Loans write off and APNs Loans write off and APNs
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  1. #1

    Nervous Newbie


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    Default Loans write off and APNs

    Hi,

    I have 2 loans pre 2010, 1 year protected and the other not. I didn't settle but I now want to get the loans written off. I know that will give rise to a tax liability on the total amount of the loans but I am thinking that because I am not resident in the UK (last 8 years) and I do not have income other than a small rental investment that I may not have to pay NI. My questions are :-

    1) will I have to pay just tax on the written off amount at the normal rates as per the tax tables or will I also have to pay NI?

    2) will my APN that I paid several years ago count as an offset to the tax that I will have to pay?

    3) will that get rid of the open enquiry?

    This has been dragging on for 15 years for me and I just want rid of it.

    Thanks,

  2. #2

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    Quite an interesting question.

    HMRC's position appears to be that a loan write off creates an income tax charge as well as perhaps an IHT charge.

    They are not clear why an income tax charge arises - or at least have been unable or unwilling to explain that to us.

    My guess is that the charge arises under one of the provisions in Part 7A.

    If that is correct then the charge arises in the tax year of the write off.

    As a non resident it is very likely that you would not be liable for a Part 7A charge in say 2020/21 tax year.

    If that is correct, the APN paid should be refunded to you in full.

    As to IHT, given that the event creates an income tax charge, even if not due, there is probably an exemption and if not, again as a non resident achieving a write off from a (presumably) non resident source, again should not trouble HMRC.

    I do suspect however that HMRC will start from the point that a liability arises, they will retain the APN funds for as long as they can and will drag out the argument.
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  3. #3

    Contractor Among Contractors

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    Quote Originally Posted by webberg View Post
    If that is correct, the APN paid should be refunded to you in full.
    Wouldn't HMRC have to withdraw the APN before they could refund it?

    I'd be surprised if they would withdraw an APN while there was still an open enquiry.
    Last edited by DealorNoDeal; 4th November 2020 at 12:08.
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  4. #4

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    Quote Originally Posted by DealorNoDeal View Post
    Wouldn't HMRC have to withdraw the APN before they could refund it?

    I'd be surprised if they would withdraw an APN while there was still an open enquiry.
    No. If there is no tax in dispute, then ergo, no APN.

    There is a process to adjust an APN to NIL (and repay anything paid) but not really a process to "withdraw" an APN.

    Rather if the conditions for raising an APN no longer exist then it should not have been issued. Subtly different from being withdrawn.
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  5. #5

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    Quote Originally Posted by webberg View Post
    No. If there is no tax in dispute, then ergo, no APN.
    Yes but there is tax in dispute because Ozbird has got an open enquiry.

    I can't see HMRC closing that enquiry just because the loan is written off.
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  6. #6

    Still gathering requirements...


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    Quote Originally Posted by webberg View Post
    As a non resident it is very likely that you would not be liable for a Part 7A charge in say 2020/21 tax year.
    Isn't the LC at 7A charge, and one that HMRC claims applies to non-residents?

    If so, then the only thing "very likely" is that HMRC will come knocking.

  7. #7

    Fingers like lightning


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    I think someone may have hacked webberg's account.

    Back to the OP.

    Section 554C(1)(ab)(i) ITEPA 2003 says that a waiver of a loan by a relevant third person creates a relevant step.

    Section 554Z4 ITEPA 2003 says that you need to look at what year the relevant step is "for". That's a question of fact but is likely to be based on the circumstances when the loan was made. So the fact that you are not resident in the UK now may not be relevant.

    The amount taxed under disguised remuneration counts as employment income and so is taxable whereever you are in the world.

    Waiving a loan now does not cause an APN to be repaid.

    Waiving a loan now does not end an open enquiry. Neither does paying tax on a waiver now. You need to talk to HMRC about that.

    The APN does not automatically offset any tax on the waiver. This is s554Z5(11) and s554Z11D(3) ITEPA 2003.

    You can ask HMRC that the APN is applied against the tax due though. This is s554Z11E and s554Z11F ITEPA 2003. So again, you need to talk to HMRC about that.

    You won't have to pay NIC (unless you were employed through a UK company and that still exists).

  8. #8

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    Quote Originally Posted by Iliketax View Post
    Section 554C(1)(ab)(i) ITEPA 2003 says that a waiver of a loan by a relevant third person creates a relevant step.
    Presumably, if someone has already settled, then waiving the loans does not incur a further income tax charge? (no double tax on the same loans)

    I guess this creates a problem for people with closed (unprotected) years. They may not want the loans hanging over them in perpetuity but waiving them would trigger a tax charge?

    ------------

    I guess, if Ozbird wants the loan waived for the open (protected) year, they may have no choice but to settle that year. Because settling is the only way of getting rid of the open enquiry?
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  9. #9

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    Quote Originally Posted by DealorNoDeal View Post
    Presumably, if someone has already settled, then waiving the loans does not incur a further income tax charge? (no double tax on the same loans)
    I don't do settlements but that is presumably what the settlement agreement would say. If not then the double tax relieving rules would seem to apply (e.g. s554Z5 ITEPA 2003).

    Quote Originally Posted by DealorNoDeal View Post
    I guess this creates a problem for people with closed (unprotected) years. They may not want the loans hanging over them in perpetuity but waiving them would trigger a tax charge?
    Yes.

    Quote Originally Posted by DealorNoDeal View Post
    I guess, if Ozbird wants the loan waived for the open (protected) year, they may have no choice but to settle that year. Because settling is the only way of getting rid of the open enquiry?
    Settling is one way. Getting HMRC to agree that there is no tax is another way. Another is going to the tribunal/courts.

  10. #10

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    Quote Originally Posted by Iliketax View Post
    Section 554Z4 ITEPA 2003 says that you need to look at what year the relevant step is "for". That's a question of fact but is likely to be based on the circumstances when the loan was made. So the fact that you are not resident in the UK now may not be relevant.

    The amount taxed under disguised remuneration counts as employment income and so is taxable whereever you are in the world.
    It may count as employment income under UK law but does it automatically follow that it is taxable?

    What if there was a DTA that (under certain narrow conditions) assigned sole rights to tax employment income to the other country for the year in which that income arises?

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