Loan Charge Review – Summary of Revised Payment Terms (etc)

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Loan Charge Review — A Summary of Compliance & Payment Terms

As part of the now completed loan charge review, the government has announced several revisions following the recommendations of Sir Amyas Morse. This article focuses on how these recommendations have affected the loan charge payment terms.

Changes to the Loan Charge

The review proposed significant suggestions to the loan charge. The following were accepted by the Government:

  • That the loan charge should only apply to outstanding loans made on, or after, 9 December 2010;
  • the loan charge will not apply to loans made after this date and before 6 April 2016 where full disclosure was made to HMRC and HMRC did not take any action by, say, opening an enquiry

‘Unstacking’ of the loan charge

One of the many criticisms of the loan charge was that it resulted in all of the loans that may have been taken over several years forming one dollop of income in the 2018/19 tax year. This could easily lead to a higher tax liability than would have been the case had tax been paid on the loans as they were made.

As a result of the loan charge review’s recommendations, people can now elect to spread the amount of their outstanding loan balance (as at 5 April 2019, recalculated in line with the above changes) evenly across 3 tax years.

The years over which payments could be spread will be:

  • 2018/2019;
  • 2019/2020; and
  • 2020/2021.

Of course, this provides greater flexibility and will address many, but not all, cases where the result of stacking has resulted in a higher liability.

There is also the question of whether a taxpayer who has decided to spread his or her payments over the three years will continue to be pursued for tax liabilities that remain under enquiry by HMRC.

Refund of Voluntary Restitution Payments

Generally speaking, to enter in to a settlement with HMRC, one needed to agree to make payments for tax liabilities which HMRC were no longer ‘in time’ to raise an assessment.

These were termed voluntary payments – albeit they were mandatory voluntary payments if one wanted to settle!

Quite rightfully, HMRC will refund voluntary payments where settlement has been previously agreed for any tax years where loans:

  • were made before 9 December 2010 such that the LC does not apply at all; or
  • were made on or after 9 December but before 6 April 2016 and the avoidance scheme was fully disclosed to HMRC etc

We are told that HMRC will not process any refunds until changes to the loan charge legislation have been enacted by Parliament. It is unclear as to why this is the case as the settlement terms under which HMRC had actually accepted these funds did not have to be set out in any legislation at all.

Tax returns

Individuals who:

  • have not filed their tax return;
  • agreed a settlement with HMRC

will still need to file a tax return for the 2018 / 2019 tax year.

This can be done by the usual 31 January 2020. If this option is chosen then one must give a best estimate of the tax due.

Alternatively, one can now file by 30 September 2020 at the latest. 

If the latter option is taken then HMRC will waive penalties for late filing, late payment and inaccuracies in respect of the loan charge entries in these returns.

Further, late payment interest will not be payable for the period 1 February 2020 to 30 September 2020, as long as a return is filed, and tax paid or an arrangement made with HMRC to do so, by 30 September 2020.

Please see our main article on the loan charge independent review – was it all worth it?

If you have any queries about this article then please do not hesitate to get in touch.

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