A fantastic briefing by The Low Incomes Tax Reform Group on loan demands from legacy contractor loan arrangements and EBT’s has been published today.
An exerpt is below, for the full article please visit https://www.litrg.org.uk/latest-news/news/210525-contractor-loan-loan-recall-issue-faqs
For more on the issue please visit our blog here https://wttconsulting.co.uk/contractor-loan-demands-what-should-i-do/
“If you have been involved in a loan scheme and receive either a letter from an organisation (or their solicitors) purporting to now own your loan, or a Statutory Demand for payment – do NOT ignore it. We suggest that you take specialist, independent, legal advice – this may not be as difficult to find or as costly as you think. Here we tell you more.
⚠️ There may be strict time limits involved if you have received a Statutory Demand, you must ensure that you are aware of these and act promptly.
What is the issue?
Some individuals are being contacted about the recall of a loan, that originated in a disguised remuneration (DR) scheme (more on this below), by organisations (or their solicitors) that now claim to own or control the loans.
These organisations, who are sometimes based offshore, such as in the Isle of Man, may be liquidators of the original loan providers or, as seems to be more common, claim that:
- the original provider of the loan scheme has sold their book of ‘loans’ on (indeed, it may have changed hands several times already before falling into the hands of the current organisation);
- the loans are legally valid; and
- can be collected by them.
This is happening even though HMRC regard the loans as taxable income called ‘disguised remuneration’ and the individual has probably paid the loan charge or has come to a settlement agreement with HMRC on the outstanding tax.
We have been contacted by individuals who now find themselves in this distressing and stressful situation and who are already struggling financially as a result of settling with HMRC or paying the loan charge.
Recently, one organisation that has purchased a range of loan books, claims to have won its case in the County Court against a ‘debtor’ they had issued a Statutory Demand to. This success is likely to mean that more Statutory Demands will be sent out as a consequence (more on this below).
What is the background to this?
In the last few decades, loan schemes have been used by employers and individuals in an attempt to reduce the amount of tax and NICs due to be paid. Tax benefits arose, in theory at least, because the loan was not treated as part of the worker’s employment income.
In some cases, we have come across, the individuals involved were not aware of any loan arrangement. However, where they were aware of the loan arrangement, they seem to have been assured the loan would not have to be repaid. This reassurance was likely to have been given verbally and the actual paperwork signed may have indicated the loan was repayable – in order to help the scheme organiser argue it was a loan and not earnings. It would of course make no sense from the individual’s perspective to agree to a repayable loan in place of earnings – as it would effectively mean they were working for very little.
On the basis that these loans were unlikely ever to be paid back, HMRC said the money was no different from normal employment income and was therefore taxable. They brought in the loan charge to clamp down on these schemes. Under the loan charge, people had to pay employment taxes on any loans paid between 9 December 2010 and 5 April 2019 unless action was taken to ‘settle’ beforehand.
The ‘loans’ were often channelled through trusts, run by professional trustee organisations. However, given the increasing financial and reputational considerations of offering this service (trusts are expensive to run and the loan charge is very controversial and has caused some furore), it would appear some trustees have sought to pass the loans on by appointing new trustees and/or by selling their ‘books of loans’ to third parties.
Third party assignees, having paid pennies in the £ for the loan books, then seek recovery of the underlying loans.
Not all loans have been sold in this way”.
The article is continued here https://www.litrg.org.uk/latest-news/news/210525-contractor-loan-loan-recall-issue-faqs