Carousel_Arrow Chat icon_cookie IHT_trust_wills IR35 Combined Shape 2 Group 10 Login Mobile Menu Share Share Email SubMenuMobile Group 9 VAT View_Gallery View_List capital_allow Triangle 2 Copy Close construction cyberpro employment_tax_shares emplyer_solutions entrepreneurs_corps fee_protect Group 7 grant_fund Group i_Clock i_Consult i_Done i_Eligibility_Tick i_Enter i_Filter i_HMRC i_Negative i_Play i_Plus i_Reset i_Support_Legal i_Support_TaxDesk i_Support_VAT i_Tick noun_marketing_1872083 noun_online_2126759 i_download i_meet Group Copy 24 Group 18 noun_electrical_1240755 copy noun_Technology_2125422 noun_Science_2031115 i_tick_bullet_block international_tax patent_box private_client property_sdlt r_and_d reliefs_incentives Search specialist_tax status tax_indemnity valuation YouTube
Markel Tax

09 Apr 2020

Loan Charge: HMRC forced to repay voluntary contractor loan settlements

The Government agree that HMRC should repay certain voluntary payments

On 27 February 2020, in response to the conclusions of the review undertaken by Sir Amyas Morse, HMRC published a policy paper and draft legislation to implement changes to the Loan Charge (LC) legislation following recommendations included in the Morse report.
  • The LC 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 5 April 2016 where a reasonable disclosure of the use of a disguised remuneration tax avoidance scheme was made within the relevant tax return (for example including the DOTAS reference) and HMRC failed to take any action by opening an enquiry for example.  
  • Those affected by the LC will be able to elect to split their loan balance over three tax years – 2018/19, 2019/20 and 2020/21.
  • 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, by 30 September 2020, or an arrangement is made with HMRC to do so.
The draft legislation now forms part of the Finance Bill 2019-21 which, at the time of writing, has been introduced to the House of Commons and given its First Reading. Assuming the legislation passes through to Royal Assent without amendments the legislation will apply retrospectively to 5 April 2019. This mean that loans made between 6 April 1999 and 9 December 2010 would not be caught within the LC legislation.

Loan charge settlement opportunity

Until recently, as an alternative to the LC, HMRC had offered a contractual settlement opportunity under which taxpayers could pay the tax due on their earlier years’ liabilities. This settlement opportunity required settlement of ‘protected years’, i.e. tax years which were either in-date for HMRC to raise formal assessments, or tax years which were covered by an open HMRC enquiry. This was later extended to cover ‘unprotected years’ on a voluntary restitution basis.

Many individuals, and in some cases companies on behalf of employees, will have already taken the opportunity to settle tax liabilities which are now not due. The question is how do they get these sums back?

The good news is that the Finance Bill also requires HMRC to establish a scheme to repay these ‘voluntary’ amounts for those in qualifying circumstances, who have already reached settlement with HMRC in respect of the years that would not have been included in the settlement had the revised legislation always applied.

Political pressure for further amendments

The proposals are not yet law and on 19 March, David Davis tabled a motion in the Commons to restrict the scope of the LC even further, changing the cut-off from April 2010 to April 2017, which was passed without the necessity for a vote. This motion was not binding, but it does indicate great support for the proposed amendment to the Bill and it is possible that the proposed legislation could be amended to reflect it. We can expect to see the final legislation passed in the coming months, so watch this space…

Making a claim

Refunds can only be made after Finance Bill 2019-20 receives Royal Assent. Once enacted, the repayment scheme will run until 30 September 2021 and by making an application in writing, those affected will be able to claim a refund from HMRC or have an amount ‘waived’ where either ‘unprotected’ years were settled or voluntary restitution was applied. Until now, the Counter Avoidance teams have been dealing with correspondence on a ‘date order basis’ and it is likely that any claims received for repayment will be treated in the same way.

General HMRC protocol will dictate that sufficient information is provided by a claimant and relevant circumstances are laid out clearly and concisely. No-doubt HMRC will seek to protect their own interests in such matters, so we expect the department, where necessary, to request more specific information to enable the refund to be processed.

HMRC does not give money away lightly so expect every claim to be thoroughly reviewed; this could lead to alternative proposals where the amounts are in dispute and where this occurs, an appeal will need to be submitted, without delay, providing robust grounds of appeal. 

Seek specialist help

If you have previously entered into an arrangement with HMRC to settle in respect of ‘disguised remuneration’, we recommend speaking to a professional adviser, as you may be able to reclaim some or all of the amounts in the agreement and it is key that you get your application right.

Markel’s tax investigation specialists have many years’ experience in dealing with HMRC’s counter avoidance teams and are ideally placed to assist those seeking recompense through the repayment process, leading to prompt final closure.    

Our COVID-19 Hub contains a range of information and resources to best support our clients during this difficult time. To receive the latest news and insights by email sign-up here.
Tagged HMRC Tax investigations COVID-19
Next article in series

09 Apr 2020

How this Government intends to fund UK R&D