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The loan charge review was published on 20 December 2019 and the Government’s response was published alongside it. We have set out our thoughts in our article Loan charge independent review – was it all worth it?
In this article, we set out the review’s recommendations and the Government’s response.
Loan charge review vs. Government response
|Loan charge review||Government response||ETC comments
|I therefore conclude that the LC should not apply to loans entered in to by either individuals or employers before 9thDecember 2010||The Government accepts this recommendation
While loans made before 9 December 2010 are removed from the scope of the Loan Charge, the underlying tax liability for loans made prior to this date remains. HMRC will continue to pursue those liabilities through enquiries and assessments, and where necessary through litigation. HMRC will publish updated settlement terms for all taxpayers in this position as set out above.
The Government will also invest in a new HMRC team to conclude enquiries and bring in the tax due from people who in the past have used DR schemes, and other forms of tax avoidance. This will ensure people who entered into DR avoidance schemes before 9 December 2010 still pay the tax due and make their contribution to funding public services. Further detail will be announced at the Budget.
|The Government has accepted the main recommendation that the LC should only apply from December 2010.
It is estimated that:
· around 15,000 individuals could be affected by this change;
· of which around 10,000 individuals could be taken out of paying the Loan Charge completely
It should be noted that for those who are under enquiry in respect of pre-2010 schemes then it appears HMRC will be upping their activity to resolve the position through settlement or litigation.
|I…recommend that taxpayers who made reasonable disclosure of their scheme usage, but for whom the relevant year is unprotected, should not have that unprotected year included in the scope of the LC||The Government also accepts these recommendations.
This means loans taken out between 9 December 2010 and 5 April 2016 will remain within the scope of the Loan Charge unless the user of the scheme disclosed full details of their avoidance scheme on their tax return, and HMRC failed to take action to protect its position, for example, by opening an enquiry.
|It is estimated by the Government that this could result in around 1,000 additional individuals being taken out of paying the Loan Charge completely.|
|HMRC should refund the Voluntary Restitution elements of settlements made since 2016 that were paid to settle Unprotected Years when the relevant loans were entered into:
a) prior to 9th December 2010; or
b) between 9th December 2010 and the start of the 2016-17 tax year, where the scheme user made reasonable disclosure of their scheme usage in their tax return
|The Government accepts this recommendation
“those who have already settled their tax liability have complied with their tax obligations under settlement terms designed on the basis of the Loan Charge applying to all years. These taxpayers should benefit from the decision not to apply the Loan Charge to unprotected years.”
As such, HMRC will repay Voluntary Restitution that has been paid by individuals and employers.
HMRC will set out guidance in due course for taxpayers on how HMRC will implement this recommendation. HMRC require legislation before they can repay part of the settlement. HMRC will process repayments once the relevant legislation has received Royal Assent.
|Of course, it makes sense that any amounts settled on the previously
It is not entirely clear why HMRC requires legislation before they can repay these amounts.
|Affected taxpayers should be able to ’unstack’ their outstanding loan balance, and elect to spread their balance over three years||The Government accepts this recommendation.
It is accepted that individuals may face paying tax at higher rates than they would have if they had paid the correct tax at the time or had taken advantage of the opportunity to settle.
HMRC will provide further guidance to taxpayers to help them establish whether they would benefit from this change.
|Spreading the amount over 3 years seems somewhat arbitrary. Clearly, one may still find oneself in the position that you will pay more tax under the loan charge than if one had paid the ‘correct’ amount of tax at the time.
It is estimated that around 21,000 individuals might benefit from this change.
|The extent to which the Loan Charge looks back to activity in earlier tax years dating back to 1999-2000, and the manner in which ongoing interest is charged on payment arrangements has given rise to concerns over how policy on interest is applied within the tax system. The Government should review future policy on interest rates within the tax system and report the results to Parliament by 31st July 2020||The Government accepts this recommendation and will provide further details in due course.||We agree that this is something that needs to be looked at and look forward to seeing the details when provided by the Government.|
|No individual in the scope of the LC should have to pay more than half of their disposable income in a single year and reasonable proportion of their liquid assets, and they should not be forced in to losing their house or existing pension pot, or being made bankrupt||The Government accepts this recommendation.
“there are safeguards in place to ensure taxpayers who are not able to pay tax when it falls due are not required to take on unmanageable payment terms. This includes offering time to pay arrangements which ensure that the taxpayer only pays what they can, when they can.”
The Review recommends that individuals subject to the Loan Charge should only be asked to pay up to half their disposable income each year and a reasonable proportion of their liquid assets.
No taxpayer will be forced to sell their main home to fund a Loan Charge or DR tax bill, and HMRC can confirm that, in line with normal practice, no one will have to release funds from their existing pension pots.
|Again, clarification in this area is helpful.|
|I recommend that anyone with income of less than £30k in the 2017/18 tax year should not have to pay HMRC for longer than 10 years of paying an instalment arrangement and should not pay more than half their disposable income in any given year||The Government has rejected this recommendation
“Allowing some Loan Charge liability to be written off would treat tax avoiders more favourably than other individuals with HMRC debts (including tax credit claimants), would reduce taxpayers’ incentive to pay off the debt, and would have unwelcome wider impacts that change how HMRC and those in debt interact.”
|It is not a surprise that the Government does not wish to write-off debts after 10 years.|
|HMRC should fund an external body to provide independent advice to lower income taxpayers who are discussing payment arrangements and debt collection with HMRC, including on potential suitability of an individual voluntary arrangement (IVA) or other arrangements||The Government will fund an external body to provide independent advice on options available to people who are unable to pay or are struggling with their debts.||This is a welcome development and we look forward to looking at the detail.|
|The Government should come forward urgently with a clear timetable for its response to this report…||This recommendation is accepted.
Those affected by Loan Charge and have not settled their LC affairs by 31 January 2020 need to file a tax return for the 2018-19 tax year including the outstanding loan balance.
they can choose to do this by either:
· the normal filing date of 31 January 2020 (giving their best estimate of their outstanding loan balance); or
· defer sending their tax return until no later than 30 September 2020.
|The review recommends that HMRC run a settlement opportunity in 2020, to allow any taxpayers outside the scope of the Loan Charge but with a liability arising from loan schemes to settle their tax affairs||The Government accepts this recommendation.
“Where the Loan Charge is no longer due as a result of changes set out in this response, but HMRC has protected its position and can recover the underlying tax, HMRC will continue to ensure tax is paid by pursuing the underlying tax liability where it is legally due.”
Further details are to follow.
|Again, we look forward to reviewing the details once these have been published.|
If you have any queries about this the loan charge review, or the loan charge in general, then please get in touch.