Loan charge reporting requirements: What you need to know
Meredith McCammond clarifies the loan charge reporting and payment requirements and highlights 4 July 2019 as an extremely important date for those whose employer is still in existence.
The loan charge is upon us. What taxpayers need to do now, and the deadlines that apply, differ depending on the type of arrangements they were using. The main HMRC guidance can be found on GOV.UK; however, for clarification, I have set out some of the main dates and considerations for each of the scenarios.
Employment based schemes
Employer is in UK or in existence: Outstanding loan amounts should have been declared by employers via their RTI returns, based on amounts notified to them by employees or third parties by 15 April 2019 at the latest.
The income tax, NIC and student loan repayment amounts due should have been paid by the employer by 22 April 2019.
Assuming the employer has funded the liabilities in the first instance, the employee must ‘make good’ the amount of tax to their employer by 5 July 2019 in accordance with ITEPA 2003 s 222. If this isn’t done, a benefit in kind (BIK) tax liability will be created on the employee via a 2018/19 P11D.
No doubt people would rather incur a BIK tax liability rather than repaying the amount in full to their employers. However, there are two instances where great care is needed:
- Where some, but not all, of the tax has been made good to the employer. As ITEPA 2003 s 222 is an ‘all or nothing’ provision, theoretically an employee could end up paying back some or most of their liability but also face a BIK tax liability on the full amount, as if they had made no such payment.
- Where the employer cannot afford to pay. The tax liability could get transferred to the employee under Reg 81(4) of the PAYE Regulations. Even though the employee will end up paying all the tax themselves, they will still incur an ITEPA 2003 s222 charge. This is because the legislation hinges on what the employer was liable ‘to account’ for even if it wasn’t ever paid over.
There is a workaround if individuals want to avoid such harsh outcomes – but they don’t have much time. HMRC says that provided an individual tells them by 4 July 2019 that they want to pay the loan charge tax direct to them rather than by ‘making good’ to their employer, ITEPA 2003 s222 won’t apply. HMRC will also refund anything the employer has paid over.
If individuals want to pay the tax direct to HMRC, they must contact [email protected] or telephone 03000 599110 by 4 July 2019 to make such an agreement.
Employer is offshore or not in existence: Individuals must report any outstanding loans to HMRC by 30 September 2019. There is an online service available to do this. A paper version of the form is available from HMRC for those who need one.
If people do not report details of their outstanding loans to HMRC by 30 September 2019, or the information is not complete and correct, they may be liable to penalties. However, LITRG understands that these will only be charged in the most serious cases.
Separately, individuals must also include the amount of the outstanding loans in their 2018/19 tax return. The total of outstanding loans should be reported in the SA101 Additional information supplementary pages, box 21 (on the paper form).
Some individuals will need to register for self assessment by 5 October 2019 to do this.
The normal 31 October 2019 or 31 January 2020 submission and payment deadlines apply. It is important to remember that as the loan charge is a one-off charge, a claim may need to be made to reduce the Payments on Account on the tax return.
Most of those on lower incomes caught up in loan arrangements were agency workers or contractors who were in employment-based umbrella company loan arrangements where the employer was offshore and or no longer exists. More detailed guidance for these taxpayers will be posted to the LITRG website shortly.
The same basic process applies here as for those directly above.
However, individuals (where they are still trading) should include outstanding loan amounts from trade-based schemes on the SA103 Self Employment supplementary pages as ‘disguised remuneration additions to profits’ (box 75.1 – paper form).
For those whose trade has ceased, boxes 22, 23 or 24 in the SA101 Additional information supplementary pages should be completed at appropriate.
Those in trade-based schemes will need to elect for any APNs to be set against the loan charge liability – further guidance on offsetting of APN’s is expected from HMRC in due course.
As a key point, it is vital individuals complete and submit a tax return even if they do not think they will be able to pay what they owe. Otherwise, they will be liable for failure to notify or late filing penalties, on top of the loan charge.
Difficulty in paying
With regards to hardship, anyone who believes they will have difficulty paying what they owe should contact HMRC to agree on a manageable payment plan. What they agree will depend on an individual’s circumstances and there is no upper time limit on how long payments can potentially be spread.
If things are left until after the 31 January 2020 payment deadline, individuals may have to talk with HMRC’s debt management team directly about next steps. An earlier HMRC publication sets out their position on insolvency and having to sell the main home to pay the loan charge.
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Meredith McCammond is a Technical Officer for LITRG and Chartered Tax Adviser, formerly in practice. LITRG is an initiative of the Chartered Institute of Taxation which is a charity. Since1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated...