HMRC are robbing b!stards

[flanajb]

I stupidly took out an employee mortgage with the bank I work for in 2008. It was a 2 year Bank of England tracker -0.11%. At the same time the bank I work for was offering a 2 year Bank of England tracker +0.24%.

So the real difference between the 2 products is 0.35%. I knew there were tax implications associated with the employee mortgage, but did not really look into it as I thought my employer would have my interests at heart.

How wrong was I. When the Bank of England rate went down to 0.5%, the HMRC rate stayed at 4.75%. HMRC are saying that the benfit I received is the difference between their rate and tha rate I was paying.

So on a 200k mortgage I have ended up with a £6500 tax demand for a benefit I never received. I have written to them providing proof of the actual benefit received, but they say "No, cough up".

I feel like making a point and letting them lock me away for no payment.

 

[Gary]

Typical banker, trying to avoid tax. lol

 

[cambournepete]

I knew there were tax implications associated with the employee mortgage, but did not really look into it as I thought my employer would have my interests at heart.

Obviously you know you should have checked the facts thoroughly and that you do owe the tax, even if you feel it's unfair.

However, I reckon you should have a serious chat with your employer. They should have provided full advice when you were considering taking the employee mortgage and if they didn't or provided misleading advice then they might be liable for the tax. It might be worth finding out if other employees are in the same position as you or talking to the CAB or a solicitor.

 

[miles_hot]

How is HMC rate so out of step with the reality of the situation? Maybe you should offer to bank with them so that they can pay you interest on any savings at 4.75%?

Miles

 

[paulm]

I stupidly took out an employee mortgage with the bank I work for in 2008. It was a 2 year Bank of England tracker -0.11%. At the same time the bank I work for was offering a 2 year Bank of England tracker +0.24%.

If the bank also offered the other tracker product at +0.24% to the general public and at the same time as you were on the employee only version of -0.11% then I don't see what the HMRC rate has to do with it, the reference point as to what benefit you have received from your employer is clearly identifiable by reference to the externally offered product.

Your employer should have issued details on a P11d each year to yourself and to HMRC with details on it so that there are no surprises long after the event. As suggested by Pete you should talk to your ex-employer, the CAB and/or an experienced accountant and show them any paperwork you have. HMRC do make mistakes, surprisingly often, and you could also ask for a face to face meeting with someone experienced there for them to explain why they are ignoring your information and substituting their own rate, there will either be a reason for it (you haven't or can't evidence your information ?) or by talking to someone experienced they will know if there is a screw up being made.

Given the amount though it may well be worth getting an accountant involved ?

Cheers, Paul

 

[condeesteso]

I agree with Paul, and have had many experiences with HMRC over the years (as an employer and employee), and have normally found them to be sensible and reasonable once you get to the right level in HMRC. The 'benefit in kind' principle is to tax you the value of the benefit - the difference between the 0.24 and the -.11= .35 as you say. The benefit on this tracker is clearly the .35 and any notional market fixed rate is irrelevant as you could have bought this at +.24 at the time anyway.
I think you need to actually speak to HMRC, be prepared to pay the tax on the actual benefit (o.35%) which you may already have done, if not pay it as a gesture of good intent, then argue the difference as that exceeds the benefit you received, according the the fundamentals of 'benefit in kind' tax. Also as Paul says, the P11D records for each tax year need to be looked at - what benefit did the employer put down, and if it was more than the .35 you received, why and why was that not made clear in writing as a key term of loan etc. A good accountant (tax specialist) will know how to play this - he may cost, but I'd say a few hundred would be ample on this. If you know anyone who runs a small but successful business, ask who he uses - they usually have a good tax accountant and they don't pay silly money.

I always took the view I would rather pay a good accountant than pay the taxman (I've paid my share of tax so concience is clear). Fight this (in a polite and reasonable way) as the principles are wrong.

Douglas

 

[misterfish]

Even as an employee you need to keep your eye on your tax and PAYE. Years ago when I was moved with my job to a more expensive area and was offered an interest free advance of salary repayable over 10 years. Soon after taking this my tax code was changed so that I was then taxed on the notional interest that I would have paid. Despite this 'annoyance' it was still a good deal. It so happened that in my ninth year of repayments they changed the format of the pay advice so that it showed how much of the loan remained to be paid at which point it twigged that I'd been paying the same amount of extra tax throughout the loan despite the actual amount owing having been steadily reducing. When I spoke to the tax office they asked me to send copies of the relevant documentation and they would check. Two weeks later I got a flurry of four letters - two with assesments of previous and current years and two containing refund cheques.

