Outstanding loans made to individuals from EBTs, EFRBS and other similar ‘disguised remuneration’ arrangements on 5 April 2019 became subject to an employment tax charge (known as the ‘loan charge’) on that date. The policy has been controversial to say the least. In many cases EBTs were established several years ago, and, despite being disclosed or enquired into, HMRC failed to raise assessments against the loans. The loan charge effectively gives HMRC the power to have a second bite at the cherry, leading many commentators to cite this as a disgraceful ‘retrospective tax’.
We should also be considering the human aspect (and possibly even the human rights aspect). While there will be many individuals who have used ‘schemes’ for tax avoidance purposes, it is too simplistic to assume that this is always the case. We know from the growing body of evidence submitted to MPs and other representative bodies that many individuals were not fully aware of the consequences of their loans. In some cases, particularly in the contracting sector, individuals may have been required to accept these arrangements as part and parcel of the job and yet they are now being left to pick up the pieces. The All Party Parliamentary Group for the Loan Charge has reported that at least six individuals are known to have committed suicide directly as a result of financial worries brought about by the loan charge.
Following representations made by various bodies, including our firm , the Chancellor of the Exchequer, Sajid Javid, last week announced that an independent review will now take place. The review will be headed by the former head of the Audit Commission, Sir Amyas Morse, and will report back to the Government by mid-November. Interested parties wishing to submit evidence may do so by emailing email@example.com by 30 September. Forbes Dawson will be submitting evidence to this review and we will be pleased to receive any feedback from readers that we can add to our submission.
The announcement of a review leaves matters in somewhat of a state of flux, particularly for those employers/employees who are still negotiating a settlement with HMRC. Further commentary was released by HMRC last week on how it expects the review to impact these various groups.
HMRC say that the review does not change matters. There is, of course, the possibility that the loan charge could be scrapped altogether. If so, a question will then arise as to whether settlements already made become null and void. However, we expect this is unlikely to be accepted, and in any event unpicking settlements would not solve the issue of how to close down trusts, or stop the process of any HMRC litigation.
For individuals who registered for the settlement opportunity and provided their information to HMRC by 5 April 2019 but have not yet finalised their settlement, HMRC will be happy to continue this process. However, it recognises that individuals may wish to wait for the outcome of the review before finalising their settlement.
In addition, as we recently reported in a Tax Bite, there is a requirement for individuals to make a report to HMRC about their loans before 1 October 2019. HMRC has confirmed that this report will not be required for those individuals who are in the process of settling and who provided their information in time.
Individuals who have no intention of settling must file the report by 30 September 2019. Failure to submit a report may carry a large penalty.
Time will tell whether the review will give rise to any tangible benefits for the loan charge victims. However the furore that this has caused will hopefully make the Government think twice before raising any retrospective taxes in the future.
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