MRC has long been waging a running battle against anyone or any entity using so-called loopholes in legislation for tax avoidance purposes. Of itself that should have been sufficient warning for companies, directors, boards, and small contractors to avoid clever tax avoidance schemes that HMRC might one day choose to attack.

The latest example of HMRC’s success on this front is the Loan Charge Legislation, which comes into effect on April 5.

The Herald:

As Wylie & Bisset joint managing partner, Donald McKinnon explains, loan schemes have been used to allow companies to take advantage of a loophole in the legislation to make loans to directors that were never intended to be paid back. This avoided both tax and National Insurance payments on the loan amounts.

The original legislation was intended to be used to expedite commercial transactions but was pressed into service as an avoidance opportunity. Like many previously, it attracted the ire of HMRC, who went to court to get the “corporate veil” lifted. It won its case and this now allows it to “look through” the tax arrangements and treat all sums paid to anyone as a loan scheme as remuneration, and to claim back-taxes and NI payments from the individuals involved.

McKinnon comments: “HMRC has said it wants anyone who owes it back taxes because they have received moneys under a loan scheme to get in touch with it before April 5 this year. Our concern is many directors of smaller companies, and contractors who have been paid under this kind of scheme, will not have the assets to pay all the back taxes and interest due. They should take advantage of the free consultancy advice we can provide to them to explore their options,” he says.

Wylie & Bisset is a highly regarded, largely Glasgow-based accountancy firm, with deep experience of insolvency issues.

The Herald:

This article appeared in Business HQ on the 21st March 2019

McKinnon himself is a fellow of the Insolvency Practitioners Association (IPA) and is part of the IPA’s committee for personal insolvency. Since 2014 he has been the account manager heading the team for Insolvency Services to the Scottish Government.

Schemes of this nature have been around for many years. This specific piece of legislation allows HMRC to go back 20 years into someone’s affairs if they have been deliberately using tax avoidance schemes to mitigate tax.

McKinnon points out that many individuals who used moneys received under such schemes as disguised remuneration, will have spent all that money on their normal bills. As such, they will be facing some stark choices. “Personal insolvency will be an option for some of these people, but they need to get detailed advice. Your personal circumstances matter hugely when it comes to deciding what the best option is." 

“The Treasury have also promised to report to Parliament, before April 5, the results of their review of the restrospective element of the legislation forced on them due to MP concerns about the impact of the legislation.

“However, with the deadline fast approaching it remains doubtful if anything will change. It makes sense to take advantage of a free initial consultancy meeting with one of our tax and insolvency experts before the deadline, so people really understand what is entailed when they approach HMRC,” McKinnon says.

The bulk of these schemes involve companies setting up Employee Benefit Trusts, which treated payouts to directors as loans. HMRC is now quite clear – and has the court’s backing – that these schemes are disguised remuneration.

The Herald:

Penny Ciniewicz, director general for HMRC’s customer compliance group, said, “We cannot allow tax avoidance schemes like these to deprive the UK of vital revenue. The honest majority of people who pay their taxes shouldn’t have to carry the burden of paying for the public services we need.”

HMRC said it has won nine out of every ten tax avoidance cases in the past two years, with a total of £55.2 million won in related cases so far. These related cases all seek in some way to use the employment income share schemes legislation implemented in 2004/05.

Following its court victories, HMRC no longer has to take individual companies to court to secure payment of avoided tax and NI, where loan note schemes have been used. It can simply issue demands for payment.

For more information please visit www.wyliebisset.com