Tax avoiders to be deliberately bankrupted.....?..
Discussion
Seems that the HMRC intends to ruin many people that used tax avoidance schemes....
http://www.dailymail.co.uk/news/article-3952162/Hu...
I wonder if this is 'just' treatment.... .?
Seems heavy handed. 20 times the amount they evaded....? Hey?
http://www.dailymail.co.uk/news/article-3952162/Hu...
I wonder if this is 'just' treatment.... .?
Seems heavy handed. 20 times the amount they evaded....? Hey?
Alpinestars said:
I'm not that close to the detail but my understanding is as follows;
Cash flows;
Barclays loans investor partnership (LLP) £790 million
Investors invest £50 million
Total into LLP is £840 million.
This is used as follows;
£503 million to Disney on account of licence fees.
£44 million to a fInancial intemediary as fees.
£293 of up front interest. This would have been offset against investors' income in the year it was paid (sideways relief). It effectively gave tax relief of more than the initial investment, and probably led to tax repayments to investors.
Disney paid Barclays £497m back, retaining £6m for presumably being party to the scheme.
Effectively all the Barlays' money did a merry go round back to them. And the investor money was effectively used to pay a financial intermediary (£44m) and Disney (£6m).
The LLP was due to make £475m of future income and pay £525m of future interest.
The case revolved around whether the LLP was trading or not. It was crucial for the scheme that it was, because interest relief is only given if it was trading. It was held that it was not trading, therefore no interest is tax deductible for the investors. Which I think ultimately means the future income is taxable without any relief, notwithstanding that it will all go to pay interest to Barclays.
No tax rules have been changed by HMRC. Whether something has been trading or not goes back 200 years.
Thanks for this, first time I've come close to understanding the issue. Cash flows;
Barclays loans investor partnership (LLP) £790 million
Investors invest £50 million
Total into LLP is £840 million.
This is used as follows;
£503 million to Disney on account of licence fees.
£44 million to a fInancial intemediary as fees.
£293 of up front interest. This would have been offset against investors' income in the year it was paid (sideways relief). It effectively gave tax relief of more than the initial investment, and probably led to tax repayments to investors.
Disney paid Barclays £497m back, retaining £6m for presumably being party to the scheme.
Effectively all the Barlays' money did a merry go round back to them. And the investor money was effectively used to pay a financial intermediary (£44m) and Disney (£6m).
The LLP was due to make £475m of future income and pay £525m of future interest.
The case revolved around whether the LLP was trading or not. It was crucial for the scheme that it was, because interest relief is only given if it was trading. It was held that it was not trading, therefore no interest is tax deductible for the investors. Which I think ultimately means the future income is taxable without any relief, notwithstanding that it will all go to pay interest to Barclays.
No tax rules have been changed by HMRC. Whether something has been trading or not goes back 200 years.
I assume the films were duds and never going to make back the billion or something?
I feel less sorry for the investors. However, I'm not so sure that they would all have understood the breadth of the issue, and would have been advised by people they thought were trustworthy. I can't see the average footballer having a proper understanding, and may even have asked "are you sure this is ok?" Of people that should know better. Allerdyce got stung by a hamper saleman for funks sake....
It will be interesting to see what level of celeb will start turning up on reality TV shows in the next few years, desperate to win and restore lifestyles.
PurpleTurtle said:
I participated in a (sold as 'complete legal and above board') scheme with many other IT Contractors. I honestly went into it thinking "too good to be true" and thought "oh well, worst than can happen is I will send in my Self Assessment form at the end of the year and if it's not legit I'll get a bill and I'll pay it"
So I did that that, first SA form went in, not a sniff. Repeat for the second, third, fourth, fifth, and (almost) sixth years ... not a sniff. Just before I put my sixth one in, got a brown envelope from HMRC, "we are investigating". Oh dear, I thought.
I naiively (because I really needed cash to get on my feet following a messy separation) stayed with the promoter for a further six years under a different scheme, whilst litigation ensued as to the legality of the original scheme. Same is likely to happen under the second scheme, all under investigation and likely a bill coming. Cutting a very long story short, I am now a middle-income earner facing a bill of tax + interest circa £300k. I've managed to scrape together £150k, but will need to remortgage (I don't have enough equity for all of it) and pay the remainder on the drip.
