In the Autumn Budget, the Government announced that a second independent review of the loan charge legislation had been commissioned. We look at the current situation for those who have remaining liabilities. Many MPs and tax professionals raised concerns after it became apparent that the first review had not been carried out independently.
It is clear from evidence from practitioners that:
- There are ongoing significant delays in settling: HMRC seem unable to cope with the backlog of cases.
- HMRC's inflexibility, when it comes to negotiation of Time To Pay (TTP) terms is stalling cash collection.
- This is not assisted by the lack of communication between HMRC's Debt Management and Counter Avoidance teams.
- Many clients wish to settle and start their payment plan, but HMRC is instrumental in denying them that ability.
Concerns had been raised throughout by the Loan Charge All Party Parliamentary Group (APPG) and the Loan Charge Action Group (LCAG) after HMRC confirmed ten suicides had been linked to the loan charge legislation.
This has led to a push from MPs and loan charge groups for a fresh review of the legislation.
Further details have yet to be confirmed on the timing and approach of the review. HMRC have confirmed that the loan charge legislation currently remains in force and any TTP arrangements should continue to be paid.
What is the loan charge?
The loan charge affects individuals who are employed, self-employed or a director and received third-party loans which HMRC believe to be ‘Disguised Remuneration loans’ and the loans remained outstanding by 5 April 2019.
- As a result of the first loan charge review, loans taken out before 9 December 2010 are no longer included in the loan charge.
- HMRC provided taxpayers with an opportunity to ‘Settle’ their tax affairs by September 2020. If you were unable to settle by this deadline, the loans became subject to the loan charge.
- Many individuals, despite registering with HMRC and submitting all the required information by the deadlines, were unable to settle under the earlier, more favourable terms due to lengthy delays on HMRC’s part.
Individuals affected by the loan charge are now required to settle under the New settlement terms.
How is the loan charge calculated?
The loan charge is calculated by taking the amount of loans outstanding on 5 April 2019 and applying the taxpayer's marginal rate of Income Tax in 2018/19 to the loans, essentially taxing the full amount of outstanding loans as earnings in one tax year.
- The marginal rate of tax for the year will be dependant on other income in the year and the value of the loans.
- Scottish Income Tax rates will apply to Scottish residents with outstanding loans.
What to do if you think you are affected
If you have been contacted by HMRC with regards to the loan charge or you think you may have used one of the schemes affected and wish to settle:
- Read our guides to help you better understand your obligations.
- Contact our Virtual Tax Partner support team for further assistance.
If you are currently in discussions with HMRC regarding your loan charge, it may be possible to request a 'pause' while the loan charge review is undertaken.
If you are currently in correspondence with HMRC and feel unable to cope, you can make HMRC aware you are vulnerable and they will provide you with an extra support officer.
Useful guides on this topic
Loan charge & disguised remuneration: Start here
When do the disguised remuneration rules apply? How do they apply? When does the loan charge apply? What options for settlement are available?
Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans where settlement was not reached by 30 September 2020? Can a settlement still be reached?
FAQs for disguised remuneration settlements
Can I repay my loans? What if I have paid the loan charge, can I still settle? How much will it cost to settle? And many other FAQs.
External links
HMRC guidance: Disguised remuneration: settling your tax affairs
HMRC guidance for tax agents or advisors: settlement terms 2020
HMRC principles of support for customers who need extra support
