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Loan charge election extended

HMRC has set out how it will use discretionary powers to accept late elections by taxpayers to spread their outstanding loan charge balance over three tax years.

27th Nov 2020
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The controversial loan charge is an Income Tax and National Insurance Contribution (NIC) fee applying to Disguised remuneration loans taken out since 9 December, 2010 and outstanding on 5 April, 2019. It was expected to bring in £3.2bn by forcing taxpayers who used loan-based avoidance schemes to pay tax on up to 20 years of income in one financial year. 

Following a review in late 2019, taxpayers had until September 30 to report their loans under Self-Assessment and pay the loan charge. However, the deadline, which was the same date for the revised loan charge tax return filing and payment, was missed by a sizable portion of taxpayers.

The government has said individuals who wish to make an election can do so, with HMRC confirming any late election made up to 31 December 2020 will be automatically accepted. 

Any elections made on or after 1 January, 2021 will not be accepted, except in limited circumstances where there are exceptional reasons for failing to make an election within the required time.

Affected taxpayers have been given approval to spread the amount of their outstanding balance evenly over three tax years (2018 to 2019, 2019 to 2020 and 2020 to 2021). This will give greater flexibility on when the outstanding loan balance is subject to tax and may mean that the loan balance is not subject to higher rates of tax, HMRC said. 

Accounting experts have previously warned that spreading the loan charge payments over three years does not necessarily benefit a taxpayer as much as it may seem.

The Low Incomes Tax Reform Group (LITRG) welcomed HMRC’s decision to allow late loan charge spreading elections, but warned of other barriers stopping people from meeting their loan charge obligations. HMRC must address these barriers to break the impasse, said the group.

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