How to not pay the 2019 loan charge
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.
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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.”
Consulting tax editor for Accountingweb.co.uk. I also edit Bloomsbury's Tax Rates and Tables and write newsletters for other publishers.