Do I want symathy? No. I tried something that I was advised was legit and it turns out it wasn't, so I must pay up. The sad irony is that I will end up paying far more than if I had just 'gone straight' originally and given it a wide berth, it is a very harsh lesson in life. You can think "dodgy tax avoiding b
d" if you want but in my industry lots of people leapt at the chance of these things in the wake of IR35, because we were sold it as legit tool to avoid IR35 at a time when many of us saw a Government intent on screwing freelance contractors. Note that one of the Big Six accountancy firms promoted an identical scheme, but quietly dropped out of litigation when they faced the prospect of losing lucrative Govt consultancy work.
My biggest worry is bankruptcy. I am willing and able to pay, but in all likelihood probably need a few years to pay it all off. I'm happy to pay interest, but am desperately worried that HMRC won't allow that long, even if I borrow up to the hilt elsewhere, and they will go down the bankruptcy route. I'd be pretty miffed if I coughed £250k of the total £300k pronto, only for them not to allow me time to gather that final £50k together, given that the whole sorry affiar has been going for 14 years now.
If I could give one bit of advice to anyone contemplating any kind of tax avoidance scheme it is this: please don't, run as far from it as you can, safe in the knowledge that you can sleep at night.
IT, Berks. Atlas?So I did that that, first SA form went in, not a sniff. Repeat for the second, third, fourth, fifth, and (almost) sixth years ... not a sniff. Just before I put my sixth one in, got a brown envelope from HMRC, "we are investigating". Oh dear, I thought.
I naiively (because I really needed cash to get on my feet following a messy separation) stayed with the promoter for a further six years under a different scheme, whilst litigation ensued as to the legality of the original scheme. Same is likely to happen under the second scheme, all under investigation and likely a bill coming. Cutting a very long story short, I am now a middle-income earner facing a bill of tax + interest circa £300k. I've managed to scrape together £150k, but will need to remortgage (I don't have enough equity for all of it) and pay the remainder on the drip.
Do I want symathy? No. I tried something that I was advised was legit and it turns out it wasn't, so I must pay up. The sad irony is that I will end up paying far more than if I had just 'gone straight' originally and given it a wide berth, it is a very harsh lesson in life. You can think "dodgy tax avoiding b
d" if you want but in my industry lots of people leapt at the chance of these things in the wake of IR35, because we were sold it as legit tool to avoid IR35 at a time when many of us saw a Government intent on screwing freelance contractors. Note that one of the Big Six accountancy firms promoted an identical scheme, but quietly dropped out of litigation when they faced the prospect of losing lucrative Govt consultancy work. My biggest worry is bankruptcy. I am willing and able to pay, but in all likelihood probably need a few years to pay it all off. I'm happy to pay interest, but am desperately worried that HMRC won't allow that long, even if I borrow up to the hilt elsewhere, and they will go down the bankruptcy route. I'd be pretty miffed if I coughed £250k of the total £300k pronto, only for them not to allow me time to gather that final £50k together, given that the whole sorry affiar has been going for 14 years now.
If I could give one bit of advice to anyone contemplating any kind of tax avoidance scheme it is this: please don't, run as far from it as you can, safe in the knowledge that you can sleep at night.
Were you taking 'interest free loans' from a trust/offshore by chance?
I've had to sit next to people coining £8 or 9k a month or more for doing exactly the same work as I was that I was getting £2.5k after tax. For 10 years..... there's a lot of upset people with big tax bills now.
Good luck.
don4l said:
Can you expand on this please?
I would have assumed that any avoidance scheme which is not valid is actually evasion.
Is there a middle ground?
Aggressive and possibly even immoral tax avoidance when eventually rejected as an appropriate tool by the taxman is not Tax Evasion. It simply is not. The rules, and their interpretation are nowhere near rigid enough to be considered a crime.I would have assumed that any avoidance scheme which is not valid is actually evasion.
Is there a middle ground?
