‘Uman rights, Pah! What matters is Moar Tax!

A group of contractors who used tax avoidance schemes have branded looming fines “grossly unfair” and a breach of human rights in an official legal challenge.

The tax office has targeted around 50,000 self-employed people with a “loan charge”, set to hit in April, which those liable claim will see them forced into bankruptcy.

The dispute arises from the contractors’ use of complex arrangements, popular and widely accepted to be legal in the early 2000s, in which much of their salary was paid in the form of supposedly tax-free loans.

Well, they were actually legal. What is not illegal is legal, recall? Then the rules were changed. Retrospectively.

Following the successful case against Scottish football club Rangers last year, the Government introduced a new law and HM Revenue & Customs has deemed any outstanding loans liable for tax.

The contractors will also be hit by the loan charge, which rolls all the loans received into a single tax year meaning the bill could be more than the actual tax liability. It also does not clear the original unpaid tax bill.

But Moar Tax is to be collected so that’s fine, isn’t it.

36 thoughts on “‘Uman rights, Pah! What matters is Moar Tax!”

  1. Don’t pay it.

    50.000 defying the bastards is no small obstacle. Start a campaign “The Limits of Thieving” in which the very nice income and lifestyles of the shite of the Senior Civil Service –not just the tax turds–are brought to public attention. Highlight the Rev’s 3rd sector activities in giving lucrative posts to “businessmen” as part of the general scum job market–quango/NGO to Corporate welfare “companies” to “advisors” to civil servants ie uncivil servants without formal connection to the CS.

    There is a whole world of dirty little corners and freebies that could be exposed to the light of day.

    As part of a campaign against the SCS it would be an excellent start.

  2. “Following the successful case against Scottish football club Rangers last year, the Government introduced a new law…”

    Well, no. The Rangers case was about the law as it was and has nothing to do with the change in the law.

    “The schemes were originally thought to be legal but in 2010 HMRC warned they were unacceptable”

    Well, no. The schemes WERE legal (if put in place properly – which the Rangers ones were not), then in October 2010 the law was changed.

    Then the law was changed a bit more, which was sort-of or sort-of-not retrospective since it didn’t change the tax treatment of the loans at the time they were made but makes them taxable now if they are not repaid.

  3. Ah but the money will be put to such good uses: extravagant wars of aggression, the provision of subsidised housing for illegal immigrants, useless aircraft carriers and dud planes for them to carry, aid for third world kleptocrats, and a stupid railway line from Birmingham to somewhere vague in NW London.

  4. “…in which much of their salary was paid in the form of supposedly tax-free loans.”

    Well, no. The loans were not tax free, but they were taxed as a low/no interest BIK loan rather than as salary.

  5. Well colour me unimpressed. This sort of scheme was as dodgy as fuck. Anyone with a brain could have foreseen that the State is not going to let Joe Public drive a coach and horses through the income tax system, regardless of the legality or not at the beginning. There’s zero point regarding the State as something constrained by law, not least as it makes its own law, but also because its really a Mafia style shakedown. Yes, you can tell the man who comes to collect your protection money to fuck off and don’t come back, but expect him to be back, with mates. The State is no different.

  6. They were not illegal – just ineffective since the courts have, some time ago, agreed that HMRC is allowed to look through artificial schemes that are created solely to avoid tax and levy tax on the substance. If the loans are not ever going to be repaid, then there are in effect, income and taxable.

  7. “They were not illegal – just ineffective since the courts have, some time ago, agreed that HMRC is allowed to look through artificial schemes that are created solely to avoid tax and levy tax on the substance.”

    I’ve always wondered about that. Suppose a company sets up a recycling scheme in order to avoid paying landfill tax, or shops start selling low-sugar soft drinks in order to avoid the sugar tax, or smokers give up smoking to avoid paying the high duties applied to cigarettes? How about Tim’s favourite – the carbon tax? They all appear to be highly artificial tax avoidance schemes – companies and individuals engaging in activities that they otherwise would not do as part of normal business, purely to avoid paying a government tax.

    Presumably there’s some other criterion applied, to separate these from the others. I’m not sure what it could be, though.

