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HMRC Releases Final Guidance On Loan Charge Review

by Jason Gorringe,, London

02 December 2019

The UK tax agency HM Revenue and Customs (HMRC) has released guidance for taxpayers affected by the Loan Charge.

The Loan Charge applies to individuals who have directly entered into disguised remuneration schemes. Specifically, it is intended to bring within the charge to tax tax-avoidance arrangements that enabled users to avoid income tax and national insurance contributions by taking salaries in the form of a loan. In reality, this loan would never be paid back.

Amid concerns from lobby groups and lawmakers as to whether the charge is lawful, the Government commissioned an independent review of the loan charge in September 2019. The review was due to conclude in mid-November. However, parliament was dissolved on November 6, 2019, ahead of the general election on December 12, 2019. A decision will not be made until after the election.

The Loan Charge

The Loan Charge came into effect on April 5, 2019, and applies to all loans made since April 6, 1999, if they are still outstanding on April 5, 2019, and the recipient has not settled the tax due.

For those struggling to pay the tax due, there are no time limits on how long payments can be spread out, and each case is considered on individual circumstances. Those no longer involved in tax avoidance and whose current year taxable income is less than GBP50,000 (USD64,270) won't have to provide detailed supporting information about their income and assets and will automatically be able to spread their payments over five years, and over seven years if their income is less than GBP30,000.

New guidance

In its new guidance - titled Disguised remuneration: Loan charge review - HMRC has underscored that the loan charge remains in operation and taxpayers should continue to meet their legal obligations. This includes reporting the loan charge on their tax return by January 31, 2020. HMRC has advised taxpayers that if their liability to the loan charge changes as a result of the Government's response to the review, taxpayers may amend their tax return for 2018/19.

HMRC's guidance is intended to clarify rules for those who:

  • have already settled their disguised remuneration loan scheme use and paid the amount they owe in full;
  • have settled their disguised remuneration loan scheme use but paying in installments;
  • are waiting to finalize their settlement with HMRC and provided all the required information by April 5, 2019; or
  • have not settled their disguised remuneration loan scheme use and will be subject to the loan charge.

Further, it includes guidance on Accelerated Payment Notices, compliance activity, and litigation.

For those who have yet to agree a settlement but have made a disclosure, HMRC said:

"HMRC recognise you may want to wait for the government's response to the review before finalising your settlement. You will need to report the loan charge on your tax return if your settlement is not finalised by January 31, 2020. Reporting your loan charge will not prevent you finalising your settlement. Once your settlement is finalised you can amend your tax return if necessary."

"If you choose to settle, HMRC will continue its existing practice of not charging statutory late payment interest from October 1, 2018, or, if later, the month in which you provided the required information to HMRC."

HMRC said it will update its guidance on the charge once the new government responds to the findings of the review.

TAGS: individuals | compliance | tax | tax avoidance | interest | law | insurance | insurance tax | United Kingdom | HM Revenue and Customs (HMRC) | HM Revenue and Customs (HMRC)

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