HMRC publishes draft legislation to implement the changes to the loan charge
21 January 2020
Further to the government’s response to Sir Amyas Morse’s review of the Independent Loan Charge, HMRC has now published the draft legislation relating to how the changes to the loan charge will be implemented.
The government accepted all but one of the review’s recommendations, and the new guidance looks at how those recommendations will be put into action. There is no discussion of the recommendation relating to refunding certain voluntary payments in settlement agreements, but this will be handled separately.
The following changes to the loan charge have been confirmed, and information provided about how this will be managed:
- Only applicable to outstanding balances of disguised remuneration loans made between 9 December 2010 and 5 April 2019 (inclusive). It previously applied to loans made between 6 April 1999 and 5 April 2019
- Not applicable to loans made in tax years before 2016-17 where a reasonable disclosure of the use of a disguised remuneration tax avoidance scheme was made within the relevant tax return or, where appropriate, associated documents, and HMRC failed to act. Years 2016-17 onwards will still be in scope of the loan charge, regardless of whether or not HMRC has taken action to protect the year
- Anybody affected by the loan charge can opt to split their loan balance over three consecutive years – 2018-19, 2019-20 and 2020-21. Customers must elect to do this if this is how they wish to proceed and must provide full information in relation to their outstanding loans. This election cannot be withdrawn by the customer
- Late payment interest will not be charged for the period from 1 February 2020 – 30 September 2020 on any Self-Assessment liability if the return is filed and tax paid, or an arrangement is made with HMRC to do so, by 30 September 2020
- The date the additional form must be submitted to HMRC is now 1 October 2020 as opposed to 1 October 2019. The form requires customers to provide full information to HMRC in relation to outstanding disguised remuneration loans that they are required to make tax payments for
There is confirmation that the loan charge is aimed at tackling tax avoidance and ensures that those who used disguised remuneration schemes pay the necessary rates of tax and National Insurance (NI). The changes to the measures have been made in response to concerns raised in the review about certain elements of the loan charge.
The measure will have effect retrospectively to 5 April 2019, which is the relevant date for the purposes of applying the loan charge.
It is anticipated that the measure will decrease receipts in relation to the loan charge and that the final costing will be analysed by the Office for Budget Responsibility and will be set out at Budget 2020.
It is suggested that in excess of 30,000 individuals will benefit from the changes to the loan charge, with 11,000 being removed from the loan charge altogether due to the revised inclusive dates and the arrangements made for those who have made reasonable disclosures. A further 21,000 will see a reduction in the amount of tax they owe because they can now split their loan balance over a three-year period. It is hoped that a reduction in tax liabilities will alleviate the financial pressure on affected individuals.
Employed individuals are advised to liaise with their employer to manage the payment of their tax through the PAYE process. It is predicted that some employees may have large tax deductions in the last month’s pay each year for the three years.
For individuals who may still owe large amounts of money, there are bespoke arrangements in place that will help them to manage repayment of their tax debts.
For individuals who have any queries relating to the changes, the loan charge review team can be contacted at [email protected].
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