We outlined the changes for those affected by the loan charge in our newsletter on 9 January 2020. Since then HMRC has updated its guidance and published draft legislation to bring those changes into effect from 5 April 2019.
To help your clients make the correct disclosures, and pay the right amount of tax in respect of the loan charge you need to know exactly when each loan was advanced to them and if it was repaid by 5 April 2019.
The following loans are now not subject to the loan charge:
- those repaid before 5 April 2019
- advanced before 9 December 2010
- advanced before 6 April 2016 and fully disclosed to HMRC, and HMRC did not take action to demand tax due in respect of the loan before 5 April 2019 – this is then an “unprotected year”.
Where the taxpayer received regular loans in the tax year 2010/11, HMRC will permit you to apportion the total amount lent in the year as 2/3 prior to 9 December 2010 (escapes loan charge), and 1/3 post 9 December 2010 (subject to loan charge).
HMRC has clarified that the disclosure requirement will be met where the DOTAS number for the tax avoidance scheme used was provided on the relevant tax return, or if there was no DOTAS number to declare, the loan arrangement was described elsewhere on the return. That description must have contained sufficient information to show that a tax liability may have arisen from the loan. You may need to review the 2010/11 tax return very carefully.
Taxpayers can now spread the declaration of their outstanding loans which are subject to the loan charge over the tax returns for: 2018/19 to 2020/21, which spreads the tax due under the loan charge over those years.
To do this the taxpayer must elect on the “additional information form” before 30 September 2020, but that form won’t be available from HMRC until April 2020. If it makes sense for the taxpayer to spread the loan charge (and it won’t in every case), you should complete the 2018/19 tax return on the basis that this election has been made.
Where the 2018/19 tax return has already been submitted it may need to be amended to the reflect the above changes to the loan charge liability.
If the 2018/19 tax return has not been filed you can either include estimated figures of the tax due, or file and pay by 30 September 2020, in which case the late filing and late payment penalties will be waived.
Written by the Tax Advice Network