  8. Ten years or so ago I discussed these schemes with one of our IT contractors; I’m by no means any kind of expert in tax matters but to me it stood out as the most dodgy of schemes in a world of dodgy schemes. Funnily enough, a number of the contractors from that time are wrapped up in this and they’re not enjoying the situation.

  9. Dennis the Peasant

    You got this one badly wrong, Timmy.

    John77 has it correct. In the USA it’s called the Economic Substance Doctrine (what you wogs call it is beyond me). Put simply, for a transaction to be legitimate with regard to tax treatment, it has to have these two essential components: (1) a substantial purpose that goes beyond simply reducing taxes, and (2) an economic effect that goes beyond the tax effect. This particular case has played out the way most do… The lack of economic substance only becomes apparent over time. If your company ‘loans’ money to you and over time neither you nor the company treats the transaction as a loan, well, then taxing authorities are free to re-characterize the transaction in a manner that yields an economic, rather than tax, effect. For the original transaction to be legal, there must be subsequent actions/transactions by the parties involved in the original transaction that demonstrate it had true economic purpose and effect. Unfortunately for the would-be tax evaders of the world, that’s the part they tend to forget about. And they forget about it because there was no substance to the transaction beyond evading legitimate taxes.

  10. Dennis the Peasant

    Suppose a company sets up a recycling scheme in order to avoid paying landfill tax…

    It’s safe to assume the recycling scheme would not be entered into unless the cost of doing so was less than paying the tax and that would only happen if the amount of rubbish sent to the landfill is lowered. Rubbish heading to the landfill is lowered, money is saved by the company. The second only happens if the first happens. The scheme has real economic substance, as it lowers a cost of business (the cost of disposing of the company’s rubbish).

  11. As John77 says…
    I was approached by people operating these schemes some years back. At the time they stank of dodgy dealings. If as a layman, I could see that they were simply a means of avoidance and nowt else, that sailed very close to the wind, then it was only a matter of time before HMRC started to pay close attention. I stayed well clear, because, well, I could see where this was likely to end up. I wasn’t wrong, was I?

    As mentioned above – the bunch of criminals running this protection racket make the laws, so best to avoid falling foul of them.

  12. @john 77, October 2, 2018 at 2:27 pm

    They were not illegal – just ineffective since the courts have, some time ago, agreed that HMRC is allowed to look through artificial schemes that are created solely to avoid tax and levy tax on the substance. If the loans are not ever going to be repaid, then there are in effect, income and taxable.

    I remember reading about that case in 1987/88 in Investors Chronicle. Not sure when judgement made, but definitely before 1989.

  13. @Dennis the Peasant, October 2, 2018 at 6:01 pm

    Plus the pile of recycled junk has a tendency to self-combust outside office hours.

  14. It is the retroactive bit that bothers me there. All sorts of things may be caught up in future changes to law.

  15. “ohn77 has it correct. In the USA it’s called the Economic Substance Doctrine”

    Interesting! Thank you.

    “It’s safe to assume the recycling scheme would not be entered into unless the cost of doing so was less than paying the tax and that would only happen if the amount of rubbish sent to the landfill is lowered.”

    It’s safe to assume that *any* tax avoidance scheme would only be entered into if the cost of running it was less than paying the tax, lowering the overall cost of business. But surely they can’t have defined the rules to allow “avoiding tax” itself to be a legitimately purposeful economic transaction?

    The cheapest way of getting rid of rubbish is sending it to landfill. Recycling is more expensive, raises the cost of business, and so few do it. To get people to recycle, the government slaps on a large Pigou tax on rubbish sent to landfill. Companies therefore seek to avoid this tax by setting up recycling schemes that *increase* the pre-tax cost of disposing of their rubbish, but *reduce* the tax due by an even larger amount, giving a net saving. The saving is entirely from the reduced tax, not from a reduced cost of operating the business, since that’s increased.

    The business has no business-related substantial purpose in changing disposal methods – all they need is to dispose of it. (I guess it might have some marketing purposes presenting themselves as ‘green’, but evidently not enough of one to have made it worthwhile without the tax.) And the economic effect, besides the change in tax liability is to make their operation more expensive.

