With HMRC now adopting a tougher stance in reaching settlements with affected taxpayers, the controversy over the loan charge is set to continue.
The loan charge has caused much controversy since its introduction in the 2016 Budget. Its intention was to ‘capture’ and tax all outstanding disguised renumeration loans which remained outstanding on 5 April 2019. It was the backstop alternative for those recalcitrant taxpayers who had received loans but had chosen not to either repay them or reach settlement with HMRC before the 5 April 2019 deadline.
Its original scope was reduced following the Amyas Morse report in December 2019, after a public outcry that the proposed charge was draconian, but it remained very much the ‘stick’ to the settlement ‘carrot’ which HMRC was then promoting.
The 5 April 2019 deadline date was extended to 30 September 2020 to enable those individuals in discussions with HMRC to finalise their settlements. This was also the extended 2018/19 return filing date for those individuals who had not reached settlement with HMRC to report the loan charge and apply for the concessionary three-year spreading election, if required.
Fast forward and we are now seeing HMRC apply the loan charge ‘stick’. We are seeing the practical impact of this in two areas of HMRC activity.
First, new settlement discussions with HMRC in relation to historic disguised renumeration loans are now based upon the loan charge taking precedence in settlement calculations. This results in a higher liability than the previous settlement method of calculating the liability by reference to the tax year when the loans were made, where there is more than one tax year involved. The option to spread the loan charge is no longer available, which further increases the immediate liability. As if that wasn’t enough, the situation is exacerbated by the fact HMRC appears, from recent communications with inspectors dealing with these settlements, to be looking to charge penalties in some cases. A triple whammy.
The second area HMRC is examining relates to failure by individuals to report the loan charge on their 2018/19 tax returns. Where the HMRC enquiry confirms the loan charge should have been reported, a similar situation occurs. Once again, the spreading option date has passed, and HMRC is including questions aimed at establishing whether a penalty position arises for submission of an inaccurate return.
This serves as a warning for those who have not settled or reported the loan charge that a nasty and costly surprise may await, so they would be well advised to speak with an appropriately qualified tax specialist as soon as possible.
On the subject of loan charge dates and deadlines, the deadline date to apply to HMRC for a refund or waiver under the disguised renumeration repayment scheme 2020 is 30 September 2021.
With HMRC now adopting a tougher stance in reaching settlements with affected taxpayers, the controversy over the loan charge is set to continue.
The loan charge has caused much controversy since its introduction in the 2016 Budget. Its intention was to ‘capture’ and tax all outstanding disguised renumeration loans which remained outstanding on 5 April 2019. It was the backstop alternative for those recalcitrant taxpayers who had received loans but had chosen not to either repay them or reach settlement with HMRC before the 5 April 2019 deadline.
Its original scope was reduced following the Amyas Morse report in December 2019, after a public outcry that the proposed charge was draconian, but it remained very much the ‘stick’ to the settlement ‘carrot’ which HMRC was then promoting.
The 5 April 2019 deadline date was extended to 30 September 2020 to enable those individuals in discussions with HMRC to finalise their settlements. This was also the extended 2018/19 return filing date for those individuals who had not reached settlement with HMRC to report the loan charge and apply for the concessionary three-year spreading election, if required.
Fast forward and we are now seeing HMRC apply the loan charge ‘stick’. We are seeing the practical impact of this in two areas of HMRC activity.
First, new settlement discussions with HMRC in relation to historic disguised renumeration loans are now based upon the loan charge taking precedence in settlement calculations. This results in a higher liability than the previous settlement method of calculating the liability by reference to the tax year when the loans were made, where there is more than one tax year involved. The option to spread the loan charge is no longer available, which further increases the immediate liability. As if that wasn’t enough, the situation is exacerbated by the fact HMRC appears, from recent communications with inspectors dealing with these settlements, to be looking to charge penalties in some cases. A triple whammy.
The second area HMRC is examining relates to failure by individuals to report the loan charge on their 2018/19 tax returns. Where the HMRC enquiry confirms the loan charge should have been reported, a similar situation occurs. Once again, the spreading option date has passed, and HMRC is including questions aimed at establishing whether a penalty position arises for submission of an inaccurate return.
This serves as a warning for those who have not settled or reported the loan charge that a nasty and costly surprise may await, so they would be well advised to speak with an appropriately qualified tax specialist as soon as possible.
On the subject of loan charge dates and deadlines, the deadline date to apply to HMRC for a refund or waiver under the disguised renumeration repayment scheme 2020 is 30 September 2021.
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