The then prime minister of Great Britain is on record in parliament as saying exactly this with the Jimmy Carr case, It is not illegal. But you can be in breach of the interpretation and now the spirit of the rules, and as such when you get the bill and associated fines you have to pay them, but you've still not committed a crime. If you can't pay the bill you dont go to jail. You get bankrupted. You get disqualified from holding certain offices or being a director of a company and other such things. The debt collectors come and take away your stuff. But the police don't care as long as you don't interfere with the debt collectors.
Tax evasion would be hiding the fact that you've earned money, perhaps by taking back handers or similar, and then hiding that income.
When Al Capone went to jail it wasn't because he used aggressive tax avoidance schemes to avoid paying tax, it was because the millions of dollars he made from crime was hidden from the tax man, and he evaded paying tax on it by pretending he didn't have it,!!!!
Gecko1978 said:
My feeling is there will be a fair bit of pain for contractors in coming years but as HMRC close one avenue of avoidance others wI'll open up. It's nature of the game. PAYE you get screwed, self employed well you get to turn the screw the other way some of the time in return for more risk an uncertainty.
Can't agree,. COntractors have turned away from avoidance scjphemes in droves and won't be going back. I don't know a single contractor that's been on a scheme that would recommend it to anyone now, despite a bounty of a grand. They've all jumped off schemes. If they haven't, they are stupid beyond belief. Too many have been already ruined, or know they shortly will be.
Contractor avoidance scheme industry is in tatters.
Gecko1978 said:
Two things
1. I am a contractor and have never used such a scheme
2. Never underestimate people's greed
Sorry, Clearly I meant the guys that were using the schemes have run away from them. Clearly not every contractor was using them, only a percentage of them. These guys used to go around trying to persuade other contractors to use their schemes as they were getting a bounty to do so. 1. I am a contractor and have never used such a scheme
2. Never underestimate people's greed
If anyone is still using the schemes they need their heads examining.
Edited by 316Mining on Sunday 27th November 09:04
Moonhawk said:
I know of a few who are (or at least were last time I spoke to them about 6 months back) on the "take the money as a loan - then never pay the loan back" schemes.
One of them suggested it to me - but I ran a mile when I read the details. Sounded dodgy beyond belief.
Hard to believe that there are people out there so rediculously stupid and/or greedy. Everyone I know hats been involved with these regret them massively. One of them suggested it to me - but I ran a mile when I read the details. Sounded dodgy beyond belief.
Edited by Moonhawk on Sunday 27th November 11:13
Lets face it, most of the 'celebs' involved in such schemes are going to be unsophisticated investors.
However, they are probably putting their trust in investment professionals under their employment, either structured or casual, who advise them. However, that advice is likely to be highly weighted on whether that 'trusted' professional is making money from the scheme themselves. It isn't going to be true impartial advice, is it?
The celeb 'wants' to avoid tax.
the advisor 'wants' too help them avoid tax too, and make a commission or sale.
undoubtedly the advisor will mention in passing a risk, but will also in the same sentence probably downplay it, thus covering themselves....
However, they are probably putting their trust in investment professionals under their employment, either structured or casual, who advise them. However, that advice is likely to be highly weighted on whether that 'trusted' professional is making money from the scheme themselves. It isn't going to be true impartial advice, is it?
The celeb 'wants' to avoid tax.
the advisor 'wants' too help them avoid tax too, and make a commission or sale.
undoubtedly the advisor will mention in passing a risk, but will also in the same sentence probably downplay it, thus covering themselves....
Moonhawk said:
I know of a couple of contractors on the "umbrella company pays you via a loan that you never repay - giving you in effect 85% take home" scheme.
Apparently one of them has been had HMRC at their door two or three times - but they have simply gone away when this person provided them with the paper work they asked for.
Not sure how these people are getting away with it - but they do appear to be at the moment and have been for a number of years.
It will catch up with them. 6 or 7 years back many contractors got caught up with this. I've seen guys with bills of £130,000+ for just a few years in a scheme. Apparently one of them has been had HMRC at their door two or three times - but they have simply gone away when this person provided them with the paper work they asked for.
Not sure how these people are getting away with it - but they do appear to be at the moment and have been for a number of years.
