HMRC LOAN CHARGE REVIEW 2019- GUIDANCE AND UPDATES
Tax avoidance arrangements are often known as Disguise remuneration schemes that look to evade Income Tax and National Insurance Contributions (NIC) by remunerating scheme users their emoluments in the form of loans/advances. The loans so disbursed are considered no different to normal income and are taxable, as they never intended to be repaid.
What is Loan Charge?
In simple words, the charge to be paid on outstanding disguised remuneration loans is termed as “loan charge”. Introduced by the Finance Act (No 2) 2019, the loan charge is designed to tackle tax avoidance and expected to raise £3.2 billion estimating that 75% of this will come from employers, and 25% from individuals. It applies to all outstanding loans made since 6 April 1999 and if tax due had not been settled on 5 April 2019. HMRC has constantly expressed that these schemes that look to evade Income Tax and National Insurance Contributions don’t work and asked individuals to approach and settle their tax affairs before the loan charge emerged on April 5, 2019.If you’re paid for work or services by the means of advances/loans or other forms of credit in a way that means it is improbable to be repaid, you’ll be classed as having disguised remuneration.
Whom the loan charge affects?
The loan charge affects:
- Individuals who used disguised remuneration tax avoidance schemes and have not repaid their loans or provided HMRC with all required settled information by 5 April 2019 and subsequently settled.
- Employers who provided loan funds through disguised remuneration tax avoidance schemes and have not provided HMRC with required settlement information and subsequently settled, or their employee or former employee has not repaid their loans by 5 April 2019.
Penalties
If necessary, details regarding outstanding disguised remuneration loan have not been reported to HMRC before 1 October 2019, or the information is incomplete/incorrect you may be liable to:
- an initial penalty of £300
- daily penalties of up to £60 a day for as long as the information remains outstanding, up to a maximum of 90 days.
- a penalty not exceeding £3,000 for each inaccuracy deliberately or carelessly included within the information provided, or discovered after the information has been submitted and you do not tell HMRC.
Review
Because of the devastating impact of the “loan charge” on around 50,000 individuals or less than 0.2% of individual Income Tax payers in the UK and the criticism attracted from tax and accounting bodies along with MPs and lawyers, the chancellor Sajid Javid has commissioned an independent review of the Disguised Remuneration Loan Charge. Sir Amyas Morse, the former Chief Executive and Comptroller and Auditor General of the National Audit Office (NAO) will lead an independent review to consider whether or not the policy is an appropriate way to deal with disguised remuneration loan schemes.
The commission headed by Sir Amyas Morse has been asked to report its findings bymid-November, ahead of January Self Assessment deadline. The loan charge will stay in the effect until the commission delivers the review in November. The review has been quoted as “better late than never” by few experts, however the exact picture will be cleared once findings are in place.
