Tax Update: Independent Review of the Loan Charge

7th January 2020

Shortly before Christmas, Sir Amyas Morse’s independent review of the loan charge and his associated recommendations were published.

The review document runs to 83 pages and sets out in great detail the rationale for the proposed changes. HMRC’s published guidance following on from this issued on 20 December sets out the key actions for the affected groups. Further guidance and revised legislation are expected in early 2020.

In summary the key recommendations which are reflected in HMRC’s guidance are:

  • For loans made before 9 December 2010 the loan charge should no longer apply to those amounts. However, where HMRC opened enquiries at the time and these remain unresolved, HMRC may be able to pursue these amounts. Any tax paid in respect of pre 9 December 2010 loans should be refunded once the law has been changed.
  • For loans made after 9 December 2010 but before 6 April 2016, the loan charge will apply where either HMRC have taken action e.g. by opening enquiries or where the taxpayer did not make sufficient disclosure of their scheme use. If full disclosure was made and HMRC did not take action at the time then the loan charge will not apply.
  • Loans taken out on or after 6 April 2016 and which were outstanding on 5 April 2019 remain within the loan charge.
  • In order to lessen the impact of all outstanding loans subject to the charge being included in a single tax year, HMRC will allow the spreading of the loans across the 2018/19, 2019/20 and 2020/21 tax years. Depending on your other income levels in the relevant years this may reduce the overall tax payable on the loans outstanding.  
  • Where the loan charge is payable and the taxpayer is unable to pay in full arrangements should be offered for the liability to be paid over time. HMRC’s guidance indicates that they will allow a minimum of 5 years for those with income of less than £50,000 and a minimum of 7 years for those with income of less than £30,000. There is no maximum to the length of time allowed to pay but individual cases will need to be negotiated with HMRC.

The above changes create complexity for taxpayers wishing to file compliant returns by the end of the month and HMRC have indicated relaxation of certain interest and penalties rules. We can provide assistance with confirming the correct disclosures to be made on the tax return.

In addition to being relevant to those who are due to declare the loan charge on their upcoming 2018/19 tax returns, the changes may result in those who have already reached a settlement needing to revisit this but until the relevant legislative changes have been made HMRC will not be able to do this.

If you require any assistance with dealing with HMRC in relation to the loan charge please do get in contact.

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