[UK]  Independent Review of the Loan Charge [UK]  Independent Review of the Loan Charge

[UK]  Independent Review of the Loan Charge
07 Jan 2020

A HMRC policy paper from June 2019 describes disguised remuneration (DR) schemes as “tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions (NICs) by paying scheme users their income in the form of loans”.  As such, a Loan Charge was introduced to tackle the use of disguised remuneration schemes and came into effect on 5 April 2019.  The Charge applies to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019 and the recipient has not settled the tax due

On the 11th of September 2019 the Chancellor of the Exchequer, Sajid Javid, commissioned an independent review of the disguised remuneration loan charge.  This was carried out by Sir Amyas Morse in autumn 2019 and his report was published at the end of last year.

The government has published its “response” to the independent review and the government welcomed the review’s recognition that DR schemes are a form of tax avoidance and that the intention was correct to try and recover the income tax that was not paid.  However, the government recognised the concerns raised by the review about the impact of some aspects of the Loan Charge.  As such it would take actions to mitigate adverse impacts.

The key changes to the original Loan Charge are as follows and the government estimates that many individuals could be taken out of paying the Charge altogether:

  • The Loan Charge will only apply to loans taken out on or after the 9th of December 2010. A system known as “Voluntary Restitution” will refund tax already paid on these loans
  • For loans taken out between 9 December 2010 and 5 April 2016, the Loan Charge will not apply where the individual fully disclosed their use of the schemes to HMRC, and HMRC failed to take action (for example, by opening an enquiry)
  • Loans taken out after 5 April 2016 and outstanding as of 5 April 2019 remain within the scope of the Loan Charge
  • Loans taken out after 5 April 2019 are taxable when they are received under legislation introduced in Finance Act 2011
  • For DR loans taken out on or after the 9th of December 2010, the Loan Charge remains in force and taxpayers who have not settled their DR tax affairs by 31 January 2020 are still required to submit a Self-Assessment return for the 2018-19 tax year including the outstanding loan balance. But this filing deadline can be extended to the 30th of September 2020 as long as the reason for the late filing relates to the Loan Charge
  • Taxpayers will be entitled to opt to spread their outstanding Loan Charge over three years (18/19, 19/20 and 20/21). The impact of this is a reduction in the amount of tax that could be payable at the higher or additional rates of tax.  Any tax that has been paid that is not yet due will be refunded via the “Voluntary Restitution” system

Global Payroll Association Comment

We welcome the government’s change so that loans taken out before the 9th of December 2010 are taken out of the Loan Charge altogether.  This date represents the time when legislation was published in draft form and a written statement made in parliament.

For the many people that are affected we want to detail all of the links to the reports and guidance subsequently issued by HMRC.  We believe that it is these places that payroll professionals should be referring individuals:

  • Original HMRC Policy Paper updated on the 7th of June 2019
  • Independent Loan Charge review (on gov.uk), first published on the 11th of September 2019
  • Independent Loan Charge Review report by Sir Amyas Morse
  • Government response
  • News story following the government’s response
  • HMRC and HM Treasury guidance following the government’s response updated 20th of December 2019

Also, If individuals have any questions, contact HMRC on 03000 534226 or send an email to cl.resolution@hmrc.gov.uk.  Individuals that need additional support because of health or personal circumstances should contact HMRC on 03000 599110 or send an email to email ca.loancharge@hmrc.gov.uk.

 

A HMRC policy paper from June 2019 describes disguised remuneration (DR) schemes as “tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions (NICs) by paying scheme users their income in the form of loans”.  As such, a Loan Charge was introduced to tackle the use of disguised remuneration schemes and came into effect on 5 April 2019.  The Charge applies to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019 and the recipient has not settled the tax due

On the 11th of September 2019 the Chancellor of the Exchequer, Sajid Javid, commissioned an independent review of the disguised remuneration loan charge.  This was carried out by Sir Amyas Morse in autumn 2019 and his report was published at the end of last year.

The government has published its “response” to the independent review and the government welcomed the review’s recognition that DR schemes are a form of tax avoidance and that the intention was correct to try and recover the income tax that was not paid.  However, the government recognised the concerns raised by the review about the impact of some aspects of the Loan Charge.  As such it would take actions to mitigate adverse impacts.

The key changes to the original Loan Charge are as follows and the government estimates that many individuals could be taken out of paying the Charge altogether:

  • The Loan Charge will only apply to loans taken out on or after the 9th of December 2010. A system known as “Voluntary Restitution” will refund tax already paid on these loans
  • For loans taken out between 9 December 2010 and 5 April 2016, the Loan Charge will not apply where the individual fully disclosed their use of the schemes to HMRC, and HMRC failed to take action (for example, by opening an enquiry)
  • Loans taken out after 5 April 2016 and outstanding as of 5 April 2019 remain within the scope of the Loan Charge
  • Loans taken out after 5 April 2019 are taxable when they are received under legislation introduced in Finance Act 2011
  • For DR loans taken out on or after the 9th of December 2010, the Loan Charge remains in force and taxpayers who have not settled their DR tax affairs by 31 January 2020 are still required to submit a Self-Assessment return for the 2018-19 tax year including the outstanding loan balance. But this filing deadline can be extended to the 30th of September 2020 as long as the reason for the late filing relates to the Loan Charge
  • Taxpayers will be entitled to opt to spread their outstanding Loan Charge over three years (18/19, 19/20 and 20/21). The impact of this is a reduction in the amount of tax that could be payable at the higher or additional rates of tax.  Any tax that has been paid that is not yet due will be refunded via the “Voluntary Restitution” system

Global Payroll Association Comment

We welcome the government’s change so that loans taken out before the 9th of December 2010 are taken out of the Loan Charge altogether.  This date represents the time when legislation was published in draft form and a written statement made in parliament.

For the many people that are affected we want to detail all of the links to the reports and guidance subsequently issued by HMRC.  We believe that it is these places that payroll professionals should be referring individuals:

  • Original HMRC Policy Paper updated on the 7th of June 2019
  • Independent Loan Charge review (on gov.uk), first published on the 11th of September 2019
  • Independent Loan Charge Review report by Sir Amyas Morse
  • Government response
  • News story following the government’s response
  • HMRC and HM Treasury guidance following the government’s response updated 20th of December 2019

Also, If individuals have any questions, contact HMRC on 03000 534226 or send an email to cl.resolution@hmrc.gov.uk.  Individuals that need additional support because of health or personal circumstances should contact HMRC on 03000 599110 or send an email to email ca.loancharge@hmrc.gov.uk.

 

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