Tag Archives: 2019

What is the “2019 charge”?

The so-called “2019 charge” is simply the Treasury’s latest plot to cover up a decade of mismanagement and failure to simplify the tax system, by introducing a wholesale retrospective tax on the self-employed going back 20 years (that’s right).

Originally devised by uber cynic chancellor George Osborne before his fall from grace, it has been quietly endorsed by “Spreadsheet” Phil Hammond, who no doubt saw in it a quick and easy way to improve the bottom line at the expense of a group with relatively little lobbying power: middle-class contractors and their families.

The legislation has been the subject of a “technical consultation” at HMRC, and here is what the highly respected and usually moderate ICAEW (Institute of Chartered Accountants of England and Wales) had to say about this unprecedentedly cynical (even by Tory standards) stunt:

“We are very concerned about the proposals in the consultation document as they contravene
generally accepted notions of fairness and break the constitutional convention against
retrospective legislation, imposing tax charges in cases where taxpayers already had legal
certainty that none were due.
(…)
It is not acceptable for HMRC to create a retrospective tax liability where none currently exists,
especially as HMRC has been aware of loans to employees (referred to in the consultation
document – and adopted here for convenience only – as disguised remuneration (DR)
schemes) since at least 1999.(…)

To introduce legislation which affects transactions which were entered into up to 17 years ago (measured from the current year) where HMRC
has taken no timeous action despite knowledge of the alleged avoidance is likely to lay the proposed legislation open to challenges under the Human Rights Act (…)

HMRC should apply existing legislation rather than giving the impression of
being unable to take action by proposing new legislation duplicating what is already there.

On the international scene these proposals when considered in the light of other recent and
proposed changes to employer taxes and payroll, benefits-in-kind and expenses reporting
processes are making the UK appear a more ‘difficult’ country in which to locate staff, which
may not be desirable in today’s fragile economic climate.“

As you reflect on the above hard words, please ask yourself the following: once the retrospective genie is out of the bottle, what certainty is there left in anything?

The answer is “none“, for the Government can at any moment go back in time, change the rules retrospectively, and present you with an arbitrary bill, with no right of appeal.

NO ONE IS SAFE FROM RETROSPECTIVE LEGISLATION, as it is simply too tempting for the Government to use heavy-handed tactics on a “the end justify the means” basis, rather than resolve the real structural issues and face their own past failures.

It is even more so in situation where a ruling party is in crisis and desperate to cling to power by any means necessary.

This is the very reason why most civilized countries have retrospective legislation forbidden by their constitution.

Sadly, British exceptionalism sets us apart once more  – again, for all the wrong reasons.

the ICAEW savages HMRC over latest retrospective tax stunt


ouch

Presented without commentary, here are a few extracts from the Institute of Chartered Accountants of England and Wales (ICAEW)’s response to HMRC’s “Tackling Disguised Remuneration” technical* consultation – a.k.a. “the Osborne Ultimatum”

“We are very concerned about the proposals in the consultation document as they contravene
generally accepted notions of fairness and break the constitutional convention against
retrospective legislation, imposing tax charges in cases where taxpayers already had legal
certainty that none were due.
(…)
It is not acceptable for HMRC to create a retrospective tax liability where none currently exists,
especially as HMRC has been aware of loans to employees (referred to in the consultation
document – and adopted here for convenience only – as disguised remuneration (DR)
schemes) since at least 1999.(…)

To introduce legislation which affects transactions which were entered into up to 17 years ago (measured from the current year) where HMRC
has taken no timeous action despite knowledge of the alleged avoidance is likely to lay the proposed legislation open to challenges under the Human Rights Act (…)

HMRC should apply existing legislation rather than giving the impression of
being unable to take action by proposing new legislation duplicating what is already there.

On the international scene these proposals when considered in the light of other recent and
proposed changes to employer taxes and payroll, benefits-in-kind and expenses reporting
processes are making the UK appear a more ‘difficult’ country in which to locate staff, which
may not be desirable in today’s fragile economic climate.

Is it us, or is a can of worms about to be opened?

* “we intend to make it happen whether you like it or not, just need to work out the details”

 

How often does your Government lie to you?

From the  Journals of Robert Maas

I’m ashamed to admit it but I voted Conservative at the last general election.  Fortunately most of my neighbours voted Labour so my vote didn’t matter.  But I’m still embarrassed to have done so.  Why?  Because I am becoming increasingly tired of the Conservative government lying to me all the time.  That may be a bit of an exaggeration as I do not have the breadth of knowledge to gauge that in non-tax matters.  But I do know that they do so when it comes to tax.  Lying may be a bit strong too.  It may be that the government believe that once Margaret Thatcher abolished most of the grammar schools in the early 1970s, the standards of State education have plummeted to such an extent that the citizenry cannot cope with the truth.  But I was a grammar school kid.  The State educated me fairly well, so I don’t need protecting from facts.

