HMRC has sent out 40,000 letters to individuals warning that they may have to pay the loan charge on 5 April 2019, if they have not settled the amount of tax, penalties and interest they owe in respect of the loan scheme (disguised remuneration) they used in the past.
If you have received such a letter, you need to engage with HMRC to reach a settlement before 5 April 2019. Be rest assured worried that if you do settle with HMRC you won’t have to pay all the outstanding tax in one go. HMRC will automatically offer an instalment arrangement if the taxpayer’s current annual income is less than £50,000.
The period over which instalments can be paid varies according to the taxpayer’s annual income:
- Less than £30,000 – up to seven years
- Between £30,000 and £50,000 – up to five years
- Over £50,000 – period must be negotiated.
HMRC make it clear that there are no defined maximum periods over which the debt can be spread. However, they will expect the taxpayer to pay in the fastest possible time taking into account all other debts and essential outgoings.
In all cases HMRC will charge forward interest of 4.25% on the outstanding amount, so it is important to carefully check the calculation of what is actually owed. Any income tax already paid on the benefit-in-kind of having a low-interest or zero-interest loan should be deducted from the tax due on the basis the loan was actually salary.
Please contact our office if you would like us to negotiate a settlement with HMRC on your behalf.
Written by the Tax Advice Network