Disguised remuneration guidance updated following the independent loan charge review

20 December 2019

HM Treasury has published its response to the Independent Loan Charge review, as a result of Sir Amyas Morse’s independent report into the implementation of the loan charge policy.

The Government accepted all recommendations, with one exception, but maintained that the Loan Charge was a ‘necessary’ response to the tax avoidance schemes it was designed to tackle.  The proposal that was rejected related to writing-off tax due on the loan charge after ten years where the Time to Pay period is longer than ten years. This was because it would remove the incentive for tax payers to pay back the debt and would also mean that individuals affected by the Loan Charge were being treated more favorably than those with other forms of debt, e.g. tax credit claimants.

 Sir Morse’s review accepted that the schemes were a form of tax avoidance but made proposals around improving the design of the charge and looked at how that would impact any affected individuals.

There are some fundamental amendments and they are listed below:

  • The charge will only apply 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 avoidance scheme use was fully disclosed to HMRC and HMRC didn’t take action
  • People can opt to spread the amount of the outstanding loan balance across three tax years, as long as it is paid in equal instalments for each tax year. This should mean that the loan balance is not subject to higher rates of tax.
  • HMRC will refund voluntary payments (voluntary restitution) already made to prevent the loan charge arising and include in a settlement agreement reached since March 2016 for any tax years where:
     
    - the loan charge no longer applies (loans made before 9 December 2010)
    - loans made before 6 April 2016 and the avoidance scheme use was fully disclosed to HMRC, who  did not take any action.

There is a note that HMRC will not be able to process any refunds until the changes to the loan charge legislation have been enacted by Parliament.

Changes will also be implemented that give customers further flexibility over how they pay:

  • If an individual does not have disposable assets and earns below £50,000, HMRC will allow Time to Pay for a minimum of five years. Where earnings are below £30,000, there will be a minimum of seven years. There is no maximum time limit for a Time to Pay arrangement but if somebody no longer needs to pay, they need to contact HMRC with relevant financial information.
  • If an individual is utilising Time to Pay, there will be a 50% cap on disposable income unless that income is deemed as very high.

It is predicted that the new proposals will reduce bills for over 30,000 people who are affected by the Loan Charge, which equates to more than 60% of the total number of users. This is inclusive of approximately 11,000 people who will no longer be subject to the Loan Charge at all.

Draft legislation and further guidance will be released early next year, alongside a schedule for implementing the changes. It is expected that refunds will not be processed until Summer 2020 when the changes are enshrined in law.

In scenarios where HMRC is aware that a customer has used a disguised remuneration avoidance scheme and has settled the tax due or has not, which could mean they are liable to pay the loan charge, they will receive written correspondence in early 2020 detailing how the changes will affect them.

Where customers have not filed their tax return or agreed a settlement with HMRC, they must submit a Self-Assessment tax return for tax year 2018-2019 by 31 January 2020 with an estimate of the tax figure due or file by 30 September 2020. HMRC has confirmed that it will waive penalties for late filing, payment and inaccuracies in respect of the loan charge entries in those returns. Late payment interest will not be required for the period from 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.

There was also confirmation that a new HMRC team will be established to collect tax from those who used the avoidance schemes pre-2010.

Financial Secretary to the Treasury, Jesse Norman said:

“We welcome this careful and considered report, and I thank Sir Amyas and his team for their work. There have been important public concerns about this policy, and that is why we commissioned this report and have responded so quickly to it. The changes we are making go to the heart of Sir Amyas’s concerns about the fairness and application of the Loan Charge, which he accepts in principle. We also have plans under way to crack down further on the promoters of these avoidance schemes.”

Further guidance is provided surrounding different scenarios for both employees and employers, and there is also a helpline available to those who may require additional support. The number to call is 03000 599110 and the opening hours are Monday to Friday 8:30 – 16:30, excluding bank holidays. Email support can be found at ca.loancharge@hmrc.gov.uk.

CIPP comment

Here at the CIPP, we really value hearing feedback from our members and the same applies to changes that will take effect due to the recommendations of the Loan Charge Review. If there is anything you would like to tell us, please email Samantha Mann.

 


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