    You’re doing business in a more expensive way than you would do otherwise without the tax, solely to avoid paying the tax. The business has no substantial purpose, besides the tax effect, for recycling. That’s classic tax avoidance, yes?

    It’s also precisely what the government intended to happen, which is why I’m sure they’ve written the rules to exclude it. I’m just not sure how. ‘Congressional intent’, maybe?

  16. Dennis the Peasant

    The cheapest way of getting rid of rubbish is sending it to landfill. Recycling is more expensive, raises the cost of business, and so few do it.

    Ah, yes, another of NiV’s casually tossed off generalizations that have no basis in fact. Actually, recycling in the manufacturing sector here in the USA has been a booming business over the past 20 or so years. Companies have discovered that there are profits to be made in paying careful attention to recapturing materials that can either be re-manufactured or sold. I know of companies that consider their recycling operations to be a profit center.

    The business has no business-related substantial purpose in changing disposal methods – all they need is to dispose of it.

    You misunderstand. As usual. The business-related substantial purpose is lowering the cost of disposing of their rubbish. The fact is that they are doing it by reducing the amount sent to the landfill, thus lowering their landfill tax. In the USA, landfills are often run by private companies, who charge fees by the ton or yard of rubbish. Just because some wog local government is running it, and charging a tax, rather than some wog company that charges a fee, doesn’t change the fact that less rubbish is being presented for disposal, thus triggering lower costs.

  17. Dennis the Peasant

    It is the retroactive bit that bothers me there.

    Only it isn’t retroactive. Usually it is the element of time that exposes the lack of economic substance of the original transaction. I’ll bet dollars to donuts that the vast majority of those ICs who were taking ‘loans’ never made a single payment back to the companies as repayment. The lack of any attempt to actually repay the loans will only become apparent with the passage of time.

  18. @John 77 – You’re wrong.

    There is no no doctrine of substance over form in the UK in relation to tax law.

    The closest we come is the General Anti Abuse Rule introduced by FA 2013. But that is constrained both by the ‘double reasonableness’ test and HMRC’s acceptance that only ‘abusive’ arrangements will be challenged.

    But general doctrine. No.

    If there were such a rule, do you really think the UBS AG and DB group Services cases would have slugged all the way to the Supreme Court? Where even there the Supreme Court only accepted what it called the ‘narrower Ramsay argument’; that the shares issued had not been restricted securities. It did not agree with the wider argument that the shares should be equated with cash, which on any purely substantive view, they were.

    So, how far could we go here?

    The Duke of Westminster remains good law: the substance of a transaction embodied in a written instrument is to be found by construing the document as a whole

    The Ramsay doctrine is a rule of statutory construction prescribing a purposive approach (and nothing wider regarding tax avoidance)

    If there is now a purposive approach it only goes so far as to enable the Court to identify the transaction intended to be affected and then to look at the particular facts in the round to see if they fit.

    But there is no general doctrine of substance over form.

    I know, I know, I’ve only got 30 years’ experience in the field and you’ve read a few magazine articles so don’t actually need tax advisors, so what do I know.

    But you’re wrong.

  19. “Dennis the Peasant

    “It is the retroactive bit that bothers me there.”

    Only it isn’t retroactive.”

    It is retroactive and it isn’t. It doesn’t say that the loan was not a loan at the time, it creates a tax charge now if the loan hasn’t been repaid.

    Suppose the government were to decide that donations made 20 years ago to charity were tax abusive and if the donations were not given back, the tax relief given to the donor would be withdrawn?

  20. @DtP

    “In the USA it’s called the Economic Substance Doctrine (what you wogs call it is beyond me).”

    We don’t call it anything. We don’t have an equivalent. We didn’t even have GAAR when most of the arrangements were put in place.

    Interestingly, both the 2010 rules which effectively scuppered EBT schemes and GAAR in 2013 were Tory law. Despite their reputation, the Tories have been a lot smarter on legislation than were Labour before them.

  21. “Ah, yes, another of NiV’s casually tossed off generalizations that have no basis in fact. Actually, recycling in the manufacturing sector here in the USA has been a booming business over the past 20 or so years.”

