[News] Loan Charge - another tax avoidance scheme

[Baldseagull]

Corporation tax is still at 19%, for this year and next.

Savings are a bit more than marginal. I make it 7.3% extra net when paying in divs due to NI avoidance (in higher rate margin). Another advantage is that income has already been taxed at 19% when calculating the thresholds, which is particularly advantageous at the 100K threshold.

I don't think there is a consistent percentage saving that can be stated, it will vary with the level of remuneration won't it?

 

[Weststander]

There is no moral wrong in trying to minimise your tax liability, the moral wrong is in the system that allows certain ways to do it that have no benefit to the country in any other way. Do you have an ISA?

Regarding loan charge and faux film industry type tax schemes, I’m note so sure that the system did allow allow these.

1. In 1984 THE critical case law was decided that where a transaction has pre-arranged artificial steps which serve no commercial purpose other than to save tax, then the proper approach is to tax the effect of the transaction as a whole.

2. Successive recent governments/HM Treasury created legislation that tax schemes need to approved in advance and specifically noted on tax returns. With specific rules.

The problem is that scheme creators (some tax lawyers, accountants, ex HMRC officials and imho the devious) went into overdrive to devise schemes to circumvent the law.

Clearly not compliant with (1) and possibly (2).

This is all totally different imho from the valid tax planning you touch on.

 

[Papak]

There is no moral wrong in trying to minimise your tax liability, the moral wrong is in the system that allows certain ways to do it that have no benefit to the country in any other way. Do you have an ISA?

No, I spending all my spare money on renovating my house which will hopefully yield a far better (and legitimate) return.

I'm not sure your analogy is correct anyway, ISAs are widely promoted and even offered by NS&I.

 

[nwgull]

I don't think there is a consistent percentage saving that can be stated, it will vary with the level of remuneration won't it?

Yes, it will.

 

[NooBHA]

Regarding loan charge and faux film industry type tax schemes, I’m note so sure that the system did allow allow these.

1. In 1984 THE critical case law was decided that where a transaction has pre-arranged artificial steps which serve no commercial purpose other than to save tax, then the proper approach is to tax the effect of the transaction as a whole.

2. Successive recent governments/HM Treasury created legislation that tax schemes need to approved in advance and specifically noted on tax returns. With specific rules.

The problem is that scheme creators (some tax lawyers, accountants, ex HMRC officials and imho the devious) went into overdrive to devise schemes to circumvent the law.

Clearly not compliant with (1) and possibly (2).

This is all totally different imho from the valid tax planning you touch on.

You are correct - it wasn't that HMRC allowed such Schemes. They set in place reliefs to stimulate the Film Industry in the 1990s and the Financial Industry after the Crash around 2007 and 2008

What then happened was that these Companies offering these schemes tried to construe the ''Wording in the Legislation'' to mean something that was not intended in the Legislation. They are always gonna fail because HMRC revisit those schemes retrospectively.

It is difficult to get the wording in Legislation 100% accurate and thus they will always be open to these kind of things but HMRC are on top of them much quicker now. Football Industry is in for a rude awakening in the coming years as well. Most of that will be cleaned up behind the scenes though because on the whole in that Industry, Clubs and Footballing Authorities are very good at complying with HMRC.

 

[FatSuperman]

I can't be the only one who wonders about the madness of the big four Advising HRMC to draw up tax legislation, and selling avoidance schemes to undermine the effort to collect said tax total.
I know its not black and white, but it feels like we've gone through the looking glass, sometimes

I see this issue in the same light as the Lewis Hamilton 'dodging' tax debate.

These loan charge schemes were clearly nonsense, but HMRC knew about them for what sounds like a long time and did nothing. They then closed the loophole (good!) and backdated the charge. That is surely unacceptable? Perhaps we can all feel a bit smug about it, now those morally bankrupt people can't legally reduce their tax (obviously enabled by accountants / promoters), but why the hell should HMRC be able to back date something? That strikes me as incredibly worrying. This is just HMRC being bloody useless (par for the course) and then laying the blame at someone else's feet.

