean that there was no interest actually paid (since the lender may have been in the UK, you may have forgotten to pay it to HMRC, no one told you to pay it, ... etc).

            I saw situations where people actually paid interest on their loans pre-December 2010. However, these were not contractor loans. Where interest was paid, the loan typically came from a bank (with the trustee having money on deposit at the bank to act as security on the loan). In this case, the interest on the money that the trustee had on desposit would increase the value of the assets earmarked for the individual and could then be borrowed from the trust. In this situation, there would definitely be a new loan for the purposes of the April 2019 loan charge. The ones I saw were settled sooner after April 2011. My guess is that this is not how a contractor scheme would work but I have no clue on those.

            Comment


              #7
              Originally posted by Iliketax View Post
              The legislation is intended to apply to such loans and was designed to apply to such loans.
              My guess is that the HMRC team that instructed Parliamentary Counsel had read Boyle - Boyle v Revenue & Customs [2013] UKFTT 723 (TC) (29 November 2013)

              And so that is why the April 2019 loan charge legislation is designed to apply where "everyone" thought that there was a loan (it covers "a payment that is purported to be made by way of a loan") even if it is not actually a loan in the strict sense. And also why it is deignsed to cover loans denominated in a foreign currency "whether or not that amount is paid in that currency".

              I've not heard of any "typo" type issues to say that the April 2019 loan charge does not apply to employees who are in your situation. There is quite a bit on the internet about the detailed rules where there are hints that there are issues with the legislation (e.g. https://www.pumptax.com/wp-content/u...236-1FINAL.pdf) but I've not seen anything similar on foreign currncy loans.

              Obviously, I've no idea what happened in your facts and what evidence you have to support this.



              Interest would seem to interest. A lot will depend on what actually happened and how it is documented. Although in a different context, have a look at this: EIM26260 - Employment Income Manual - HMRC internal manual - GOV.UK



              It's difficult to comment without knowing what actually happened in your facts. If cash left your bank account and you later got the same amount back then it would suggest that you got a new loan. If no money was ever moved then you may be able to argue that the interest was just capitalised (effectively an accounting fiction increasing the amount borrowed) and that may not be a new loan. But it is difficult to know one way or another without understanding the actual facts and seeing the actual documents.

              Payment of interest on the loan was presumably done to ensure that there was no benefit in kind. If that was the case, it supports the view that you actually paid the interest (and hence borrowed more money that would be within the scope of the loan charge). If you paid interest to someone with a place of abode outside the UK then, presumably, you also withheld income tax on the payment (like a bank used to do on interest) and paid the tax to HMRC? If you did then that's again evidence that you paid the interest and got a loan back. If you didn't, then that doesn't mean that there was no interest actually paid (since the lender may have been in the UK, you may have forgotten to pay it to HMRC, no one told you to pay it, ... etc).

              I saw situations where people actually paid interest on their loans pre-December 2010. However, these were not contractor loans. Where interest was paid, the loan typically came from a bank (with the trustee having money on deposit at the bank to act as security on the loan). In this case, the interest on the money that the trustee had on desposit would increase the value of the assets earmarked for the individual and could then be borrowed from the trust. In this situation, there would definitely be a new loan for the purposes of the April 2019 loan charge. The ones I saw were settled sooner after April 2011. My guess is that this is not how a contractor scheme would work but I have no clue on those.
              Thanks, so just to clarify the loans were in the early 2000s and regular interest payments were requested on the original fx loans (the employment loans) and I sent cheques to the EBT trustees in the IOM for this amount, around 60% of the interest payment was subsequently loaned back (again an fx loan). This interest payment/new loan continued for years (in fact for many years after I had left the scheme). As I say, I need to know what to report, it sounds like I need to report:

              Total Loans = Employment Loans (in GBP) + Interest Payment Loans (in GBP) which unfortunately adds to what I thought my exposure was (just the employment loans).

              The fx loans depreciated over many years and I have final letters saying to the effect "your loan has depreciated to a small amount and we are now going to waive your loan that totals £small amount". So I assume in the "amount waived" declaration I put £200 and not the original principal, does that sound correct?

              Edit - I made no income tax payments - I just paid the interest amounts requested via cheque. I think the 40% I didn't get back covered the taxes that needed to be paid on the interest payments; whatever they were.

              Edit2 - This is all so I can answer the questions in the online declaration required to me made before oct which asks for three figures - loan amount, repayment amount, waived amount.
              Last edited by starstruck; 5 August 2019, 08:34.

              Comment


                #8
                Why not just use the amount that the trust says outstanding and will be reporting.

                I am baffled by the determination to give HMRC more money.

                Comment


                  #9
                  Originally posted by dammit chloe View Post
                  Why not just use the amount that the trust says outstanding and will be reporting.
                  Wouldn't the trust say the amount is zero because of depreciation then waiving?

                  Comment


                    #10
                    Originally posted by stonehenge View Post
                    Wouldn't the trust say the amount is zero because of depreciation then waiving?
                    No. Mine admitted that due to depreciation they were waived/paid off but HMRC rules require reporting in the original , sterling, loaned amount. Hence that is the loan value.

                    Comment

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