This article has been prompted by an HMRC Technical note on what they call “disguised remuneration avoidance schemes.  Let me make clear immediately that I have no problem with HMRC tackling tax avoidance schemes.  I am delighted when they do so – albeit that my understanding of what is a tax avoidance scheme seems somewhat different to HMRC’s.  HMRC tell me that “the government’s view is that these schemes don’t work”.  The government is of course entitled to its view.  It is also entitled to bring in legislation to reinforce its view.  But what the document is largely talking about is Employment Benefit Trusts (EBTs).  Whilst I do not wholly discount the possibility of the Cabinet agenda having included a discussion on whether or not EBTs “work”, I am a bit horrified if that is what happened, as there are enough strategic issues for the government to worry about without the collective Ministerial talent being diverted to considering the efficacy of historic tax arrangements.  Of course I fully accept that David Gauke, who has ministerial responsibility for HMRC, may have himself immersed himself in the tax legislation and the detailed documentation of thousands of EBTs and formed his own conclusion that EBTs do not work.  But even if he did so, his considered opinion is just that; it is his view, not that of the government.  As a solicitor, he is capable of doing so, although whether such industry is a sensible use of his ministerial time and the high salary us taxpayers pay for his services is another question.  But I think it is more likely to be HMRC’s view than the government’s.  I would also make the point that, as far as I am aware, although HMRC have won a number of cases before the Courts and Tribunals, none of these have been on the basis that EBTs do not work, but rather than in those particular cases what actually happened did not reflect what the parties had intended.  Accordingly HMRC’s view – or the government’s view if that is in fact the case – is not universally shared.

But it is not simply that view that concerns me

The document goes on to say, “the package of changes announced by the Chancellor at Budget 2016 will ensure that those who have used or continue to use a disguised remuneration tax avoidance scheme will pay tax and NIC on that remuneration as Parliament intended”.

Parliament in fact enacted legislation against disguised remuneration (which includes some payments by EBTs) in 2011, but only in relation to transactions undertaken after 8 December 2010. That suggests that Parliament has no view on disguised remuneration before that date. Yet the Budget announcements are mainly directed at pre 8 December 2010 EBTs, so it is wrong to pretend that those changes are in any way aimed at what Parliament intended.

So, if I am not a fan of EBT loan arrangements, and some, at least, of them, like that in Murray Group, do not avoid tax at all, why should I care if HMRC and/or the government lie to me and the rest of the citizenry in order to seek to persuade us that the Chancellor is right to attack such arrangements entered into pre 2011? Well, apart from the fact that I don’t like being lied to full stop, it is because the lies are to hide the fact that the Chancellor intends to introduce retrospective legislation to tax now (or rather in 2019) the loans that were made by EBTs before 2011. Parliament is normally violently opposed to retrospective legislation. It accordingly seems that by pretending that Parliament was opposed to such loans pre 2011, the Chancellor thinks that they will not realise how clearly retrospective his proposed legislation is. What the Chancellor is really saying is that if a person received a loan from an EBT before 8 December 2010, he should either voluntarily pay tax on the capital amount, even though it is probably not taxable at all under current laws, or he should repay the loan before 5 April 2019, and if he chooses to ignore both of these options and insist on exercising his legal rights under the loan agreement, then Parliament will introduce a new law to tax him in 2019 on money he received in a non-taxable form in 2001 or 2009, or even 1979. That is retrospection with a vengeance!

The Osborne Ultimatum: are we all being played?

Osborne ultimatum

Some serious food for thought for all victims of APNs regarding the infamous “2019 charge” on Contractor Loans (from gordo at the AccountingWeb forum)

“Tax planning, tax avoidance, tax mitigation…however you want to describe it, it is perfectly in order to resist HMRC from putting the largest shovel in one’s stores. So long as it is within the law.

Interesting that many are happy to give their opinions (not fact) on how the law should have worked and then back HMRC in their wish to dispense with tradition and rules and propose a law sometime in the future, which impacts upon planning undertaken many years ago within the law that existed at that time. Interesting that many seem to know better than the QC’s. However, HMRC do not make the law. They may propose something, but it’s Parliament that creates the law and seeks Royal assent.

I find it intriguing that HMRC have positioned this 3 years hence and then work on getting Accountants to influence clients to throw in the towel, despite the fact that there is no such law as things stand, further, we don’t know what the law might be if it arrives and therefore what settlement would amount to. The idea that the 3 year period is to allow loans to be repaid is misleading and does not explain why the Government did not act to stop any new loans being created from the date of the budget.

I also find it intriguing that HMRC think it better to employ, no that’s wrong, not employ but contract the services of behavioural psychologists to influence peoples’ behaviour, rather than work within the law.

Any behavioural psychologist would know that one way to create stress is to remove any feeling of certainty and create an atmosphere of uncertainty.

Check Companies House for Behavioural Insights Ltd. A company apparently part owned by the Treasury and part by individuals…and part by an EBT! (DS: and whose motto is “enabling people to make ‘better choices for themselves’” – you couldn’t make it more Orwellian if you tried!).
This company achieved Turnover of £4.8 million and profit of £1,4 million in it’s first period of trading. Impressive for a start-up. Who are/is its main customer(s)?

(https://www.gov.uk/government/organisations/behavioural-insights-team)

Imagine for a moment, now I am not saying this is true, but just imagine that I could convince everyone to give in and settle between now and 2019 under threat of what the law might be one day….then I wouldn’t actually need the law to be passed.

Addendum 20/09/2016 : to further understand the inconvenient truth behind HMRC’s operation, read also this article