Having been caught out by this I kept an eye on my tax code and was surprised to find an extra reduction I couldn't understand. For one year I'd had to use my car a lot for official business and had exceeded the allowable distance threshold and was taxed on the excess - this was fine. But the problem was that this was also included in the next tax year coding. So straight on the phone to be told that if you pay extra one year they assume the same anount for subsequent years unless they are told otherwise. they corrected it on the spot. It also turned out that the reason I'd paid more tax on the interest free advance of salary was that they receive a form when it is set up but nothing else after that, so they assume things continue the same unless they are told otherwise. It seems that once set up and the tax office have been notified by the employer any changes were down to me to correct!

Misterfish

 

[flanajb]

I have written to HMRC and explained what the actual benefit tax liability is and they have written back and said "Sorry, but although the benefit is 0.35%, we calculate the benefit based on our own official interest rate and the rate you pay". What is even more crazy, is that although my mortgage was a 2 year tracker, HMRC are constantly recalculting the tax liability over the period of the loan. So every time the Bank of England rate dropped, my tax exposure went up.

Unless you have a crystal ball at the start of your product, the tax HMRC will charge you is some magic figure.

I have appealed against the ruling, but I know HMRC will send people around to take goods to the value of the tax they think I owe, or I will end having to go to court.

it has been the most stressful thing to deal with as no one seems interested. So I have made a decision to look for another job as a matter of principal

 

[Karl]

That does seem very inequitable.

As previously suggested, i'd go and see a local tax specialist. They will normally give you the first 1/2 hour of their time for free. I suspect they would be able to give you their opinion within a few minutes - either they've seen it before and, sorry, stump up. Or that the matter should be taken to appeal and fought.

Seeing as you've lodged an appeal I wouldn't worry too much about HMRC sending round the bailiffs - they use this to scare people into paying.

Cheers

Karl

 

[RogerM]

My former employer stopped offering staff discounts years ago for this very reason - the HMRC official rate against which the staff discounted rate was compared was so unrealistic that the tax on the benefit in kind often exceeded the value of the discount. I hate to say this flanajb but I think you're stuck with it. Inequitable it may be, but the HMRC won't give a stuff - they just apply the rules.

The only crumb I can offer is that mortgage advice is a regulated business, and therefore your employer should have bought the tax consequences to your attention. You are a customer as well as an employee so they have the same duty of care with regard to advice as with any other customer. I'd advise having a chat with your line manager first - then your compliance department. If pressed you could lob the dreaded "Ombudsman" word into the conversation and see what happens. Not normally regarded as a career move though - and if you want to continue working in the industry ........... :-"

 

[thomvic]

the HMRC won't give a stuff - they just apply the rules.

That is what they are supposed to do isn't it? I shudder to imagine what the situation might be if they didn't apply the rules.

There may be ways to avoid or mitigate the liability - as several have suggested - you need professional advice.

Richard

 

[paulm]

Unfortunately I think RogerM is right, having done some googling on the HMRC website I came up with this

Loans at low interest rates
You may have to pay tax on this benefit if your employer lends you more than £5,000 interest free, or charges you less than the official rate of interest on a loan. The value of the benefit you'll have to pay tax on is usually the difference between:
the interest you actually pay
the interest you would've paid at the official rate
You may also have to pay tax on the benefit if your employer lends money to one of your relatives.
You won't have to pay tax on the benefit of an interest free or low interest loan from your employer if the total of all loans provided in a year is £5,000 or less.

Here's the web page, scroll down a bit on it http://www.hmrc.gov.uk/working/bens-sha ... nefits.htm

Seems really arbitrary and unfair but looks like it is as your tax office says unfortunately.

I too would look into what you were told by your employer at the time and see if you can get any comeback from them but that may be a long shot and otherwise I think you may be stuck with it I'm afraid.

Cheers, Paul

 

[Dibs-h]

Flanajb - appeal.

As far as I see it, is bloody simple as you have shown - a benefit of 0.35%. Their own so called Interest rate has no backing in law and my gut feeling is that they are trying it on - getting a decision against them, is not something they'd be terribly interested in.

Write back - thanking them for their response, but then state that you intend to appeal and look forward to common sense and logic prevailing.

Get some advice - but the cynic in me says be careful, there are times when matters that can be relatively simple are wrapped up in so much complexity by some involved in those professions, who would make you think you aren't competent to tie your own shoe laces. :roll:

HIH

Dibs

Edit: Just found this - http://www.housepricecrash.co.uk/forum/ ... pic=159335 - post 13, interesting. Still worth a shot with an hr or so of a tax specialists time.

 

[flanajb]

I agree with all of the posts. Whilst I feel HMRC are way off with their tax calculation, they are just applying the rules that they set out and whilst I can appeal, I don't think it will make a blind bit of difference.

