2002 the loan arranger character4/11/2024 Yet because of the previous approach by HMRC (i.e. one of the UK entities in the contractual chain), rather than the employees. The finding that the advance of the funds to the EBTs represented the event which triggered the obligation to deduct PAYE and National Insurance was widely regarded as meaning that any recovery action should ordinarily have been taken against the ‘employers’ (i.e. However, it gave rise to a potential difficulty so far as HMRC were concerned. This new argument succeeded in the Court of Session and ultimately in the Supreme Court (RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland UKSC 45). In other words, the EBTs should not have received funds gross. By the time that Rangers reached the Court of Session, HMRC newly argued that the initial appointment of the funds into the EBTs constituted the diversion of salary, on which PAYE and National Insurance should have been deducted. However, defeats at the tribunal stage in the Rangers litigation (because the tribunals upheld the principle that a loan is a loan and cannot be redefined as a payment of salary) led to a change of strategy. HMRC had initially challenged such arrangements by arguing that the loans were ‘disguised remuneration’ and should be taxed as such when the EBTs made the loans. Such arrangements were widely marketed as tax-efficient because, instead of attracting tax and National Insurance at the usual rates, the amounts advanced to the employee would escape tax altogether (although there might then be a subsequent and continuing liability on the benefit of not then paying a market rate of interest under the beneficial loan rules). The current controversy surrounding the 2019 loan charge concerns arrangements where earnings were received in the form of loans from employee benefit trusts (EBTs). However, the decision does not resolve many of the uncertainties that surround these cases. This general discretion effectively circumvented the protections within the PAYE regulations themselves, which generally required HMRC to pursue employers and not employees for unpaid PAYE. The tribunal concluded that ITEPA 2003 s 684(7A) gave a general discretion to HMRC to disapply the PAYE regulations – and that it was not open to the tribunal to consider whether HMRC exercised their discretion properly. The decision in Hoey v HMRC, the first of these cases, has now been released. What can I take away?Ī large number of taxpayers have sought and obtained closure notices in respect of earlier years and appeals against these closure notices have been notified to the FTT. Despite the loan charge, HMRC are seeking alternative ways to charge income tax in some cases. The loan charge remains controversial and the chancellor has announced an independent review, led by Sir Amyas Morse.
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