The title of this article does not normally need evaluating since in 99% of cases, the answer is yes, if it truly is a loan. However, litigators seldom advise on disputes where all is at it seems… And in the last couple of weeks, we have found ourselves considering, whether in law, there can be an occasion when a loan is not a loan.
We have written extensively in the past about our involvement in advising clients engaged in various forms of tax avoidance/ mitigation strategies ranging from Remuneration Trusts, EBT’s, Contractor Schemes, EFRBS, the Loan Charge and claims for Incorporation Relief. Our involvement, as lawyers, has focused on the role of the advisor, and at times the promoter, in the sale of, and the advice relating to, these schemes, in particular whether the advice given was negligent. We have regularly obtained compensation for clients arising out of those claims, and we have a number of claims ongoing.
As some of the readers of this article will know, disguised remuneration schemes often use “loans”, paid by the trustee to the beneficiary (who is the client), rather than making the relevant payment direct to the client. For example, to take a simple example, rather than paying wages, the employer pays the employee’s salary to a trust, who then (after the deduction of not insignificant scheme fees), “loans” that money to the client. The analysis behind structuring it in that way is, in very simple terms, that the client avoids a liability for income tax since the loan does not qualify as remuneration. Accordingly, the client enters into a Loan Agreement between himself and the Trust, who then make the “loan” (although I have seen occasions where the loan is never made, so it’s only a “paper agreement”).
In our experience, HMRC more often than not take the view that such schemes are “disguised remuneration” and thus pursue the tax payer for the tax that is due, i.e. the scheme fails and the tax that the scheme purported to avoid must be paid (We should stress, we are not tax advisors, so if you are in any such schemes or are facing an assessment/ enquiry/ discovery etc from HMRC, you should take independent tax advice since each situation and each scheme will vary on its facts (We can introduce you to a handful of very good tax advisors, if that were required)).
One of the things we hear from clients in the majority of cases involving loans in disguised remuneration schemes is “I was told I did not have to pay it back”. On the face of it, that statement often makes practical sense, since the counterfactual would be absurd. That is, if the position were otherwise, the client of the scheme would end up paying more in total, after fees, than if the employer (using the example above) had just paid the client his or her salary direct.
Statutory Demands for Payment of Loans
A couple of weeks ago, our Dispute Resolution & Litigation team was referred to a Statutory Demand which had been sent to a third party by a law firm, Riverdale Solicitors.
Riverdale Solicitors client, Pembroke Advisory Limited, a company whose registered office was in the UAE, was demanding the repayment of a significant sum for the repayment of a loan made in one such tax mitigation strategy.
It was that Statutory Demand that prompted the writer to revisit the question – is a loan, always a loan…
It is our understanding that other users of the scheme in question have been sent Statutory Demands (and we assume a Notice of Assignment) demanding significant sums. If that is you, please contact the writer immediately because we can help and have plenty of experience of doing so.
We cannot advise in this article, but can act on your behalf, if you call us. We would suggest you do so, without delay if you have received a letter or a Statutory Demand.
NOTE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by Field Seymour Parkes LLP.
