The Independent Review of the controversial “Disguised Remuneration Loan Charge” has been published, as has HMRC’s response to the recommendations. The Review concluded that, although some form of policy like the Loan Charge was necessary and was in the public interest, nonetheless the evidence “prompts serious questions about how proportionate the Loan Charge was in terms of its design and effect on individuals.” It made a number of recommendations aimed at removing some of the perceived unfairness of the Loan Charge, while preserving the principle that taxpayers should pay “the right amount of tax”. HMRC have undertaken to accept most of the recommendations.
The key changes are as follows:
- The Loan Charge will apply only to outstanding loans made on, or after, 9 December 2010
- The Loan Charge will not apply to outstanding loans made in any tax years before 6 April 2016 where the use of the scheme was fully disclosed to HMRC and HMRC did not take action (for example, by opening an enquiry)
- 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 the three tax years: 2018/19, 2019/20 and 2020/21. This will give greater flexibility on when the outstanding loan balance is subject to tax and may mean that the loan balance is not subject to higher rates of tax
- HMRC will refund voluntary payments (known as ‘voluntary restitution’) already made in order to prevent the Loan Charge arising which have been included in a settlement agreement reached since March 2016 (when the loan charge was announced) for any tax years where:
- the Loan Charge no longer applies (loans made before 9 December 2010) or
- loans were made before 6 April 2016, the avoidance scheme use was fully disclosed to HMRC and the department did not take action (for example, opening an enquiry)
HMRC will also afford additional flexibility over the way in which the Loan Charge is paid:
- If you do not have disposable assets and earn less than £50,000, HMRC will agree Time to Pay arrangements for a minimum of 5 years. If you earn less than £30,000, HMRC will agree a minimum of 7 years. If you need longer to pay, you will need to provide HMRC with detailed financial information. There is no maximum time limit for a Time to Pay arrangement
- In line with existing practice, if you need Time to Pay, you will normally pay no more than 50% of your disposable income
HMRC will publish draft legislation and more detailed guidance in the New Year. Meanwhile, if your self-assessment return for 2018/19 will include the Loan Charge, you can either:
- submit the return by 31 January 2020, giving your best estimate of the tax due (HMRC will not penalise you if the best estimate turns out to be incorrect), or
- file by 30 September 2020. If you defer filing in this way, HMRC will waive penalties for late filing and late payment, and 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.
If you are affected by these changes and would like more information, details may be found on HMRC’s website here. Alternatively, please get in touch with your usual BKL contact or use our enquiry form.