Technical Officer LITRG and Chartered Tax Adviser
Share this content

Five things for those facing the loan charge

Meredith McCammond looks at some of the main changes being made to the loan charge and clears up a few areas of confusion. 

18th Feb 2020
Technical Officer LITRG and Chartered Tax Adviser
Share this content
Cash
istock_marioguti_cp

Following the independent review of the loan charge by Sir Amyas Morse in December 2019, new guidance and draft legislation have now been published.

If you have clients who are facing the loan charge there are five important things to note:

1. The tax return deadline

Taxpayers can file their 2018/19 tax return and pay the loan charge and any other tax due (or arrange a payment plan) by 30 September 2020 (rather than by 31 January 2020), without penalty. This also applies to those settling or not paying the charge but with ‘loan charge’ issues, such as those whose charge now falls away following the review.

HMRC’s original guidance was not clear that this meant all tax (as opposed to just loan charge related tax), but HMRC has confirmed that they do, indeed, mean all tax. Taxpayers may, however, receive auto-generated interest charges and penalty notices, which can be dealt with by calling 03000 599110.

Taxpayers can also delay paying any payments on account for 2019/20 (or arrange a payment plan to do so) by 31 January 2021 without penalty (as opposed to 31 January 2020 and 31 July 2020).

2. Additional information form

Taxpayers facing the loan charge should make sure that they complete the additional information form on Gov.uk, if they have not done so already.

This form to report the loan is currently being updated and the new version will be available from April 2020 – the deadline for completion has been extended to 30 September 2020. Those who have previously completed it, do not need to amend it even though their loan charge liability may have now changed.

If taxpayers want to make the election to spread the loan charge (see below), they will need to do this via the additional information form.

3. Spreading provisions

Once taxpayers have taken into account the changes to the design of the loan charge (in terms of the removal of ‘unprotected’/fully disclosed years), taxpayers can, if they wish, make an irrevocable election to spread their remaining loan income over three years.

This means that rather than have all their outstanding loans treated as income in the 2018/19 tax year, they can have one third treated as income in 2018/19, a third in 2019/20 and a third in 2020/21.

This could save taxpayers money, especially if they are on a lower income and do not have any open enquiries/assessments (see below) as this may help them avoid paying higher rates of tax, triggering the HICBC, losing their personal allowance etc.

However, if the saving is significant it seems possible that HMRC might use enquiry or discovery powers to pursue the tax if it is able to (see ‘Double taxation’ below).

4. Time to pay

Where a taxpayer has ‘no other sources of wealth’ and they earn less than £50,000, they should be automatically entitled to a minimum of a five-year time to pay (TTP) plan. Where the taxpayer earns less than £30,000 the payment plan should be over a minimum of seven years. To discuss TTP plans with HMRC, call the loan charge helpline on 03000 599110.

We understand that if a taxpayer spreads their loan income and needs a TTP for all three years, they could get an ‘automatic’ deal for year 1, and then roll the charge for year 2 and year 3 into it, rather than get three separate ‘automatic’ deals. However, it may be possible to renegotiate the terms or extend the payment term at those points.

Note the ‘no other sources of wealth’ restriction does not apply to the ‘no questions asked’ payment arrangements for those settling. We asked HMRC whether this is an intended point of difference – it is, but in reality, (given ‘wealth’ wouldn’t include assets like a normal family car, etc), we would have thought the vast majority of people should have the same experience.

Bespoke payment plans are available based on an income and expenditure assessment (the form HMRC use is available gov.uk). Taxpayers should only be asked to pay up to half their disposable income each year and a reasonable proportion of their liquid assets (for example, savings or investments) unless they have very high levels of disposable income.

Interest (currently 3.25% per annum) will be payable on any TTPs made. If there is a change in the interest rate, strictly, it applies to TTPs. In practice, however, HMRC will not seek to rearrange the TTP, but will consider whether to seek further interest due at completion of the TTP. HMRC have informed us that where the amount is marginal, they will not pursue this additional interest.  

5. Double taxation

It is very important to note that even if taxpayers pay the loan charge, HMRC can continue with any open enquiry or assessment of earlier years. Although there should ultimately be no double taxation, if the amount agreed or assessed is higher than the loan charge this can mean that they end up having to pay the difference.

In order to get a better understanding of the developments, see the examples that we put together at the end of our recent LITRG article.

Replies (10)

Please login or register to join the discussion.

avatar
By petestar1969
19th Feb 2020 10:53

I need help with this for the only client I have left who got involved in a loan scheme.

