The above question is being asked with increasing frequency and in an effort to answer it, please see below.
Loans arise in many, many contractor schemes even though they may sometimes be described as something else.
If you received money that was not taxed at the time it was paid, chances are that it was a loan or other form of credit. If it was not, then what did you think it was at the time it was paid?
There are not many choices.
Remuneration - probably not as it was not taxed.
Gift - really?
Investment pay out - where was the investment?
No. Probably a loan.
Which means that somewhere there is a contract with your name on it which says that you are obliged to repay the money.
Where the original lender is still around (IOM trust or other company), then tracing the present manager of the agreement is simple.
Where the original lender has been liquidated/dissolved etc, the loan asset they held does NOT disappear. It goes to the shareholders. Check company records for the identity of these.
Where the original lender was a trust, it is not possible for a trustee to unilaterally "dispose" of the trust assets or to walk away. A trustee who wishes to resign needs to find a substitute. Some countries have trust registers and these can be tracked. Others do not but you can ask the last trustee you know of to tell you who they passed the work to. If they refuse, go to the local Regulator.
So. it's a myth that a loan can vanish. It cannot.
You may have been told that the loan has depreciated and has been repaid for a low value. Entirely legally possible, but unlikely. The loan charge ignores this action in any event. If you think that has happened, trace the lender and have them confirm this - IN WRITING.
Be aware that HMRC will view such a letter as having very limited value.
Let's assume however that you have found your lender, there is a loan and you wish to remove it from your life.
If you have settled under CLSO 1 - being years to 2010/11 - that should not create a further tax charge.
If you have settled under CLSO 2 - the latest settlement opportunity - and have a contract that says there will be no more tax charges.
Then having the loan written off should cause no more tax charges to arise.
If you have not settled, a loan write off is potentially taxable under section 554C ITEPA.
A lot will depend on whether the sum in question has been taxed previously, but the answer is usually that it has not.
So a loan which has not had tax paid on it in the past (ignoring any claim that the interest on such loan has been taxed - irrelevant for this purpose) will attract a tax charge if it is written off now.
This is therefore to be avoided if:
1. You are planning on settling (perhaps HMRC will launch CLSO 3 soon?)
2. You are planning to litigate or challenge the position.
A charge on a write off will negate both the above.
If you have taken part in some form of loan cleansing, then the scenario may be more complex. In general however a loan cleansing scheme sees one loan replaced with another which is magically less than the original.
Chances are that the cleansing activity has created a PART 7A tax charge already. If so, then this will be a "credit" against any subsequent tax charge on the later write off of the replacement loan.
I hope this helps a bit.
Loans arise in many, many contractor schemes even though they may sometimes be described as something else.
If you received money that was not taxed at the time it was paid, chances are that it was a loan or other form of credit. If it was not, then what did you think it was at the time it was paid?
There are not many choices.
Remuneration - probably not as it was not taxed.
Gift - really?
Investment pay out - where was the investment?
No. Probably a loan.
Which means that somewhere there is a contract with your name on it which says that you are obliged to repay the money.
Where the original lender is still around (IOM trust or other company), then tracing the present manager of the agreement is simple.
Where the original lender has been liquidated/dissolved etc, the loan asset they held does NOT disappear. It goes to the shareholders. Check company records for the identity of these.
Where the original lender was a trust, it is not possible for a trustee to unilaterally "dispose" of the trust assets or to walk away. A trustee who wishes to resign needs to find a substitute. Some countries have trust registers and these can be tracked. Others do not but you can ask the last trustee you know of to tell you who they passed the work to. If they refuse, go to the local Regulator.
So. it's a myth that a loan can vanish. It cannot.
You may have been told that the loan has depreciated and has been repaid for a low value. Entirely legally possible, but unlikely. The loan charge ignores this action in any event. If you think that has happened, trace the lender and have them confirm this - IN WRITING.
Be aware that HMRC will view such a letter as having very limited value.
Let's assume however that you have found your lender, there is a loan and you wish to remove it from your life.
If you have settled under CLSO 1 - being years to 2010/11 - that should not create a further tax charge.
If you have settled under CLSO 2 - the latest settlement opportunity - and have a contract that says there will be no more tax charges.
Then having the loan written off should cause no more tax charges to arise.
If you have not settled, a loan write off is potentially taxable under section 554C ITEPA.
A lot will depend on whether the sum in question has been taxed previously, but the answer is usually that it has not.
So a loan which has not had tax paid on it in the past (ignoring any claim that the interest on such loan has been taxed - irrelevant for this purpose) will attract a tax charge if it is written off now.
This is therefore to be avoided if:
1. You are planning on settling (perhaps HMRC will launch CLSO 3 soon?)
2. You are planning to litigate or challenge the position.
A charge on a write off will negate both the above.
If you have taken part in some form of loan cleansing, then the scenario may be more complex. In general however a loan cleansing scheme sees one loan replaced with another which is magically less than the original.
Chances are that the cleansing activity has created a PART 7A tax charge already. If so, then this will be a "credit" against any subsequent tax charge on the later write off of the replacement loan.
I hope this helps a bit.
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