    Has been here too – largely because of the landfill tax and green subsidies and similar.

    If they were profitable to do without the tax, the government wouldn’t have needed to create the tax. That’s how Pigou taxes work.

    “Companies have discovered that there are profits to be made in paying careful attention to recapturing materials that can either be re-manufactured or sold.”

    For certain materials, yes. But for a lot of other materials, landfill is still the cheapest.

    “The business-related substantial purpose is lowering the cost of disposing of their rubbish. The fact is that they are doing it by reducing the amount sent to the landfill, thus lowering their landfill tax.”

    And income tax fiddles have the substantial purpose of lowering the cost of employment. They do this by engaging in weird transactions that they wouldn’t otherwise engage in, thus lowering their employees’ income tax. I fail to see the distinction.

    “Just because some wog local government is running it, and charging a tax, rather than some wog company that charges a fee,”

    Ah! I see! This may be the cause of the confusion.

    No, it’s not just that fees charged by local government are being called taxes – in they EU they add on a special tax in addition to the fees. It’s aimed at enabling the government to meet EU Council Directive 1999/31/EC, which aims to reduce landfill use for ‘environmental’ purposes. It’s a pure environmentalist Pigovian tax to change public behaviour.

    It’s like a Global Warming Carbon tax, slapped on to fuel prices. It’s not simply that you get all your fuel from the government, so fuel charges are called taxes. It’s an extra tax on fuel specifically to discourage its use and is paid irrespective of who supplies it.

  22. Dennis the Peasant

    It doesn’t say that the loan was not a loan at the time, it creates a tax charge now if the loan hasn’t been repaid.

    And my question is this: Why wasn’t the loan repaid? Well, if the IC took the loan to evade taking compensation and paying the tax due on said compensation, the answer is “never”. If a company makes a loan to a related party and never insists upon timely repayment, it ain’t a loan. It is disguised compensation. HMRC may not be saying that directly, but that’s the premise they’re working on. You wogs may not have an economic substance doctrine (and why am I unsurprised you don’t), but it seems HMRC is acting like you do.

    Sorry, but I have no problem with what HMRC is doing here. The transactions weren’t in the furtherance of tax avoidance, they were an attempt at tax evasion. The ICs are getting what they had coming to them, and they are getting it good and hard. Again, sorry, but if you’re greedy enough to get stupid on your taxes, well, you’ll get no empathy from me. And has everyone here knows, I got empathy out the blow hole.

  23. @DtP

    Not sure where you heard the word “wog” but it refers to a non white person.

    Quite why you think we are “wogs” is beyond me.

    It would be like me calling Americans ‘wetbacks’.

  24. “HMRC may not be saying that directly, but that’s the premise they’re working on.”

    It’s the premise they’re working on *now*. They didn’t used to.

    According to the campaign group:

    Local councils, government departments, and even HMRC themselves were hiring contractors via these schemes to help balance their books in the era of ‘austerity’ by circumventing National Insurance liabilities.

    A lot of companies hire self-employed and agency contractors instead of employees to avoid costs of employment. Those people were often not given any choice over the matter – if you want to work for the company, you have to join the scheme. They were assured it was legal. They submitted their tax returns accurately every year, making clear exactly what they were doing, and HMRC accepted them without comment. Heck, HMRC themselves were doing it!

    Now they’ve decided it was wrong after all (which is fair enough), but are now going after up to 20 years of back taxes in a single year, bankrupting many.

    It would be kind of like Walmart telling its customers that it’s been undercharging them for years, with all these ‘Sales’ and ‘Buy one get one free’ offers, and demanding that their customers pay up for all the free stuff they’ve been taking all these years!

    If you deliberately buy things in a sale, you’re clearly trying to avoid paying the standard rate for the goods. That’s theft! No sympathy! Jail the bastards!

    If you join some scheme pushed on you by your employer, and tell the tax man exactly what you’re doing on your tax return, and the taxman says that’s OK for twenty years straight, it’s surely excusable that ordinary people – not experts in tax law – might feel justified in assuming they know what they’re talking about? They might feel that the tax authorities have played some role in the catastrophe they suddenly face?

