April 2019 loan charge: HMRC’s curious intervention on EDM1239
For those of you who:
• buy a newspaper;
• that newspaper is The Times; and
• if you managed to get to the outer most limits of the Money section
then you might have seen I was quoted in respect of some developments in respect of the Loan Charge.
‘Batten down the hatches’ I hear you say, he’s back atop his soapbox.
I understand that. There’ve been quite a few updates on this blog dedicated to the pernicious April 2019 loan charge and you might have battle fatigue.
As you will be aware, the MP Stephen Lloyd has blazed a trail in Parliament on this issue tabling Early Day Motion 1239. This at the time of writing, has 79 signatures.
However, a recent development which caused me to put pen to paper was a letter sent by the Chief Executive of HMRC, Jon Thompson, to the signatories of this letter ‘explaining’ the background to the charge.
Some might say that those responsible for administering the law really has no place in advising the law-making body on the finer points of their own legislation.
However, as I’ve been telling Carol Lewis, The Times’ Deputy Personal Finance Editor, I think that Mr Thompson has made factual error in his letter.
As such, I felt it appropriate to write to these MP’s with my understanding of the law.
To be clear, I do not advocate these schemes or have any problem in HMRC attempting to prevent their use. However, I have been in tax since 1999 (which neatly dovetails with how backward facing this legislation is). Throughout my entire career, the Courts and HMRC have been grappling with the various tax consequences of this type of scheme. Only last year, with Rangers, did we have a clear principle emerging that contributions to such trusts were earnings before they were paid to the trust and subject to PAYE.
Through this prism, how can taxpayers be expected to understand the position.
Further, the April 2019 loan charge does not even attempt to put this on a statutory footing. In fact, there is a feeling that HMRC are inconvenienced by Rangers. Instead, the April 2019 loan charge taxes the full value of the outstanding loan as if it was income arising on 5 April 2019. Secondly, it also transfers the liability to the employee – despite the fact that Rangers was quite clear it was the employer’s responsibility.
HMRC’s intervention in the 2019 Loan Charge
I don’t propose to reproduce the contents of my letter here. However, a number of people have asked to see it and, as such, you will find at the end of this blog there is a link to it.
I am quite happy to hear comments on its content and people may use its contents if they wish (though would be interested to hear for what purpose!)
In summary, my key points are:
1. Retrospectivity of the provisions:
a. Our view is that a case can be made they are technically retrospective;
b. In any event, they are ‘in spirit’ retrospective. Just because they have, by contrived means, created a ‘new source of income’ deemed to arise in a future period does not affect this; and
c. Retrospectivity is not unlawful in tax legislation but there are increased checks and balances
2. HMRC has not proven in Court that this type of loan is subject to tax. The Rangers case came to quite a different conclusion and previous case law has found time and time again such loans are not taxable.
3. The body of case law has found that these loans are typically genuine loans.
4. The legislation is being introduced to as a response to HMRC, the legislator and the Courts inability to get to grips with these arrangements at the (significant) expense of the taxpayer.
Fairness would dictate that these provisions should merely apply from Royal Assent. However, HMRC will not, in the age of ‘maximising tax revenues’, allow their £3.2bn to slip through their fingers. The collateral damage does not seemingly matter.
As such, I do not hold my breath.
The Promoters and the April 2019 loan charge
In a further twist, I now see that the Trustees of these schemes are pointing out to their borrowers that even where (i) the settlement is reached with HMRC; or (ii) the loan charge is taken on the chin then they will have to release the loan.
Clearly, as they are Trustees acting for the benefit of the Borrowers they will release / write off the loans without any fuss.
Of course not.
They are charging 5% of the outstanding loan!!!
In my view, this is reprehensible behaviour. If you have received a letter or advice to this affect then please get in touch.
Enterprise Tax Consultants can advise on the April 2019 loan charge.
If you would like to read more about the wider implications of Disguised Remuneration and the April 2019 loan charge
If you are affected by the April 2019 loan charge then please do not hesitate to get in touch.
Read More about the 2019 Loan Charge…