How are HMRC checking loan amounts?

[stonehenge]

Folks who are settling provide figures to HMRC for the amount of loans they received in each tax year. (Anyone opting for the LC instead will have to declare the loans through self-assessment in January.)

How are HMRC checking that the amounts are correct? Presumably the shear volume of people they're dealing with means they are not forensically examining bank statements etc?

Are people having to provide any evidence to support the figures?

I guess HMRC can work out if the amounts are in the right ballpark based on a multiple of the salary declared on the tax returns. But this is crude at best.

[webberg]

Folks who are settling provide figures to HMRC for the amount of loans they received in each tax year. (Anyone opting for the LC instead will have to declare the loans through self-assessment in January.)

Not quite. First there is no "opting" for the loan charge. The LC applies unless you have settled. Even when the LC applies, that is NOT settlement. Best to think of the LC as an interim payment on account of the final liability, which still has to be agreed at some point, perhaps after Tribunal/Court. Also the LC declaration is due via the online form that has to be submitted before 1st October 2019. The SATR (which also calls for details) is not due until 31 January 2020.

How are HMRC checking that the amounts are correct? Presumably the shear volume of people they're dealing with means they are not forensically examining bank statements etc?

I very much suspect that HMRC has asked lenders for details and that combined with the disclosure above will be the primary checking mechanism. HMRC has no ability to ask for bank statements (which in many instances will not exist) and no resource to run that sort of check.


Are people having to provide any evidence to support the figures?

I guess HMRC can work out if the amounts are in the right ballpark based on a multiple of the salary declared on the tax returns. But this is crude at best.

HMRC certainly has models that say "if it's scheme A, then the loan is 5X salary". As long as they can convince a Judge (if asked) that this is a just and reasonable way of calculation, then crude or otherwise, it will be held to be "good".

[stonehenge]

'First there is no "opting" for the loan charge.'

"Opting" may not have been the best word but it does come down to a choice. If you don't settle then you're choosing LC.

[webberg]

'First there is no "opting" for the loan charge.'

"Opting" may not have been the best word but it does come down to a choice. If you don't settle then you're choosing LC.

I disagree.

You can settle and all enquiries end.

If you do not, then you have to find a means to reach an agreement as to liability. This will be either some form of agreement directly with HMRC or an agreement imposed upon you and HMRC by a Judge, following litigation.

Either way you MUST find an agreement.

Into this equation comes the loan charge. This is an interim charge.

If all of the years you are settling/agreeing are "open", i.e. have a valid HMRC enquiry, then once the final position is agreed, the loan charge tax paid will be allocated against that liability. Any excess of loan charge over final liability in NOT refundable.

If some years you are settling/agreeing are closed, then in theory the loan charge will be reduced by the value of the open years leaving just the closed years subject to the loan charge.

So, you are NOT choosing the LC.

You are choosing to settle or fight and dealing with the interim step of the LC.

[stonehenge]

You make it sound like the onus is on the taxpayer to bring matters to a head.

The taxpayer has appealed enquiries/assessments. Therefore, surely, the ball is in HMRC's court?

If a taxpayer was so minded, they could pay the LC and then sit back and do nothing. I'm not saying that's the right thing to do but there's nothing stopping anyone from doing this.

[webberg]

You make it sound like the onus is on the taxpayer to bring matters to a head.

The taxpayer has appealed enquiries/assessments. Therefore, surely, the ball is in HMRC's court?

If a taxpayer was so minded, they could pay the LC and then sit back and do nothing. I'm not saying that's the right thing to do but there's nothing stopping anyone from doing this.

You can sit back and await HMRC's pleasure.

Where is the advantage?

If you pay the loan charge requested then you may have paid more than required and interest continues to accrue on the potential payments due for the years the loans were paid.

So by sitting back and waiting you've paid the liability and have another racking up.

So yes, I am suggesting that taxpayers push this along.

The process is you submit a return: HMRC make an enquiry: HMRC decide that you owe more tax: you appeal to Tribunal: you are obliged to show why you are not taxable or owe less than HMRC claim.

The period between making and enquiry and the HMRC decision is not statute limited and can be a very long time (max on our books is 15 years). That's a potential 15 years of interest - around 60% of the tax. And growing.

[stonehenge]

So yes, I am suggesting that taxpayers push this along.

What if people can't afford ££££££ representation at a tribunal? You still think they should "push this along"?

[webberg]

What if people can't afford ££££££ representation at a tribunal? You still think they should "push this along"?

The Tribunal process is designed to be accessible and as affordable as it can be. The principle is that lack of funds should not prevent justice happening and being seen to happen.

You do not need QC's at thousands of pounds an hour. You can represent yourself if you wish. You can make written submissions and do not need to appear.

In situations where other similar cases are moving forward a Judge may even direct that a single unrepresented case is stayed behind a better funded and represented one. (Clearly HMRC would prefer a single, unprepared and nervous taxpayer to be advanced but Judges are smart on this and will usually seek alternatives).

I would say that if somebody is unable to afford the very modest outlay required to get to Tribunal (more an investment in time and intelligence than money) and is not willing or able to join the litigation groups (yes, we have one, but there are others depending on the scheme) for financial reasons, then they should be looking to settle on long terms, right now.

Part of the problem here is an entirely unjustified fear that by opting for a Tribunal, a taxpayer makes themselves more "visible" to HMRC who will react with a targeted campaign of harassment and being difficult. This is untrue.

Unfortunately it's also an image that HMRC likes to present as it deters opposition in Tribunal.

There is a growing body of cases from the last two years in which Judges have been severely critical of HMRC's approach to FTT and the manner in which they have in some instances, deliberately discouraged people seeking their rights. This manifests itself in matters such as HMRC refusing to amend assessments prior to hearings even though the basis of them is blatantly flawed.

Whilst I accept that the prospect of a FTT hearing is scary, is it worse than the bankruptcy option or worse?

[stonehenge]

I guess the problem for anyone not settling is they now have to fight on two fronts.

1) defend their use of the scheme (the underlying tax dispute)
2) contest the LC

I presume winning (1) doesn't make (2) fall away?

Can you contest (appeal) the LC at an FTT, or would that require a JR?

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I have to say, I don't envy anyone getting involved in this battle.

[webberg]

I guess the problem for anyone not settling is they now have to fight on two fronts.

1) defend their use of the scheme (the underlying tax dispute)
2) contest the LC

I presume winning (1) doesn't make (2) fall away?

Can you contest (appeal) the LC at an FTT, or would that require a JR?

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I have to say, I don't envy anyone getting involved in this battle.

Correct. You need a strategy that can defend the scheme and the loan charge.

We think we have one. You may or may not believe that it works, but we have not seen any alternative being offered that comes close to it.

We think we can defeat 1 and 2 above.

I suspect (am certain) that HMRC will resist this by all means possible, but dealing with both points is now I think a minimum standard for any strategy.