What the introduction of the Loan Charge means for accountants and their clients

Brought to you by Lifecycle

With the introduction of the 2019 Loan Charge high on the agenda, Lifecyle’s new accountants’ webinar on latest legacy tax avoidance scheme legislation and what it means for their clients is live and the one-hour session is free to watch.

It was reported last September that more than 1,000 people a day needed to settle their ‘disguised renumeration’ schemes before the deadline in order to avoid the charge. Figures show that just 24,000 of the estimated 50,000 taxpayers affected registered their interest in settling before the 30th September 2018 deadline, which means that some 26,000 didn’t.

Despite the deadlines, it’s important to remember that there are still options for clients to settle voluntarily, but time is running out.

Here we take a look at the background to the changes and what the introduction of the Loan Charge means for accountants and their clients.

In recent years, the Government and HMRC have identified a wide range of tax schemes and have introduced successive measures and policies to tackle historic tax avoidance.

These include creating the specialist Counter Avoidance Directorate (CAD) back in 2014, the same year that APNs and Follower Notices legislation were also introduced.

Whilst APNs, in particular, have been successful in recovering tax - over 80,000 have been issued, collecting over £4billion - other measures haven’t worked quite so well.

The 2019 Loan Charge is the Government’s latest, and arguably most effective, blunt instrument to enforce payment. And despite time running out to initiate the settlement process, HMRC is still encouraging people to do so.

The victory in the Rangers Football Club case has effectively, in the eyes of HMRC, proved that they were right all along. In addition, they have won the “moral argument” in that tax avoidance, whilst still not illegal, is against the spirit of the law.

In the Rangers case, the Supreme Court ruled in favour of HMRC in its fight with Rangers over the club's use of Employee Benefit Trusts (EBTs) - more than £47million was paid to players, managers and directors between 2001 and 2010 in these tax-free loans.

So, what does the Loan Charge mean? Basically, from 5th April 2019, it sets out to tax any ‘disguised renumeration’ loans – from the likes of EBTs and Employer-Financed Retirement Benefits Schemes (EFRBs) – that date back as far as 6th April 1999.

If action hasn’t been taken to ‘settle’ them before this date, the value of all outstanding loans will be treated as employment income, and employers will have to charge PAYE and NIC. This will create liabilities for both the company and, in some circumstances, the beneficiaries personally.

There will, of course, be some exceptions and there is also the vain hope of another Parliamentary review on the matter. However, this is unlikely to materially change the legislation.

For those companies that initiate a settlement of any tax, NIC and interest on existing loans prior to the introduction of the Loan Charge, it seems likely that HMRC will allow a reasonable period to conclude matters. Where settlements are reached but a company cannot pay in full, extended payment terms of up to 10 years are likely to be available. However, not all companies will be able to pay in full - or indeed, agree to a workable repayment plan - which will cause issues.

In this free one-hour CPD training webinar, Julien Irving and James Thompson - from Leonard Curtis Business Solutions Group – discuss the options for clients who can’t afford to pay and associated legal matters. Watch it here.

Become a member of the Lifecycle network here.

About the Lifecycle network

Lifecycle is a unique network for accountants - provided by the Leonard Curtis Business Solutions Group.

It provides member accountants with a comprehensive range of specialist services - and the expert support required - to improve their client offering at every stage of a business’ lifecycle. From company formation to cessation and all stages in between.

Lifecycle is free to join and also offers members many additional benefits. These include access to competitively priced Professional Indemnity insurance cover, a regular programme of free training and education and discounts on products and services relevant to their business and clients’ needs.

Services offered by Lifecycle include: Company secretarial and formationequity finance for SMEsdebt advisory for SMEspersonal debt advicecorporate restructuring, insolvency and cessationdebt finance for SMEscashflow maximisationproperty solutions and legal services.

For more information on Lifecycle click here.

By Chris O’Hara, tax expert and partner of Leonard Curtis Business Solutions Group - providers of the Lifecycle network