Making a late election in relation to the disguised remuneration loan charge
23 November 2020
Individuals had until 30 September 2020 to report their outstanding disguised remuneration loans, by using a loan charge reporting form. This form gave individuals the option of spreading their outstanding disguised remuneration loan balance over three tax years. HMRC has confirmed that it will also accept late elections that are made by an individual, or an agent on their behalf, on or before 31 December 2020.
This process will allow individuals to include a third of their outstanding disguised remuneration loan balance on their Self-Assessment tax return for 2018-19. HMRC has released a statement, which details the general approach to elections made after 30 September 2020, and also provides information relating to the procedures that must be followed.
HMRC will even consider applications for a late election if it falls after 31 December 2020, but this will require the individual or their agent to provide HMRC with more detail prior to the late election being accepted. If an individual applies for a late election after 31 December 2020, they are liable to pay the loan charge (based on the full outstanding disguised remuneration loan balance) on their 2018-19 Self-Assessment tax return, until an officer has confirmed it is accepted. HMRC considers the time allowed for making an election and the automatic acceptance of any late election, made on or before 31 December 2020, to be generally adequate.
HMRC accepts that there may be exceptional reasons as to why an election was not made in the specified time frame, but will not make routine use of its powers to accept late elections after 31 December 2020. HMRC will allow late elections which couldn’t have been made within the statutory time limits for reasons beyond the individual’s control. These reasons include circumstances where all of the following applied:
- The individual was ill or otherwise absent for a good reason
- The absence or illness occurred at a critical time, which prevented the individual from making an election on or before 30 September 2020, or a late election on or before 31 December 2020
- There was an appropriate reason as to why the election was not made prior to the time of the absence or illness
- There was no other person who could have made the election on the individual’s behalf on or before 30 September 2020, or the late election on or before 31 December 2020
HMRC would not class the following as reasons beyond the individual’s control:
- Oversight or negligence on the part of the individual or their agent
- Illness or absence of an agent or adviser to the company
There may be cases that fall outside of the general approach, where it would be unreasonable, given the overall circumstances of the case, for HMRC to refuse a late election. It is probable that such cases will involve a number of factors, but the following criteria may be relevant:
- Where the reason for the late election does not warrant admission of the election under the general approach, it will still be considered by HMRC in assessing the circumstances as a whole
- The extent to which the election is late
- The consequences for the individual if the election is refused
- Any particularly unusual features
Individuals who wish to make a late election to spread their outstanding disguised remuneration loan balance over three tax years will be required to complete the loan charge reporting form, and they should select the option to spread their outstanding disguised remuneration loan balance over three tax years on the election page of the form.
Where the form is completed correctly and submitted on, or prior to, 31 December 2020, HMRC will automatically accept the submission as having made a valid election, with no requirement to provide further information or the reason for the late election. This will allow individuals to include a third of their outstanding disguised remuneration loan balance on their 2018-19 Self-Assessment tax return. Anyone who did not make an election on or before 30 September 2020, who then makes a late election on or before 31 December 2020, can choose to include a third of their outstanding remuneration loan balance as income – this must be marked as provisional.
A valid election creates a statutory obligation for an individual to report a third of their outstanding disguised remuneration loan balance in each of their Self-Assessment rax returns for 2018-19. 2019-20 and 2020-21, and to pay the income tax arising. If a late election is submitted on or before 31 December 2020, it cannot be revoked, and the individual will be liable to report and pay a third of their outstanding disguised remuneration loan balance in the tax years 2018-19. 2019-20 and 2020-21.
Individuals wishing to make a late election after 31 December 2020 should complete a paper version of the loan charge reporting form, making an election, and providing the following:
- The date they submitted their 2018-19 Self-Assessment tax return
- The reason for the late election
They should email the completed form to: [email protected].
“Late loan charge election” should be included as the subject line of the email, and HMRC will then consider whether their election can be accepted and will respond with the outcome. Until it has been confirmed by an officer of HMRC that the late election has been accepted, then the individual is liable to report and pay the full outstanding disguised remuneration loan balance in their Self-Assessment tax return for 2018-19. Anyone considering making a late election should consider the accuracy of their tax return, the latest date by which they can amend their 2018-19 Self-Assessment tax return and the penalties that can be charged for filing an inaccurate return.
Guidance on late elections is available, or the loan charge helpline can be contacted via telephone at 03000 599110.
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