In fact I jnow a guy that's spent tens of thousands on legal advice. He's still going to have to pay.
wsurfa said:
I find this one a bit tricky, it seems aggressive avoidance, but they did make actual films and HMRC have a history of fecking people over as commented on above, but it involves Lineker and Geldoff, so crack on HMRC.....;)
The issue is not that films were made, or that they were successful and generated money. The issue is that the accountants spotted a flaw in the scheme intended to generate income in the film industry which would allow people to put some money in, mich if it borrowed, that would allow them to avoid paying large amounts of tax in their other incomes.
The scheme was exploited for the sole purposes of tax avoidance.
The Stars affected by this aren't being accused of tax evasion, so the whole arguement of avoidance = good and evasion = bad isn't relevant either. Proper methods of avoiding tax has to be approved by the authority, anything that isn't proper doesn't qualify and therefore isn't avoidance and the tax is due. Doesn't make it evasion, but does make it payable.
Do I feel sorry for some of the stars involved in this? Yes I do. They've been badly advised and most are not qualified to understand the rules, laws and implications. However, many have been living a life of luxury whilst nurses, teachers, soldiers etc have had no real pay rises in a decade.
Interesting list of people in the top 100 highest 'investors' in this club that includes many 'has been' Stars who I would imagine needed some clever investment advice to keep their lifestyles after their income streams started drying up.
http://www.dailymail.co.uk/news/article-4568000/Th...
Worth looking at the list if ex sportsmen. Gone are the days of buying a pub for your retirement.
A footballers lifestyle is very expensive and staying in this wealth bracket must be very hard once the work dries up.
The super rich that are also involved? Wow, they know a level of greed that is astonishing. If the beckhams have 500 million in the bank you'd think they wouldn't need the kind of aggressive tax avoidance advice.
Worth looking at the list if ex sportsmen. Gone are the days of buying a pub for your retirement.
A footballers lifestyle is very expensive and staying in this wealth bracket must be very hard once the work dries up.
The super rich that are also involved? Wow, they know a level of greed that is astonishing. If the beckhams have 500 million in the bank you'd think they wouldn't need the kind of aggressive tax avoidance advice.
Derek Smith said:
The HMRC has powers that are quite draconian. There is limited oversight as well. If money is generated, no one seems to bother.
I've dealt with them twice as a police officer and both times I ended up sympathising with the person they were picking on.
Scary people.
Yes I agree, been on the wrong side of them myself over a releativly small matter, and have to admit it led to very real feelings that suicide would be an option. I've dealt with them twice as a police officer and both times I ended up sympathising with the person they were picking on.
Scary people.
Makes you wonder how this is affecting the individuals listed above. Many will face ruin if this goes on. How long before one of them does something terrible due to this?
Or indeed, has this already happened? Reading the list gives you an uncomfortable feeling with one of the names on there.
Not sure they broke the law. They made a decsion based on advice that turned out to be incorrect, now the always due taxes are again due and they have to pay.
If they had broken the law the police would be investigating and people would face arrest. As far as I'm aware that hasn't happened.
If they had broken the law the police would be investigating and people would face arrest. As far as I'm aware that hasn't happened.
So can we assume that he doesn't own the house in the gated community that he lives in? Is it owned perhaps by a company, which lets him live there for free, in some other tax avoiding scheme?
Its also interesting that these people don't have the money they've been asked for by the taxman, and then go bankrupt. Does this mean he's paid all he has but its not enough, or does it mean he has nothing to pay, or is it all hidden away where the HMRC cant get it?
Its also interesting that these people don't have the money they've been asked for by the taxman, and then go bankrupt. Does this mean he's paid all he has but its not enough, or does it mean he has nothing to pay, or is it all hidden away where the HMRC cant get it?
57 Chevy said:
PF62 said:
HMRC are allowing payment plans - www.gov.uk/government/publications/hmrc-issue-brie...
"Settling does not mean the money has to be paid in one go. Flexible payment arrangements are available to anybody who has genuine difficulty paying what’s owed."
"There are no time limits on how long payments can be spread, and each case is considered on individual circumstances."