Some time ago HMRC assessed his company (now ceased trading) to PAYE and Class 1 NIC alleging the amount he put through the loan scheme should have been salary through his company.

We agreed the amount due with HMRC last October and were ready to settle and pay the amount in one go (my client just wanted it done) by contract.

HMRC then contacted me and mentioned the upcoming review (Morse report) and that we may want to wait, which we did. My client was still happy to pay the whole amount but getting a few more months to pay with no extra interest, well why not?

The review made no difference to my client so the tax and NIC's are still due. I have contacted HMRC to say ask them to send out the settle by contract paperwork for the client to sign off and pay but so far, nothing!

Do I need to amend the 2018/19 self-assessment return I did in June last year? I would rather not. If I call the number in this article will they be helpful?

Any guidance/help would be appreciated.

Thanks

Thanks (0)
Replying to petestar1969:
avatar
By petestar1969
25th Feb 2020 13:30

Anyone?

Thanks (0)
avatar
By gordo
19th Feb 2020 12:01

‪So Meredith, actually the 3 year spreading of the loan charge is a trap for the unwary. It achieves nothing, indeed it can leave people in an even worse position than settlement now. So the unwary & unrepresented will ultimately feel tricked by the Loan Charge Review.‬

Thanks (0)
avatar
By Moo
20th Feb 2020 09:27

Interesting though the intricacies of the HMRC loan charge arrangements are I would just like to add a note of sympathy/caution for the naïve punters who entered into some of the EBT arrangements, often with offshore schemers in foreign jurisdictions.
The whole point of the 'loans' is that they were (at least on paper) loans and therefore repayable.
Some people, having settled the UK tax with HMRC, are now facing the very real prospect of having the EBT trustees assigning the loan to a third party who then ask for the loan to be repaid.
Has anyone out there seen this happening yet in practice? Is there a source of legal advice that can be recommended to people in this situation?

Thanks (0)
Replying to Moo:
avatar
By Justin Bryant
20th Feb 2020 09:59

They need to contact the trustee’s regulator to block this transfer before it happens and warn the solicitors that they are potentially assisting with a breach of trust and will be reported to the SRA if they continue with it. See also:

https://wttconsulting.co.uk/%EF%BB%BFwtt-statement-on-iq-consultants-iq-...

https://www.etctax.co.uk/felicitas-solutions-fs-capital-letter-calling-i...

Thanks (0)
Replying to Justin Bryant:
avatar
By Moo
20th Feb 2020 10:21

Thank you Justin, very helpful.
Our client has indeed been approached by Felicitas but he has also received a letter (apparently unsigned) from the trustees confirming assignment of the loan.
The trustees are based in IOM and the notice from Felicitas is from their IOM branch.

Thanks (0)
Replying to Moo:
avatar
By Justin Bryant
20th Feb 2020 10:39

The whole thing sounds totally dodgy to me and should be reported to the trustee's regulator in IoM and also the SRA (if no redress is had from the trustee or the English law firm acting for the alleged new creditor).

I expect there may be a group action you can join to sue the trustee for breach of trust.

Thanks (0)
Replying to Moo:
avatar
By petestar1969
27th Feb 2020 09:30

One of my clients used an offshore trust via Guernsey about 4 years ago and has been called by someone in Guernsey trying to get him to pay back his loan. He was lucky, HMRC never tumbled the loan scheme or enquired into his personal or company tax affairs so I don't want to rock the boat.

Thanks (0)
avatar
By Christine Marsh
20th Feb 2020 15:43

What happens to those who dispute they were paid under the loan charge? Client received notification from HMRC in November 18 that they believed he'd been paid under the disguised remuneration loan charge scheme in 2015, which we've disputed as client claims he was paid under PAYE. However, client was unable to provide payslips as they were sent electronically and stored 'on the phone' which has subsequently been replaced. Contractor has ceased trading. We provided all bank statements showing receipts, which were under the threshold for the tax year. We received a holding letter from HMRC in October 19 advising there would be a review, but nothing has been received since - presumably just await HMRC, unless anyone else has experience and advice on this?

Thanks (0)
Replying to Christine Marsh:
avatar
By Rammstein1
20th Feb 2020 16:38

Christine Marsh wrote:

We provided all bank statements showing receipts, which were under the threshold for the tax year. ?

Under the threshold for what if you don't mind me asking?

Thanks (0)