In the 2016 Budget, the Chancellor announced that there would be a “loan charge” on what the Treasury perceived were disguised remuneration schemes that were set up with the intention of avoiding a tax and NICs liability. These schemes could have been where an employer paid an employee indirectly through a third party such as an offshore Employee Benefits Trust, treating the money not as earnings but as a loan which was unlikely to be repaid. The effect of these arrangements was that the money was disguised from HMRC and in 2017 came the loan charge. The effect of this is that any outstanding loan made since April 1999 would be subject to a charge for tax and NICs. As such, tax and NICs would be due though employees could enter into a settlement agreement with HMRC to repay this over a period of time.
Employers were bought back into the loan charge as they are required to declare any unpaid loan if it was not declared by the 5th of April 2019. This is via the Full Payment Submission. Employees would them have this regarded as remuneration in the 2018/19 tax year. Though the reality is that few software providers have provided the facility for employers to declare it. Therefore, Employer Bulletin February 2019 reminded employers that they could use HMRC’s own Basic PAYE Tools (page 5).
The “2019 Loan Charge” was one of the subjects contained in a House of Lords document in December 2018 called “The Powers of HMRC: Treating Taxpayers Fairly”. In Chapter 4 it talked of the concern from taxpayers that would be negatively impacted by this charge back to 1999, emotionally and financially. It recommended 5 things:
- Taxpayers be excluded from the charge if they had previously disclosed participation in schemes
- HMRC urgently review loan charge cases where the only remaining consideration is the individual’s ability to pay
- HMRC establish a dedicated advice and support helpline for those affected by the loan charge
- HMRC makes a declaration “in a clear and accessible public statement” as soon as it begins investigating a potential tax avoidance scheme
- HMRC should notify a taxpayer that it is investigating what is perceived as a disguised remuneration scheme when the individual declares it on their tax return
The Global Payroll Association has received a number of queries from employers about the loan charge and was pleased to see the publication of new and softer guidance on the 14th of February 2019 to individuals that may be affected. This recognises that there may be considerable sums of money due as a result of the change in the law and clarifies that:
- It is never HMRC’s intention that someone subject to the loan charge will have to sell their main home to pay the charge
- Bankruptcy and insolvency are only “last resort” options
- Settlement of the loan charge does not mean the money has to be repaid all at once and there is no time limit over how long the additional tax and NICs can be repaid
- Telephone HMRC on 03000 534 226 or email resolution@hmrc.gsi.gov.uk for advice and support
We are pleased to see this softer guidance from HMRC and recommend that employers with individuals who may be affected contact HMRC as soon as possible. Remember that a loan charge will not arise for 2018/19 if the individual has agreed or is progressing towards settlement with HMRC but this must be before the end of the 2018/19 tax year.
In the 2016 Budget, the Chancellor announced that there would be a “loan charge” on what the Treasury perceived were disguised remuneration schemes that were set up with the intention of avoiding a tax and NICs liability. These schemes could have been where an employer paid an employee indirectly through a third party such as an offshore Employee Benefits Trust, treating the money not as earnings but as a loan which was unlikely to be repaid. The effect of these arrangements was that the money was disguised from HMRC and in 2017 came the loan charge. The effect of this is that any outstanding loan made since April 1999 would be subject to a charge for tax and NICs. As such, tax and NICs would be due though employees could enter into a settlement agreement with HMRC to repay this over a period of time.
Employers were bought back into the loan charge as they are required to declare any unpaid loan if it was not declared by the 5th of April 2019. This is via the Full Payment Submission. Employees would them have this regarded as remuneration in the 2018/19 tax year. Though the reality is that few software providers have provided the facility for employers to declare it. Therefore, Employer Bulletin February 2019 reminded employers that they could use HMRC’s own Basic PAYE Tools (page 5).
The “2019 Loan Charge” was one of the subjects contained in a House of Lords document in December 2018 called “The Powers of HMRC: Treating Taxpayers Fairly”. In Chapter 4 it talked of the concern from taxpayers that would be negatively impacted by this charge back to 1999, emotionally and financially. It recommended 5 things:
- Taxpayers be excluded from the charge if they had previously disclosed participation in schemes
- HMRC urgently review loan charge cases where the only remaining consideration is the individual’s ability to pay
- HMRC establish a dedicated advice and support helpline for those affected by the loan charge
- HMRC makes a declaration “in a clear and accessible public statement” as soon as it begins investigating a potential tax avoidance scheme
- HMRC should notify a taxpayer that it is investigating what is perceived as a disguised remuneration scheme when the individual declares it on their tax return
The Global Payroll Association has received a number of queries from employers about the loan charge and was pleased to see the publication of new and softer guidance on the 14th of February 2019 to individuals that may be affected. This recognises that there may be considerable sums of money due as a result of the change in the law and clarifies that:
- It is never HMRC’s intention that someone subject to the loan charge will have to sell their main home to pay the charge
- Bankruptcy and insolvency are only “last resort” options
- Settlement of the loan charge does not mean the money has to be repaid all at once and there is no time limit over how long the additional tax and NICs can be repaid
- Telephone HMRC on 03000 534 226 or email resolution@hmrc.gsi.gov.uk for advice and support
We are pleased to see this softer guidance from HMRC and recommend that employers with individuals who may be affected contact HMRC as soon as possible. Remember that a loan charge will not arise for 2018/19 if the individual has agreed or is progressing towards settlement with HMRC but this must be before the end of the 2018/19 tax year.