Loan charge: Repayments of voluntary restitution
A new scheme allows HMRC to refund an amount that was settled 'voluntarily' to avoid the loan charge. In the first of two articles, Meredith McCammond gives a high-level overview of how it will work.
Voluntary restitution is when a person voluntarily pays amounts of tax or national insurance contributions (NICs) when HMRC is not able to recover those amounts. For example, when HMRC can’t raise an assessment for tax because the deadline for issuing one has passed.
As the loan charge originally had a lengthy look-back period (applying to loans made from 6 April 1999 to 5 April 2019), some people will have settled their tax affairs with HMRC by paying voluntary restitution so that they didn’t have to pay the loan charge.
However, following the Morse review, the loan charge no longer applies to certain older loans; therefore, there may be no need for taxpayers to pay such voluntary restitution.
HMRC introduced a scheme to refund (or waive) voluntary restitution payments paid (or due to be paid), arising from settlement agreements made on or after 16 March 2016. This scheme also applies to agreements made before 11 March 2020, in relation to loans made in unprotected years (for which HMRC had not taken action to protect its assessing position). These unprotected years include periods:
- prior to 9 December 2010, and
- between 9 December 2010 and 5 April 2016, where the scheme user made reasonable disclosure of their scheme but HMRC failed to take action, for example by opening an enquiry.
The scheme does not apply to loans made after 5 April 2016. The changes have been legislated for in Finance Act 2020
A refund/waiver under the scheme is not an automatic process and an application must be made.
LITRG understands that HMRC has written to every taxpayer who may be due a refund or waiver. They are being asked to complete and return an application form by 30 September 2021. If HMRC receives a form after this date, it won’t be able to refund or waive any of the amounts of voluntary restitution.
Taxpayers who haven’t heard from HMRC by 1 October 2020, who may be eligible for a refund or waiver, should contact HMRC on 03000 534 226 or email [email protected].
Following an application, HMRC will then send the taxpayer a repayment or waiver decision, which must be accepted within two months. If the taxpayer doesn’t meet this deadline, HMRC may terminate the application. Although it is unclear what the situation would be if someone had a 'reasonable excuse', for example.
If the taxpayer disagrees with HMRC's decision, they have two months in which to request a review. Although there is no formal right of appeal to the review decision, there should be other options, for example a complaint or judicial review.
Any refunds will include backdated interest.
People who already paid via the loan charge
Some taxpayers may have filed 2018/19 tax returns before the Morse review was released on 20 December 2019, containing loan income that is no longer caught by the loan charge. They may have even paid what was showing as owed. If so, how can they get a refund?
HMRC has confirmed that sending in an amended 2018/19 tax return is the best way to reverse the loan charge and/or get a refund for amounts already paid for loans that are no longer subject to the loan charge. We assume the normal 31 January 2021 date for amending 2018/19 returns applies.
Taxpayers do not need to wait for HMRC to prompt them or confirm that they can do this.
Taxpayers still in settlement process
Taxpayers who were in the process of settling for voluntary restitution payments, who paused settlement pending the outcome of the Morse review, no longer need to complete this process and HMRC should have written to them confirming as much.
The letters included the line, “If you still want to pay voluntary restitution, please tell us”, which we know will have raised a few eyebrows.
We understand the rationale for this is that although the loan charge may no longer apply to these loans, some customers may still prefer to settle and pay voluntary restitution in order to prevent any potential Part 7A steps arising in the future.
Meredith McCammond will look at this situation further in part two of this loan charge series.
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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...