The introduction of the loan charge and its implementation has been controversial and many people see it as deeply unjust and unfair law.
Following an independent view by Amyas Morse, HMRC has comprised on both the scope of the charge and payment terms and issued revise guidance, which can be read here.
Now where the loan was taken out before 9 December 2010 the loan charge will not apply.
Where a settlement agreement in respect of a pre 9 December 2010 arrangement has already been made and the charge does not now apply the tax paid will be refunded. However HMRC will not be able to process refunds until these changes have become law, expected in September this year. Until that time if the agreement resulted in the tax being paid in instalments those instalments are to continue to be paid.
However, if the taxpayer’s affairs for those years are under investigation, subject to an APN, or a settlement is being negotiated, those tax collection procedures will continue, with a recalculation of the tax due.
Loans taken out from 10 December 2010 to 5 April 2016 will not be subject to the loan charge if the taxpayer fully disclosed the use of the loan scheme, and HMRC failed to take action as a result of that disclosure. Where HMRC did open an enquiry or take some other action to collect the tax, that action will continue to its conclusion.
What “full disclosure” means will be defined in future legislation. HMRC say the taxpayer should have provided all necessary information on the appropriate tax return to allow a tax officer to identify the nature of the loan arrangement, and to conclude that an income tax liability arose in respect of that loan.
Loans which were taken out on or after 6 April 2016 and which were outstanding on 5 April 2019 remain within the loan charge. Those taxpayers will have to pay the loan charge for 2018/19 and declare it on their Self Assessment 2018/19 tax returns.
Individual taxpayers who are subject to the loan charge can now spread the charge over three tax years: 2018/19 to 2020/21. This means the loans assessed as income may not push the taxpayer into the highest tax bands for those years.
The government will introduce legislation to implement the changes to the loan charge. Draft legislation and more detailed guidance will be published in early 2020, alongside a timetable for implementing the changes.