I think this is the legislation that was rushed through, and every time it's brought up, the Treasury just ignore any complaints. It was reviewed a year or so ago, and the independent body reviewing it were telling the Treasury "Don't worry, we won't find anything". Yet another example of the government keeping the focus of the public on other members of the public.

And we lap it up.

 

[portslade seagull]

The companies that tout these schemes seem to making their money though ? I always fall back on the old saying " If it sounds to good to be true, then it usually is "

My old Nan used to add to that ' you don't get something for nothing there's always a cost '

 

[ATFC Seagull]

Isn't this basically what Rangers did?

 

[Weststander]

You are correct - it wasn't that HMRC allowed such Schemes. They set in place reliefs to stimulate the Film Industry in the 1990s and the Financial Industry after the Crash around 2007 and 2008

What then happened was that these Companies offering these schemes tried to construe the ''Wording in the Legislation'' to mean something that was not intended in the Legislation. They are always gonna fail because HMRC revisit those schemes retrospectively.

It is difficult to get the wording in Legislation 100% accurate and thus they will always be open to these kind of things but HMRC are on top of them much quicker now. Football Industry is in for a rude awakening in the coming years as well. Most of that will be cleaned up behind the scenes though because on the whole in that Industry, Clubs and Footballing Authorities are very good at complying with HMRC.

Thanks [MENTION=30752]NooBHA[/MENTION] , I was hoping that you'd comment further.

Some people (who aren't gaining from these schemes) try to justify this morally and legally, with "well if the loophole was there, it's legitimate tax planning". It's not. A series of purposeful events carried out solely for the purpose of saving tax by getting around legislation, is not legal tax mitigation.

This is the polar opposite of pension planning, planning capex, et seq.

 

[Driver8]

I had a client who fell for one of these scams, only worse for him as in his case he never saw the money, it was loaned back to his employer who subsequently went bust!

He ended up with a £40k tax bill plus several years interest.

I’ve been advising clients on tax matters for 35 years and would never consider these types of scheme. They are tax evasion plain and simple.

 

[Weststander]

I see this issue in the same light as the Lewis Hamilton 'dodging' tax debate.

These loan charge schemes were clearly nonsense, but HMRC knew about them for what sounds like a long time and did nothing. They then closed the loophole (good!) and backdated the charge. That is surely unacceptable? Perhaps we can all feel a bit smug about it, now those morally bankrupt people can't legally reduce their tax (obviously enabled by accountants / promoters), but why the hell should HMRC be able to back date something? That strikes me as incredibly worrying. This is just HMRC being bloody useless (par for the course) and then laying the blame at someone else's feet.

I think this is the legislation that was rushed through, and every time it's brought up, the Treasury just ignore any complaints. It was reviewed a year or so ago, and the independent body reviewing it were telling the Treasury "Don't worry, we won't find anything". Yet another example of the government keeping the focus of the public on other members of the public.

And we lap it up.

These complex schemes are created by clever firms with a phalanx of lawyers, accountants and sometimes ex-HMRC people. They are several steps ahead of HMRC all the time, HMRC have no way of knowing what scheme is coming next.

When a tax payer makes the decision to save tax by applying one of these schemes, they specifically are required to note the scheme number on their tax returns. That is not a green light that once 12 months have passed, all is done and dusted, the tax is saved.

It can take years for the hard pressed HMRC experts to unravel all the schemes constantly being created. It's a long process for each one, carefully using tax legislation.

Just because scheme promoters and taxpayers have a huge head start, that shouldn't put HMRC (us) at a disadvantage. Those tax returns can be opened by HMRC once they have ended their thorough process, that will stand up in law.

Regarding the taxpayers, these are not naive sole traders scrambling a few quid to a earn a living. They are well paid, savvy individuals, who knowingly signed up to a tax avoidance scheme and completed/signed approving a special section of their tax returns.

 

[FatSuperman]

These complex schemes are created by clever firms with a phalanx of lawyers, accountants and sometimes ex-HMRC people. They are several steps ahead of HMRC all the time, HMRC have no way of knowing what scheme is coming next.

When a tax payer makes the decision to save tax by applying one of these schemes, they specifically are required to note the scheme number on their tax returns. That is not a green light that once 12 months have passed, all is done and dusted, the tax is saved.