I will wait and see what they come back with, but in the mean time I am going to discuss the matter with my employer.

 

[RogerM]

I agree with all of the posts. Whilst I feel HMRC are way off with their tax calculation, they are just applying the rules that they set out and whilst I can appeal, I don't think it will make a blind bit of difference.

I will wait and see what they come back with, but in the mean time I am going to discuss the matter with my employer.

I think that is the pragmatic way forward. In the meantime, when you took the staff discounted mortgage there would have been a specific offer made together with all the terms and conditions, which should have included the tax treatment. There should also be a statement somewhere showing why this product was suitable for you, and that should cover the tax issues. Obviously your employer cannot be held responsible for changes in interest rates or the HMRC official rate, but somewhere it should have stated that the staff discount would be treated as a benefit in kind for tax purposes, and that you would be taxed on the difference between the rate offered by your employer and the HMRC official rate. If it does, then I don't think you have a case against your employer, but if there is no mention of the tax treatment as a BIK then you may have a case. Don't wreck your career over this though. No point winning the battle if you lose the war!

 

[Dibs-h]

I agree with all of the posts. Whilst I feel HMRC are way off with their tax calculation, they are just applying the rules that they set out and whilst I can appeal, I don't think it will make a blind bit of difference.

I will wait and see what they come back with, but in the mean time I am going to discuss the matter with my employer.

I think that is the pragmatic way forward. In the meantime, when you took the staff discounted mortgage there would have been a specific offer made together with all the terms and conditions, which should have included the tax treatment. There should also be a statement somewhere showing why this product was suitable for you, and that should cover the tax issues. Obviously your employer cannot be held responsible for changes in interest rates or the HMRC official rate, but somewhere it should have stated that the staff discount would be treated as a benefit in kind for tax purposes, and that you would be taxed on the difference between the rate offered by your employer and the HMRC official rate. If it does, then I don't think you have a case against your employer, but if there is no mention of the tax treatment as a BIK then you may have a case. Don't wreck your career over this though. No point winning the battle if you lose the war!

When I had a staff mortgage yrs ago - on the application I was asked to tick the box that said no advice had been given. As none had been given and they weren't offering any advice on it either. Mind yo u that was when BR was 7% or so and I was paying 5%.

Dibs

 

[RogerM]

I agree with all of the posts. Whilst I feel HMRC are way off with their tax calculation, they are just applying the rules that they set out and whilst I can appeal, I don't think it will make a blind bit of difference.

I will wait and see what they come back with, but in the mean time I am going to discuss the matter with my employer.

I think that is the pragmatic way forward. In the meantime, when you took the staff discounted mortgage there would have been a specific offer made together with all the terms and conditions, which should have included the tax treatment. There should also be a statement somewhere showing why this product was suitable for you, and that should cover the tax issues. Obviously your employer cannot be held responsible for changes in interest rates or the HMRC official rate, but somewhere it should have stated that the staff discount would be treated as a benefit in kind for tax purposes, and that you would be taxed on the difference between the rate offered by your employer and the HMRC official rate. If it does, then I don't think you have a case against your employer, but if there is no mention of the tax treatment as a BIK then you may have a case. Don't wreck your career over this though. No point winning the battle if you lose the war!

When I had a staff mortgage yrs ago - on the application I was asked to tick the box that said no advice had been given. As none had been given and they weren't offering any advice on it either. Mind yo u that was when BR was 7% or so and I was paying 5%.

Dibs

Years ago I did the same, but I think things have moved on and that in any sphere of financial advice you cannot just hide behind the "execution only" heading. Most advisers are forbidden to put through "execution only" business. At the very least, there should have been a written statement to the effect that there would be a BIK and a brief explanation of the basis on which that BIK would be calculated.

By all means appeal to HMRC, but unfortunately, however inequitable, I think the rules are probably clear.

 

[flanajb]

I agree with all of the posts. Whilst I feel HMRC are way off with their tax calculation, they are just applying the rules that they set out and whilst I can appeal, I don't think it will make a blind bit of difference.

I will wait and see what they come back with, but in the mean time I am going to discuss the matter with my employer.

There should also be a statement somewhere showing why this product was suitable for you, and that should cover the tax issues. Obviously your employer cannot be held responsible for changes in interest rates or the HMRC official rate, but somewhere it should have stated that the staff discount would be treated as a benefit in kind for tax purposes, and that you would be taxed on the difference between the rate offered by your employer and the HMRC official rate.

There is a statement in the T&C stating exactly that. My gripe is that although they mentioned that, they should have never offered the product as it was not tax efficient for a 40% employee to take out. How stupid was I to have thought my employer would only sell me a product that was beneficial!