The 5 April 2019 loan charge and actions required by 1 October 2019
2nd September 2019
Posted in Articles by Forbes Dawson
Breakdown
In 2017 the Government legislated to introduce a charge on outstanding loans from EBTs, EFRBS and other ‘disguised remuneration’ schemes. The loan charge operates by treating any outstanding loans made to individuals after 5 April 1999 via disguised remuneration schemes as taxable on 5 April 2019.
Individuals who have received loans historically need to be aware that a report may be required by 1 October 2019. This may apply even if the loans have been repaid or otherwise cleared by 5 April 2019. We have prepared a guide for individuals which is available on our website, together with further guides for employed and self-employed individuals regarding the practical implications of the loan charge:
1. Reporting the 5 April 2019 loan charge
2. The tax implications of the loan charge employee guide
3. The tax implications of the loan charge self-employed guide
If either you or your clients require assistance with the reporting and/or completion of tax returns please contact us.
Further developments
Followers of our twitter account @forbesdawson will also be aware that last week we wrote to the Financial Secretary to the Treasury, Jesse Norman MP, to express concerns about the 5 April 2019 loan charge and HMRC’s approach to settling cases.
The rationale underpinning the loan charge, as far as HMRC is concerned, is clear. They perceive such schemes to be tax avoidance, and so by introducing a charge on outstanding loans it provides the ability to collect tax from scheme users without the need to litigate.
However, this approach is by its very nature controversial. There are many cases where HMRC failed to raise assessments in time, often despite there being full disclosure. This has led to criticism that the loan charge is ‘retrospective’ in nature. A number of Parliamentarians have expressed concern that the loan charge goes against the normal rule of law and the rights of taxpayers to ‘have their day in court’.
Our concerns
As a firm, we have some sympathy for the difficulties faced by HMRC over the years in tackling tax avoidance schemes. However, at the same time, we have concerns with the ‘heavy-handed’ approach HMRC is taking in many cases. In order to avoid the loan charge, employers and individuals have had the ability to seek a settlement with HMRC, but often faced significant hurdles.
Examples we have seen include:
- Refusal to give relief for tax suffered on loan benefits and corporation tax addbacks (no retrospection allowed here it seems).
- Refusal to settle unless accepting penalties without the usual right of appeal.
- Insistence upon accepting Inheritance Tax charges which have neither crystallised nor are proven to be due.
In a number of cases, there have also been lengthy delays in HMRC dealing with settlements.
Grey areas
There are also a number of grey areas. In particular, the Financial Secretary spoke before the House of Lords Economic Affairs Committee in July and appeared to offer a concession stating that “HMRC will not apply the loan charge to a tax year where an enquiry was closed on the basis of fully disclosed information“. Frustratingly, over a month on there has been no further clarity about what this statement means in practice.
There is mounting pressure upon the Government to bring a halt to the loan charge whilst some of these ambiguities are cleared up. Over 200 MPs have joined an All Party Parliamentary Group (‘APPG’) to look into the impact of the loan charge and HMRC’s approach. We agree with the APPG that an independent inquiry is now necessary.
If you or your clients are experiencing difficulties in dealing with HMRC in respect of EBT settlements we would be pleased to hear from you. We are in close contact with the APPG in helping them to collate evidence.