    My old employer used to do all sorts of weird things and when you asked why they said “for tax reasons”. I don’t know. I’m not an accountant, I don’t know all the details of what their arrangements were. They got audited, and HMRC never objected, and a lot of these schemes the government themselves promote. Am I liable if they change their mind? In 20 years time, could I suddenly get hit with a giant tax bill for all the taxes I was unknowingly evading?

    The problem with what HMRC are doing is not that the current decison is wrong, or that the aim of the schemes wasn’t tax avoidance. It is that ordinary ignorant people are being forced to play a game with secret and ever-changing rules of impossibly Byzantine complexity, where the stakes are their financial ruin.

  25. @ AndyC
    I did not say there was a doctrine – that was Dennis talking about the USA.
    So YOU are wrong
    I said that the courts can look through the wording to the substance.

  26. @ John 77 “since the courts have, some time ago, agreed that HMRC is allowed to look through artificial schemes that are created solely to avoid tax and levy tax on the substance.”

    Could you reference which case that statement was made in?

  27. @DtP: I’m not sure you understand the nature of the word ‘wog’ this side of the Atlantic – its viewed pretty much the same as you would the N-word, ie not something one says, about anyone, ever. Its got some fairly heavy racist baggage going on.

    I get the impression that you are using it in a general ‘Anyone who isn’t an upstanding American citizen who carries a loaded firearm at all times’ sense, however thats not exactly how it would be seen on this side of the pond. Especially by anyone who wasn’t white. They would be very offended, rather in the same way if a UK citizen came onto a US centred site and started throwing the N-word around.

  28. He’s using it in the sense of “wogs start at Calais” it’s just there’s a Calais in Massachussetts*.

    * Well, probably, the’ll nick anything not nailed down, the septics.

  29. ‘Retrospective’ would surely only mean things that have happened and are done with. If the charge only applies to loans that are still outstanding (which is all of them, I know), then ‘retrospective’ probably isn’t right here.

    Overall though, there must be some sympathy for scheme users, who aren’t tax experts or possess the smarts enjoyed by contributers to this blog. Many will be finding themselves facing a tax bill they would otherwise have paid out of income, which will have been spent a long time ago.

  30. @ AndrewC
    Sorry, not a tax lawyer so I don’t keep a file on such stuff and it’s a long time ago but I *do* remember that bit as it was likely to affect after-tax returns on investment. Investment Trust Preference shares didn’t get caught because the object was to pay school fees not just to dodge tax, but then the promoters got too greedy and a lot of boys ended up at a local comprehensive …

  31. Looking up the origins and possible American meanings of ‘wog’, I just discovered that:

    The word “wog” is used by Scientologists to refer to non-Scientologists. Scientology’s founder L. Ron Hubbard defined wog as a “common, everyday garden-variety humanoid … He ‘is’ a body. [He] doesn’t know he’s there, etc. He isn’t there as a spirit at all. He is not operating as a thetan.”

    Gosh! I didn’t know that!

  32. Dennis the Peasant

    He’s using it in the sense of “wogs start at Calais” it’s just there’s a Calais in Massachussetts*.

    You are too kind to the East Coast, Timmy. Eastwards, the wogs start at the border of New York state. To the West, they start at the borders of California/Oregon/Washington. Illinois is pretty much wog land as well, especially Chicago.

    I get the impression that you are using it in a general ‘Anyone who isn’t an upstanding American citizen who carries a loaded firearm at all times’ sense…

    Pretty much. Although if you carry anything less than a 9mm double-stack, you will be under suspicion of being a wog or a pussy or both. Me, I carry a Ruger Redhawk with a 4.2″ barrel that’s chambered in .44 magnum and weighs about 47 ounces. When I’m wearing it in a holster I have to use suspenders to keep the weight of the damn thing from pulling down my pants. But nobody fucks with me… pants up or down.

    …however thats not exactly how it would be seen on this side of the pond. Especially by anyone who wasn’t white. They would be very offended…

    You’re a wog and I’m a septic. Deal with it.

Leave a Reply

Your email address will not be published. Required fields are marked *