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As the HMRC issue the first tranche of Accelerated Payment Notices (APNs) to individuals who have operated under offshore Contractor Loan schemes, we are taking stock of the current position.
Firstly, if you receive an APN, there is no right of appeal or to postpone the payment which is due within ninety days unless there is an error in fact within the notice.
Given that to date there has been no ruling that any scheme to which the APN relates is not tax-compliant, many eminent legal minds argue that this runs contrary to natural justice.
In this scenario, the only legal remedy for a receipt of an APN is to seek a Judicial Review which considers the decisions of public bodies on the grounds of illegality, irrationality or procedural impropriety.
However, the consequences need to be thoroughly understood before embarking on this route as it will be both costly and time-consuming process. In addition, HMRC may well seek costs if they ultimately win.
Most importantly, the timeframe is strict. A claim has to be filed promptly which means no later than three months after the grounds to make the claim first arose. For the recipient of an APN, the date that the notice is issued would be the start of this period. So the clock is running and the response of the scheme promoters will be critical.
The process is clearly laid out and does require substantial activity in the initial phases:
In February, the High Court granted around one hundred of the members of the Ingenious Media film partnership a Judicial Review of the APNs issued on their scheme stating that this was “clearly a case where permission should be granted”.
In this case, the central bases for arguing that issue of the APNs were unlawful are:
The participants also contend that the APNs would have the impact of further slowing down the process of ruling whether or not the substantive scheme is, indeed, a vehicle for tax avoidance.
It is worth bearing in mind that the granting of a Judicial Review is, in itself, relatively rare. Independent research by Thomson Reuters indicates that less than 10% of applications are successful.
However, the process is slow and the review decision probably will not be until late summer at the earliest.
The outcome has fundamental consequences for both parties. If the decision goes against the recipients of the APNs, this will leave them with potential life-changing tax payments to make in a situation where there is no certainty that there is actually any tax due. If the decision goes against HMRC, by inference, the power of parliament has been successfully challenged both on a constitutional and European level that has far-reaching implications outside tax avoidance.
Clearly, with so much to lose, neither party will be mindful to accept the ruling. So there is every expectation that the case will ultimately be appealed to the Supreme Court for a final decision.
In the meantime, HMRC will be continuing with the process of issuing APNs.
We are currently working with a number of clients who have operated under Contractor Loan Schemes and would be pleased to review your circumstances. Please email us at welcome@cooperfaure.co.uk for further details.
As more and more individuals in the UK opt to work for themselves under the protection of a Limited Company, a frequent question is can the company provide a pension scheme?
The short answer is yes where the shareholder/Director is also an employee of the business.
Company contributions into the pension scheme are an allowable business expense so long as they satisfy the HMRC test that they are ‘wholly and exclusively’ for the benefit of the business. This rule is applied to all business expenses.
Unlike employee contributions to a pension scheme that are capped at the level of salary, there are no precise rules to limit to the employer’s contribution. Rather it has to be deemed proportionate.
In instances where the Director is the spearhead of the business and whose activity generates the company revenue, a compelling case can be made to justify a relatively large pension contribution in relation to their salary.
The annual allowance for contributions into an individual’s overall pension pot is currently £40,000.00 after which the individual would pay tax on additional savings. As a result, this serves as a de facto limit.
The other figure to be mindful of is the lifetime allowance which is currently £1.25 million. Again, the individual is subject to tax on amounts above this limit.
If you are enrolled in more than one pension scheme, it is important to keep track of the overall total across the schemes.
Assuming the company pays £40,000 into a pension scheme in a financial year, this would reduce the Corporation Tax liability by £8,000.
In terms of the pension scheme, there are a myriad of proprietary products which may be suitable.
As an accountancy firm, CooperFaure is not allowed to provide pension advice. Moreover, our ethos means that we do not endorse any product in return for a commission. However, we would be pleased to provide the contact details of pension advisors based on our clients’ feedback.
For the more entrepreneurial, an alternative is a Small Self-Administered Scheme (SSAS) that allows business owners to keep more control over the investment and administration of their pension funds.
A SSAS is still an occupational pension scheme but is established under trust by the sponsoring employer for the benefit of the scheme members who ought to be trustees. As such, it is outside the scope of the Financial Conduct Authority but is regulated by the Pensions Regulator.
The company would pay contributions into a separate bank account specifically for the SSAS and these funds are invested and grow with interest, dividends, rents and further contributions.
However, the SSAS can provide financial flexibility for a business. For example, the trustees are allowed to make a commercial loan back to the sponsoring employer or to purchase property to lease back to the sponsoring employer at the market rent.
Beyond the Corporation Tax relief, there are some attractive tax benefits:
The level of company pension contributions and the manner in which they are invested should form part of the overall financial and tax strategy of the business owner.
If you would like any further information or to discuss your particular circumstances, please email welcome@cooperfaure.co.uk for an initial free consultation.