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How to not pay the 2019 loan charge

8th Mar 2019
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HMRC director-general Ruth Stanier has written to the loan charge APPG providing further details on how taxpayers can settle existing tax bills to avoid paying the 2019 loan charge.

This letter and accompanying schedules were provided by HMRC as a substitute for appearing before the loan charge all-party parliamentary group (APPG) to answer questions from MPs on 5 March 2019. Both Mel Stride, financial secretary to the Treasury, and Ruth Stanier were invited to appear but declined to do so.

Reason for the charge

The whole point of the 2019 loan charge legislation is to provide an incentive for taxpayers to settle the tax they owe on outstanding loans, which are now treated as income, before the loan charge comes into effect on 5 April 2019. It’s one of those “big stick” charges which is supposed to change taxpayers’ behaviour rather than to collect tax. However, the threat of higher charges compared to the actual historic tax due has to be real or taxpayers won’t take any action.

As Meredith McCammond explained in her guide to what to expect from the loan charge, most people will be better off settling the tax due on their outstanding loans at the historic tax rates, rather than paying the 2019 loan charge which taxes all loans as income in one lump at the 2018/19 tax rates and bands.

Dates for settlement

HMRC has published many deadlines by which taxpayers were urged to agree a settlement of the tax due on outstanding loans. As those deadlines have passed HMRC has always provided a later date to come forward.

The final immovable deadline is 5 April 2019, by which taxpayers need to approach HMRC with a genuine intention to settle. This appears to be a softening of the previous guidance, which demanded that taxpayers provide all the necessary settlement information to HMRC by 5 April 2019 at the very latest.

The period for paying the tax due on the outstanding loans (now income) has also been relaxed. In November 2017, HMRC said all liabilities had to be settled before 5 April 2019 but its updated guidance issued on 4 February 2019 says that those with current annual income (excluding the old loans) of less than £50,000 will automatically be offered a period of up to seven years over which to pay the tax debt.

Paying the loan charge

Where a taxpayer misses the 5 April 2019 deadline to start the settlement process, the 2019 loan charge becomes due. In appendix 1 to Stanier’s letter, she sets out the key dates for taxpayers and their employers to report and pay the loan charge.

The individual taxpayer must complete an information return setting out their loan balance by 30 September 2019. They must pay the loan charge by 31 January 2020 and file their 2018/19 tax return by that date, although time to be pay arrangements will be available.

Where the employer who provided the loan still exists, the employer needs to pay PAYE on the outstanding loan by 22 April 2019 and report the amounts due under RTI.

Loan charge review

In January Ed Davey MP celebrated a small success when he secured a change to FA 2019, which requires HM Treasury to review the effects of the 2019 loan charge and report to parliament by 30 March 2019.

However, it emerged last week that this review would be limited to a report by HMRC covering the issue of time limits for tax enquiries and disguised remuneration schemes. The review would not examine the human impact of the 2019 loan charge nor result in any change in the law.

Enormous stress

In the meantime, the enormous stress of having to meet a huge tax debt is tragically driving some individuals to take their own lives. Phil Manley, partner at advisory firm DSW, who deals with many taxpayers in this position, has raised the cases of several suicides and has talked several other clients back from the brink.

Manley notes that HMRC had promised to set up a helpline to assist those who are struggling with payment of tax on loans they received in the past, but this helpline has never been put in place. He said, “The human suffering inflicted by this retrospective legislation cannot be understated.”

“Many of my clients are on strong antidepressants purely due to the stress and uncertainty imposed on them by HMRC and the 2019 loan charge. A large number of the loan charge victims are afraid they will not be able to work again in their current sectors due to county court judgements and bankruptcy looming.”

Replies (11)

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By Justin Bryant
11th Mar 2019 09:37

The title is a bit misleading as this merely explains how you can capitulate to HMRC. What about this. Taxpayer borrows cash from his company and repays the loan to the EBT trustees before 6.4.19. Taxpayer then sells his company shares to the EBT for more or less the same value (on arm's length terms of course), so he can then repay his company loan (and avoid a s455 charge). OK, there is CGT (share sale can be done post 5.4.19 to delay CGT one year), but possibly ER will apply etc. and it's better than doing nothing.

