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Markel Tax

11 Mar 2020

Budget 2020: Loan Charge

Loan charge review
The Government have now amended the legislation pertinent to the loan charge to reflect the recommendations made following an independent review of the legislation.

What it was before
The loan charge, as initially introduced, placed a charge on relevant outstanding loans at 5 April 2019, made since 6 April 1999. This charge was to be taxable on an individual in the tax year ending 5 April 2019.
Alternatively, HMRC has been offering a contractual settlement opportunity under which a taxpayer can pay the tax due on their earlier years’ liabilities. This settlement opportunity required settlement of ‘protected years’ – tax years which were either in-date for HMRC to raise formal assessments or where an enquiry was opened and also ‘unprotected years’ on a voluntary restitution basis.
An independent review was commissioned and this review was published on 20 December 2019.

HMRC accepted the following recommendations of the review and draft legislation was published on 27 February 2020:

  • It will only apply to outstanding balances of disguised remuneration loans made between 9 December 2010 and 5 April 2019 inclusive

  • It will not apply to loans made in tax years before 2016/2017 where a reasonable disclosure of the use of a disguised remuneration tax avoidance scheme was made within the relevant tax return or, where appropriate, associated documents and HMRC failed to take any action (for example by opening an enquiry)

  • Those affected by the loan charge will be able to elect to split their loan balance over 3 consecutive years - 2018/2019, 2019/2020 and 2020/2021

  • Late payment interest will not be payable for the period 1 February 2020 to 30 September 2020 on any Self Assessment liability as long as a return is filed and the tax paid, or an arrangement made with HMRC to do so, by 30 September 2020

  • Moving the date by which the additional information form must be returned to HMRC from 1 October 2019 to 1 October 2020

What it is now
The draft legislation has been finalised and will apply retrospectively to 5 April 2019, following Royal Assent. This confirms the draft provisions, including that loans made between 6 April 1999 and 9 December 2010 are no longer within the loan charge legislation and that the loan charge may be split over three tax years.
In addition, included was a draft version of the terms of HMRC’s repayment scheme for those who have already reached settlement with HMRC and this settlement included ‘unprotected years’.

Who is affected?
These measures will affect those who fall within the disguised remuneration loan charge legislation in respect of employment or trading income, particularly those who have already reached a settlement with HMRC of which all or part was made on a voluntary basis.

Next article in series

11 Mar 2020

Budget 2020: First thoughts