It can take years for the hard pressed HMRC experts to unravel all the schemes constantly being created. It's a long process for each one, carefully using tax legislation.

Just because scheme promoters and taxpayers have a huge head start, that shouldn't put HMRC (us) at a disadvantage. Those tax returns can be opened by HMRC once they have ended their thorough process, that will stand up in law.

Regarding the taxpayers, these are not naive sole traders scrambling a few quid to a earn a living. They are well paid, savvy individuals, who knowingly signed up to a tax avoidance scheme and completed/signed approving a special section of their tax returns.

I agree with all of that. But isn’t it the case that in this example HMRC have closed the legal loophole and then the gov have pushed through legislation to RETROSPECTIVELY apply the new law. That is horrendous imo

 

[Weststander]

I agree with all of that. But isn’t it the case that in this example HMRC have closed the legal loophole and then the gov have pushed through legislation to RETROSPECTIVELY apply the new law. That is horrendous imo

Tax avoidance schemes have been around for 20 years now, the huge risks for taxpayers are in the public domain, this isn’t the first time that groups of wealthy and/or highly paid have come unstuck. People signing up to these schemes should see several warning signs.

Protecting the public purse on every level in respect of these schemes, comes before the deviousness of the promoters and wealthy/high earners who by design had a huge start on HMRC. Inherently that means recouping all tax cheated from the public purse.

I fully understand your retrospective point, but this is not a normal scenario. The taxpayers should’ve known that was not a sure bet and put the saved tax to one side. In the mean time they still would’ve had disposal income of c. 70% of a lot of money.

 

[NooBHA]

I had a client who fell for one of these scams, only worse for him as in his case he never saw the money, it was loaned back to his employer who subsequently went bust!

He ended up with a £40k tax bill plus several years interest.

I’ve been advising clients on tax matters for 35 years and would never consider these types of scheme. They are tax evasion plain and simple.

Loads of Footballers went into the Film Partnerships in the 1990s and HMRC clawed back all the tax refunded in the Investments they claimed relief on, plus Interest and penalties. On Top of that they all paid Thousands in Barristers and Accountancy Fees trying to fight HMRC. The Barristers took all their Money and then when HMRC took them to ''Tribunal'' and won at the First Tier - All the Barristers then pulled out and advised them not to go to the 2nd Tier Tribunal because HMRC would undoubtedly win again.

I would always advise everyone never to touch them as well. They don't work - You hear loads of Footballers of a certain age claiming they got ''Bad Advice'' - Their own Agents were complicit in advising them to go into them. Most reputable Accountants would have advised against them. Greed sometimes gets the better of some people when they have so much expendable income.

Some people are still stuck in those Partnerships and paying tax on the Profits that those Partnerships are generating every year now but they don't receive any of those profits because their Capital they invested was refunded to them within 12 months of their Investment. On top of that they get a Tax Enquiry every year to ensure they are paying tax on those profits that they don't even receive.

The two scourges in a Footballer's life are - Investments in ''Film Partnerships'' and Divorce from a Once Beautiful Wife. One once looked good on their Investment Portfolio and the other looked good on their arm but they are both long gone - It's true what they say '' Beauty Fades ; Dumb is Forever''

 

[FatSuperman]

Tax avoidance schemes have been around for 20 years now, the huge risks for taxpayers are in the public domain, this isn’t the first time that groups of wealthy and/or highly paid have come unstuck. People signing up to these schemes should see several warning signs.

Protecting the public purse on every level in respect of these schemes, comes before the deviousness of the promoters and wealthy/high earners who by design had a huge start on HMRC. Inherently that means recouping all tax cheated from the public purse.

I fully understand your retrospective point, but this is not a normal scenario. The taxpayers should’ve known that was not a sure bet and put the saved tax to one side. In the mean time they still would’ve had disposal income of c. 70% of a lot of money.

I think everybody would agree with the principle that if it’s dodgy, you should just avoid it. But I think you are nuts if you think letting the treasury change the rules and retrospectively apply them is a good idea. I don’t care whether these people are morally bankrupt and deserving of getting caught. You absolutely CANNOT retrospectively apply any change. It’s a terrible principle.

