Categories
Disguised Remuneration Loan Charge

Loan charge update

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. 

Categories
Disguised Remuneration Loan Charge Tax Avoidance

Disguised Remuneration – Update

Loan Charge – Government Review

Groups who have been campaigning for the 2019 Loan Charge to be scrapped won a small victory last week. They secured an amendment to the Finance Bill which forces the government to review the loan charge legislation by 30 March 2019.

This does not remove or alter the loan charge, which comes into effect to on 5 April 2019, as the law was passed in 2017, with supplementary charges added in 2018. However, the requirement for a review, particularly of the apparently retrospective nature of the charge, has been welcomed by the professional bodies and contractor groups.

HMRC has estimated that around 50,000 people may have used loan schemes managed by offshore ‘umbrella’ companies. However, only around 25,500 individuals have come forward to agree a repayment schedule of the tax due.

The remaining taxpayers in that group will be subject to the loan charge from 5 April 2019 if they have not agreed a settlement with HMRC by that date. Those taxpayers do not have to pay all the tax due by 5 April 2019, but they must have an agreement in place to pay.

Where the taxpayer’s current annual income less than £50,000 and they are no longer using loan scheme or any tax avoidance arrangement, HMRC will offer a five-year instalment arrangement to pay the outstanding tax, on a ‘no questions asked’ basis. If the taxpayer needs longer than five years to pay, HMRC will consider the case on an individual basis.

Where HMRC accept an instalment arrangement, they will charge ‘forward interest’ – which is the normal interest rate plus 1%, with effect from 6 April 2019. The estimated forward interest, based on the progressively reducing balance after each instalment, will be included in the settlement amount.

It is imperative that the taxpayer makes the promised payments under the settlement in full and on time. If they default on the instalment arrangement made, the debt will be passed to HMRC’s Debt Management team, who are more rottweiler than pussycat – possibly not like this though!

HMRC originally set a deadline of 30 September 2018 for people to agree a settlement for loan charge liabilities, but they will still work with agents and taxpayers to come to an agreement even at this late stage.

Overview of the Loan Schemes and loan charge

Loan Charge FAQs

Categories
Disguised Remuneration Loan Charge Tax Avoidance

Disguised Remuneration – Avoidance

HMRC has updated the payment terms for settlement of disguised remuneration avoidance cases, which can be found on GOV.UK

Disguised remuneration tax avoidance schemes claim to avoid the need to pay Income Tax and National Insurance contributions. They normally involve a loan or other payment from a third-party which is unlikely to ever be repaid.

These schemes are used by employers and individuals. If they’re used by contractors, they’re often known as contractor loans.

If you’re in a disguised remuneration scheme, you should settle your tax affairs as soon as possible. If you don’t, the new loan charge announced at Budget 2016 will apply to all disguised remuneration loans outstanding on 5 April 2019.

Please contact us if you need help.