Under the original HMRC proposal, the deadline for individuals to enter negotiations under the Contractor Loan Settlement Opportunity for the tax years up to and including 2010-11 was 9th January 2015.
HMRC has now extended the closing date to start discussing a settlement to 30th June 2015 which should result in a settlement being agreed by 30th September 2015 at the latest.
In addition, in light of the feedback they have received, HMRC have clarified some points:
Accelerated Payment Notices
There is no undertaking that Accelerated Payment Notices (APNs) will not be issued before 30th June. If you receive an APN you must act within the specified time limit even if you are discussing settlement with HMRC.
If a settlement is reached within the specified time limit and the amount due is paid, the APN will be withdrawn.
If a settlement is reached after the APN has been paid, then this payment will be treated as a payment on account against the final amount due.
Tax Case Decisions and European Union Law
Recently, a number of high-profile cases involving loans from an Employee Benefit Trust (EBT) have been decided in the taxpayer’s favour. HMRC asserts that these cases are not relevant to Contractor Loan scheme users as none involved offshore employers or the Transfer of Assets Abroad rules.
HMRC also contest the view that Transfer of Assets Abroad rules cannot be applied as it would breach the individual’s rights under European law. Their view is that the legislation can apply if the arrangements subject to charge can be shown to be artificial.
As we have stated in the past, this all remains a matter of opinion. At this stage, HMRC has neither won nor lost a ruling against a Contractor Loan scheme.
Time to Pay
In circumstances where an individual agrees a settlement but has insufficient funds to pay the full amount within ninety days, HMRC is offering a simplified Time to Pay procedure for a period of up to two years.
As large a payment as possible will be required within the initial ninety days. The balance will then be payable over the remainder of the period subject to assurances that the proposed instalments can be met and so long as:
- there are no other payment arrangements with HMRC in place or it can be shown that the individual can fund this instalment offer in addition to any existing payment arrangements.
- any previous instalment plan with HMRC has been honoured.
HMRC will no longer require a Statement of Assets and Liabilities or Income and Expenditure form for an instalment offer of up to two years to be agreed.
Where more than two years would be needed to pay, HMRC will discuss the circumstances and proposal but are keen to emphasize that wish to work with the individual to reach an agreement.
In deciding whether the Settlement Opportunity is the route that you wish to take, it is important to reiterate that the HMRC view on Contractor Loan schemes remains an opinion that is yet to be successfully tested. In this regard, nothing has changed since our last newsletter in August 2014.
In addition, it is important to remember that the legally binding aspect of the Settlement Opportunity works both ways. If you agree a settlement with HMRC and, subsequently, they fail to win a judgement that your Contractor Loan scheme was not tax-compliant, you have no recourse to recover the tax paid as part of the settlement.
Having said that, the simplification of the Time to Pay procedure is a further incentive from HMRC.
If you would like to request a non-binding tax and interest calculation from HMRC that would include any potential Inheritance Tax arising if a trust structure was used, this can be submitting a DO3 form to HMRC.
We are currently working with a number of clients on this matter and would be pleased to review your circumstances. Please email us at firstname.lastname@example.org for further details.