 

[NooBHA]

I agree with all of that. But isn’t it the case that in this example HMRC have closed the legal loophole and then the gov have pushed through legislation to RETROSPECTIVELY apply the new law. That is horrendous imo

No it is not a retrospective closing of a ''loophole''

The facts surrounding it are normally that the people advising on these schemes. It has now been clarified by the Courts that their interpretation of the wording in the legislation was incorrect.

 

[LlcoolJ]

Lots of really good informed stuff on this thread. I sort of agree with you both (Noo and FS). Like others have said, I've had plenty of clients over the years coming to me asking about these amazing schemes which "their mates are doing and they pay no tax".

Have always looked at the scheme (or have already heard about it) and told them it's complete bollocks and not to touch it with a barge pole.

Anyone stupid and greedy enough to do a Gary Barlow deserves everything that comes their way, and I agree with Noo that it isn't actually retrospective legislation, it's the correct interpretation of the original legislation which was twisted to fit an illegal model.

However, I also agree with FS that this is a slippery slope and that HMRC (please don't call them "Us" Weststander! lol) will push this type of thing to it's nth degree. They've tried it already with other forms of legislation which are a totally grey area and which advisors and individuals were totally innocent in interpreting complex tax law the way that they did. Sometimes they've won, sometimes they've lost but often when they've won (and backdated the rules) it's ruined the businesses and lives of perfectly law abiding people on the whim of some dick trying to make a name for himself.

If people could all just stop being knobbers then it would be simple on either side.

Oh and as for that warmley idiot being smug about some self employed or small Ltd Co owners receiving nothing when they can't work, you sir are an ******** of gargantuan proportions.

"Smug" about people losing their houses and their families being destroyed when they abided by the law, paid their taxes and followed the rules? "Smug" about people who HAD to work through a Ltd Co because the contractors in their sector demanded it? "Smug" because someone didn't have a full year's self employment income on which to claim? But you got lots of cash, so that's ok.

What a nasty individual you must be.

 

[Weststander]

Lots of really good informed stuff on this thread. I sort of agree with you both (Noo and FS). Like others have said, I've had plenty of clients over the years coming to me asking about these amazing schemes which "their mates are doing and they pay no tax".

Have always looked at the scheme (or have already heard about it) and told them it's complete bollocks and not to touch it with a barge pole.

Anyone stupid and greedy enough to do a Gary Barlow deserves everything that comes their way, and I agree with Noo that it isn't actually retrospective legislation, it's the correct interpretation of the original legislation which was twisted to fit an illegal model.

However, I also agree with FS that this is a slippery slope and that HMRC (please don't call them "Us" Weststander! lol) will push this type of thing to it's nth degree. They've tried it already with other forms of legislation which are a totally grey area and which advisors and individuals were totally innocent in interpreting complex tax law the way that they did. Sometimes they've won, sometimes they've lost but often when they've won (and backdated the rules) it's ruined the businesses and lives of perfectly law abiding people on the whim of some dick trying to make a name for himself.

If people could all just stop being knobbers then it would be simple on either side.

Oh and as for that warmley idiot being smug about some self employed or small Ltd Co owners receiving nothing when they can't work, you sir are an ******** of gargantuan proportions.

"Smug" about people losing their houses and their families being destroyed when they abided by the law, paid their taxes and followed the rules? "Smug" about people who HAD to work through a Ltd Co because the contractors in their sector demanded it? "Smug" because someone didn't have a full year's self employment income on which to claim? But you got lots of cash, so that's ok.

What a nasty individual you must be.

Also ignorant of tax paid in CT and IT on dividends. Never base your vendetta on tabloids or FB hearsay.

 

[LlcoolJ]

Also ignorant of tax paid in CT and IT on dividends. Never base your vendetta on tabloids or FB hearsay.

Precisely.

 

[spongy]

I've only read the first page but I have to ask why its backdated?

What they did was legal at the time.... HMRC closed the loophole so from there on in tax is payable. Backdating it seems such a shitty thing to do.