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By Rebecca Cave
11th Mar 2019 11:18

I should have mentioned in the article that repaying the original loans would mean the loan charge was not payable, and HMRC do make this clear in their guidance.
However, for many taxpayers the cash is not available (either personally or in thier companies) to repay the original loans.

Also, HMRC's Spotlight 48 also warns about paying to obtaining a "deed of release".

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By AmandaElliott
11th Mar 2019 10:08

This is all as clear as mud - how can tax be due both under PAYE and through self assessment? Or is it the case that the SA return will include the ability to show PAYE deducted?

As usual HMRC has cobbled together a ‘system’ to get as much tax as possible without clear assessment of what is due.

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By David12345
11th Mar 2019 10:13

It was former HMRC employees that were actively promoting these schemes , promoted by large practitioners, with the tacit approval of their ex colleagues still within the employ of HMRC. Surprise surprise it’s now ex HMRC employees , working for large practitioners, who are now “helping” people out of the mess , that HMRC were fully aware of and tacitly approved , with help from colleagues still within the employ of the HMRC. A total utter farcical none sense!!!

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Tony Granger
By TonyGranger
11th Mar 2019 10:22

We another solution. Please PM for more details.

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Replying to TonyGranger:
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By AnnAccountant
11th Mar 2019 14:21

Why have you edited your post, Tony? Are you worried that you gave away too much when you said you know lenders prepared to fund repayment of the loans? Is your proposal really so genius that you have to keep it on "PM only"?

I can't be bothered to make any other comments on your idea.

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By justsotax
11th Mar 2019 10:54

is this the ultimate "when is a loan not a loan...when its an EBT loan"....

Also the ultimate in our society of taking no personal responsibility - I include within this the scheme providers who have blood on their hands!

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Replying to justsotax:
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By Exfoliate
11th Mar 2019 17:11

Loan or not a loan. Simple, is there 'reasonable' security? is there 'reasonable' interest charged? is there 'reasonable' payment of interest? and is there 'reasonable'capital repayment? Shouldn't matter whether it's a loan from an EBT, any other trust, a company or an individual.

HMRC appear incapable of answering what must be a rather simple set of questions. Scam loans are clearly not loans, genuine loans clearly are so what's the big issue HMRC feel they can't answer I wonder.

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Replying to justsotax:
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By Exfoliate
11th Mar 2019 17:11

Loan or not a loan. Simple, is there 'reasonable' security? is there 'reasonable' interest charged? is there 'reasonable' payment of interest? and is there 'reasonable'capital repayment? Shouldn't matter whether it's a loan from an EBT, any other trust, a company or an individual.

HMRC appear incapable of answering what must be a rather simple set of questions. Scam loans are clearly not loans, genuine loans clearly are so what's the big issue HMRC feel they can't answer I wonder.

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By Exfoliate
11th Mar 2019 16:12

Rebecca, you say repaying the loans would mean the loan charge was not payable and HMRC make this clear in their guidelines.

What about where the loan was made by the EBT to a subsidiary of the settlor on commercial terms and the subsidiary then used those funds to acquire a business property, which it rents out and pays interest to the EBT, but cannot sell the property to repay the loan in cash prior to 5/4/2019.

The subsidiary is quite happy to repay the loan by selling the EBT the property however. But that's not repaying in cash.

HMRC's position is its a loan charge as the subsidiary is 'connected' to the owner/directors and hasn't repaid the loan in cash.

Is this a first where HMRC charge paye on a commercial loan by an EBT to a company ?

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By Ian McTernan CTA
12th Mar 2019 14:10

I do think the promoters of these schemes should be made responsible, chased and made bankrupt to help pay for the mess they have left behind (probably now sitting on a beach somewhere...).

I'm guessing trying to claim against their non-existent PI cover after all this time isn't going to fly...

And of course, let's not forget the people who took advantage of these schemes with the full knowledge they weren't paying tax on their income and thought that was OK.

I've very little sympathy for people caught in this. Like many of these types of schemes, they are designed to make the promoters rich whilst leaving the suckers (oops, I meant to say 'their clients') to pick up the pieces down the line.

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