FAQ: Joshua Planning (Including Pre-GAAR Steps Variant)
FREQUENTLY ASKED QUESTIONS: Joshua Planning (Including Pre-GAAR Steps Variant)
As you will be aware OneE Tax is now in liquidation and as such is no longer providing any services. Defence services will continue to be provided by OneE TDI, who will also be providing the assistance for this settlement opportunity. Any correspondence for OneE Tax Limited should be directed to the liquidator, David Thornhill at the following address: FRP Advisory LLP, 7th Floor, Ship Canal House, 98 King Street, Manchester M2 4WU.
Company Specific - What planning have I done that is affected by this / My PGS Joshua planning has not completed?
You will have received this email because, according to our records, there is an open enquiry, or potential for an enquiry to be opened, into a variant of the Joshua planning.
If you have taken steps to close the PGS Joshua planning (such as all the individuals selling back their interests before completion), this should lead to the relevant enquiries being closed and so no settlement will be required.
Settlement Terms – Is it possible to settle (or unwind the structure) on the basis that the planning is only subject to a s.455 charge?
HMRC are not currently willing to agree settlement terms based solely on a Section 455 charge. However, if you do not settle and repay the loan before April 2019, then, in our view, there are still strong technical grounds to argue that the planning is only subject to a s.455 charge. If the loan is repaid, then there should also be good arguments that the 2019 Loan Charge does not apply. However, there are several risks and downsides to this approach: -
- The cash will need to be repaid to the company. This means that sufficient cash flow is needed to make the repayment. No ‘extraction’ will then have been achieved (unlike the current settlement terms secured by OneE).
- From a cash-flow perspective, HMRC are still likely to request the s.455 tax is paid now and then only refunded 9 months after the year in which the loan is repaid.
- The benefit in kind provisions may also apply such that additional tax becomes due (particularly if interest is or has not paid on the loan in any of the relevant tax years).
- Repaying the loan now will not conclude the existing HMRC enquiries into the Joshua planning. There is no guarantee that HMRC will accept this position and they could instead continue to argue that the planning was a distribution. It would then be down to a Tribunal to decide on the points/arguments being put forward by each side. HMRC are becoming increasingly aggressive in challenging perceived tax avoidance arrangements and are often trying to secure/apply the highest tax charge possible.
- If settlement does not proceed, HMRC will likely consider issuing Accelerated Payment Notices (APNs) for what it believes is the “disputed tax”. This is unlikely to be an amount equivalent to a s.455 charge, but is more likely to be for a higher tax figure calculated by reference to the potential dividend income tax due. There is no right of appeal against APNs.
- If the terms for settlement are not agreed (and no payments on account are made against any potential tax liability), Late Payment Interest will continue to accrue on any tax that might, ultimately, be owed.
For the reasons set out above (and because the tax charge as part of any settlement could be less than might otherwise be due in the future), we are recommending that clients seriously consider settlement with HMRC. If required, this could include extended terms for payment of the settlement figure.
If clients do not wish to settle or want to repay the loan, we will continue to defend the planning in line with our original terms of engagement.
Settlement Terms – What happens if I don’t settle fully (i.e. the remainder of the trust interest remains on the balance sheet)?
The remaining asset will remain on the balance sheet and the trust will remain in existence (as will associated costs). This could cause complications in future if the 2019 Loan Charge is enacted and there is still a loan in place which could be caught. Given the ongoing obligations and uncertainty if the trust interest remains on balance sheet, we recommend a full wind up of the arrangements now. However it is possible to leave the trusts in place and avoid a further dividend income tax charge in the current tax year. You could for example defer this step until the beginning of the next tax year if you intend to have a much lower income in the next tax year.
Settlement Costs – Why is this not included in my engagement?
The terms of engagement are best outlined in your letter of engagement. The HMRC defence and Enquiry obligations are now be carried out by OneE TDI since OneE Tax Limited is now in liquidation.
Any work involved in negotiating a settlement was not envisaged and is outside the terms of this engagement, and thus further costs are involved. Please note if clients do not wish to settle or want to repay the loan, we will continue to defend the planning in line with our original terms of engagement.
Settlement Costs – What does it include?
This will be more specifically outlined in the engagement documents we will send you if you indicate that you wish to settle. Broadly speaking, once engaged, we will notify HMRC of your willingness to settle and begin the task of concluding matters with HMRC (including calculating the computations and collation of information). We would hope to have everything agreed within three months of us being formally engaged.
Our approximate fee will be in the region of £1,500 to £3,500, and you will get a more specific quote based on your circumstances, once you have indicated an interest in settling. We are unable to provide a specific quote at this stage, as we are hoping to reduce the costs dependant on the number of clients involved and our efforts to liaise with HMRC so as to keep the costs down. We will also liaise with the trustees on your behalf.
Our fee will include the above on the basis that HMRC accepts that no penalties are chargeable. If HMRC raises any issues relating to penalties and the clients want us to defend their position, then this will involve further work, which will be relevant to each client’s case/circumstances. Consequently, additional fees will be charged if clients instruct us to defend the penalty position, however we will confirm this before further charges are incurred.
There will also be costs with the trustees to wind up the trust if the matter is fully settled, It is anticipated that these will be in the regions of £1,000- to £2,500 and the trustees will confirm the process once engaged (as it will even legal steps bespoke to your trust and the settlement agreed). Again, we hope to have this at the lower end of the spectrum and will be able to quote more specifically once we have an indication of the details of each client.
2019 Loan Charge – Will this definitely affect me?
Our analysis of the draft legislation suggests that Joshua clients will be affected. We will continue to review the legislation in detail as the Finance Bill progresses through parliament and will update clients accordingly. The wording of the draft legislation is wide in that it catches ‘payments’. Courts have recently taken a ‘purposive’ approach when it comes to interpreting tax avoidance legislation, hence we feel they will similarly interpret ‘payments’ in a broad not narrow manner. We also feel the prevailing climate will continue to be much more hostile towards tax avoidance than was the case five years ago. These factors lead us to assume Joshua will probably be caught by the 2019 Loan Charge. Some barristers may continue to argue it is not caught, but our current thinking is ‘literal’ arguments of this type have very little prospect of success if they are challenged by HMRC and/or the courts.
As per our email, we wish that there was better news for our clients. To our mind, there is no justification for retroactive tax legislation and no-one could reasonably have predicted at the time that the initial planning was undertaken that such an approach would be adopted. HMRC's approach essentially ignores challenging whether the original planning/arrangements actually work in favour of introducing a new tax/NIC charge on outstanding DR loans.
2019 Loan Charge – How much will I have to pay?
This will depend on your income tax position in 2019, and this will be charged on the amount of loan outstanding under the Joshua planning. The company should have most up-to-date records of the amounts involved.
The tax charge would be classed as employment income and therefore under PAYE, a nd so the company would be liable to pay the tax. However, there are proposals to introduce new powers for HMRC to collect company liabilities from employees where the company does not pay the tax due. We do not yet have the draft legislation for this however it is expected to be introduced in late 2017.