However... "In most cases we will discuss and agree payments over a longer period. Insolvency will only be considered where users are either at risk of accruing further debt or where they actively avoid paying what they owe."
So it seems that if people want to play ball and pay the tax they owe then HMRC will allow them to do it over a suitable period, but if they don't the gloves come off.
However that doesn't sell newspapers.
Thanks, I shouldn't believe what I was told by someone who is going through this. I thought it didn't make sense, they were going full drama lama. "Settling does not mean the money has to be paid in one go. Flexible payment arrangements are available to anybody who has genuine difficulty paying what’s owed."
"There are no time limits on how long payments can be spread, and each case is considered on individual circumstances."
However... "In most cases we will discuss and agree payments over a longer period. Insolvency will only be considered where users are either at risk of accruing further debt or where they actively avoid paying what they owe."
So it seems that if people want to play ball and pay the tax they owe then HMRC will allow them to do it over a suitable period, but if they don't the gloves come off.
However that doesn't sell newspapers.
Let’s say you have been contracting for twenty years and have avoided tax to the tune of £300,000. The HMRC can levy a loan charge against this amount for the new tax year, which you have to pay. That payment is due in full in a few months time. You technically still have the loan this time next year, so could face a new loan charge.... potentially every year.
Or you could settle the outstanding tax owed with the HMRC. They will want a significant up front payment plus monthly, probably over 60 months. Plus intrest.
Contractor I heard of owing 120k has to pay £40k upfront then monthly of around £2500 to settle. Those figures are pretty punitive.
It’s going to be pretty hard for some people that were earning big bucks in 2004-2012 as a high paid contractor as they probably didn’t save that money, and their income has probably dried up since then as the markets have changed.
Guy I sat next to doing the same job as me was coining £8000 spending money a month, whereas I as paye was getting £2500. He was living a great life, flying off to watch Liverpool play every week, Home, and away, and in Europe. He isn’t going to be able to settle his outstanding tax bill any time soon.
Piersman2 said:
I think the HRMC have been quite clever here for a change. As I said earlier these schemes have been in place for a looonngg time and were always an obvious avoidance , if not evasion. They could have changed the law to outlaw these types of loans but then everyone that had acted prior to the law change would have been acting within the law as it was at the time and therefore clear.
What HMRC has done with this law change is introduce a new tax on outstanding loans so that anyone with a loan is due to pay tax if the loan is not repaid, effectively ensuring that those with old loans prior to the change couldn't play the 'but it was within the rules at the time' card.
^ all this probably wrong or grossly simplified, but they appear to have been smart about it , for a change!
I think people have had 3 years to either repay the loan or pay the tax, so it shouldn't have come as a surprise to most. Mind you I don't suppose the offshore providers were hurrying to advise their clients of the impacts of the new rules 3 years ago.
I know there is an example above of one IT contractor spending every penny of his increased income as quick as he could earn it, but I also know a lot of guys that were ploughing their money into BTL and other property deal or investments. So i don't have much sympathy if they now have to cash in one of their BTLs to pay off a decent tax bill now it's caught up with them. They'll not be starving.
You have it pretty much correct.What HMRC has done with this law change is introduce a new tax on outstanding loans so that anyone with a loan is due to pay tax if the loan is not repaid, effectively ensuring that those with old loans prior to the change couldn't play the 'but it was within the rules at the time' card.
^ all this probably wrong or grossly simplified, but they appear to have been smart about it , for a change!
I think people have had 3 years to either repay the loan or pay the tax, so it shouldn't have come as a surprise to most. Mind you I don't suppose the offshore providers were hurrying to advise their clients of the impacts of the new rules 3 years ago.
I know there is an example above of one IT contractor spending every penny of his increased income as quick as he could earn it, but I also know a lot of guys that were ploughing their money into BTL and other property deal or investments. So i don't have much sympathy if they now have to cash in one of their BTLs to pay off a decent tax bill now it's caught up with them. They'll not be starving.
The going back 20 years is pretty shocking though. There are people that had loans in the late 1990s that are retired now,, I think they should have limited it a bit.
There are some people that have been unfairly affected by this, not IT contractors, but low paid health workers etc, people that were effectivly forced into schemes,
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