Loan charge action

We have covered the introduction of the loan charge in our newsletters from 16 November 2017 to 26 September 2019. Its implementation has been controversial and many people see it as deeply unjust and unfair law.

Following an independent view by Amyas Morse, HMRC has comprised on both the scope of the charge and payment terms.

Now where the loan was taken out before 9 December 2010 the loan charge will not apply. However, if the taxpayer’s affairs for those years are under investigation, subject to an APN, or a settlement is being negotiated, those tax collection procedures will continue, with a recalculation of the tax due.

Loans taken out from 10 December 2010 to 5 April 2016 will not be subject to the loan charge if the taxpayer fully disclosed the use of the loan scheme, and HMRC failed to take action as a result of that disclosure. Where HMRC did open an enquiry or take some other action to collect the tax, that action will continue to its conclusion.

What “full disclosure” means will be defined in future legislation. HMRC say the taxpayer should have provided all necessary information on the appropriate tax return to allow a tax officer to identify the nature of the loan arrangement, and to conclude that an income tax liability arose in respect of that loan.

Loans which were taken out on or after 6 April 2016 and which were outstanding on 5 April 2019 remain within the loan charge. Those taxpayers will have to pay the loan charge for 2018/19 and declare it on their SA 2018/19 tax returns.

Individual taxpayers who are subject to the loan charge can now spread the charge over three tax years: 2018/19 to 2020/21. This means the loans assessed as income may not push the taxpayer into the highest tax bands for those years after all.

We will need to recalculate what our client has to pay by 31 January 2020 and possibly amend the 2018/19 SA return. However, HMRC is allowing a further eight months to submit the 2018/19 return and pay the tax due in respect of the loan charge, until 30 September 2020.

If you have any queries please contact our office.