Closing opened years - is this possible?
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    The question of interest being charged depends on the situation.

    Interest is charged on late paid tax.

    If you have a liability and pay late, HMRC will charge interest at various rates (presently 2.75%) between the due date and date of payment.

    If you are paying an amount of money which is said to relate to a closed year, i.e. a year which has no enquiry and which HMRC cannot raise an assessment on, then it is not tax, it's a voluntary payment. As it's not tax, no interest can arise.

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    Quote Originally Posted by webberg View Post
    The question of interest being charged depends on the situation.

    Interest is charged on late paid tax.

    If you have a liability and pay late, HMRC will charge interest at various rates (presently 2.75%) between the due date and date of payment.

    If you are paying an amount of money which is said to relate to a closed year, i.e. a year which has no enquiry and which HMRC cannot raise an assessment on, then it is not tax, it's a voluntary payment. As it's not tax, no interest can arise.
    Hi Webberg. I think the question from StarStruck was about interest being charged on closed years when the loans for those years are declared in the 2019 loan charge (if closed years are to be attacked). i.e. it's not a voluntary payment at that point.

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    The 2019 loan charge will be a single number, all open and closed years together, so they either charge interest on everything, or nothing? I think they'll be looking at a straight-forward PAYE/NIC calculation which would be significant if people wait till 2019 to declare all their loans, as such going way above the 40% tax band.

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    You need to distinguish between interest on the loan and interest on the tax.

    Interest on the loan that had not been paid was originally proposed to have been added to the principal and a tax charge calculated on the total. That position was subsequently dropped and the 2019 charge is now based on the principal outstanding.

    Interest on the tax was originally proposed to have run from the original due date for the year the loan was made. This was defended by HMRC in the original webinar but did not arrive in the form of legislation. Indeed, when we questioned HMRC they denied it was ever intended.

    My assumption therefore is that if you pay the 2019 charge on the due date, no interest will be charged.

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    Quote Originally Posted by webberg View Post

    My assumption therefore is that if you pay the 2019 charge on the due date, no interest will be charged.
    Even if you have an open year? I thought they (HMRC) will still push for the tax on the gross amount and interest from that year on? Essentially, the enquiry will remain open even though if you have paid the 2019 LC

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    Quote Originally Posted by difficulttimes View Post
    Even if you have an open year? I thought they (HMRC) will still push for the tax on the gross amount and interest from that year on? Essentially, the enquiry will remain open even though if you have paid the 2019 LC
    If the year is open, HMRC will continue their enquiries. If they lead to tax being due, it will have an interest charge but the 2019 charge should be removed.

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    Quote Originally Posted by webberg View Post
    If the year is open, HMRC will continue their enquiries. If they lead to tax being due, it will have an interest charge but the 2019 charge should be removed.
    So if you had a loan of 10 000 but HMRC argue that you actually received 11 000 but chose to pay 1000 to a trustee and/or provider fee then they (HMRC) will continue to pursue you for the 1000 tax for that tax year plus interest every subsequent year. So essentially continue to pursue you for an amount of money you never actually received and may have already been taxed at source.

    That could remain outstanding in your name for years and years to come as for many people they won't have the funds to challenge this in the courts to close it.

    Which is why settlement is a better option than the Loan Charge unless HMRC are willing to close enquiries once you have paid the LC.

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    Quote Originally Posted by difficulttimes View Post
    So if you had a loan of 10 000 but HMRC argue that you actually received 11 000 but chose to pay 1000 to a trustee and/or provider fee then they (HMRC) will continue to pursue you for the 1000 tax for that tax year plus interest every subsequent year. So essentially continue to pursue you for an amount of money you never actually received and may have already been taxed at source.

    That could remain outstanding in your name for years and years to come as for many people they won't have the funds to challenge this in the courts to close it.

    Which is why settlement is a better option than the Loan Charge unless HMRC are willing to close enquiries once you have paid the LC.
    What?

    If HMRC say that the loan was 11,000 because you borrowed 1,000 to pay fees, (And I repeat I see nowhere in the legislation a provision for that - happy to be corrected), and assume your tax rate was 40% in the year the loan was made, you owe 4,400. If that was due to be paid say 31/1/13 (11/12 tax year) and has not been, then you owe interest on the 4,400 at 2.75% from 31/1/13 to whenever you pay.

    So why would HMRC be asking you for 1,000 that year and every subsequent year? Have I misunderstood what you mean?

    Comparing settlement now to 2019 charge is really quite simple.

    Calculate the tax plus interest and for periods after 2010/11 NIC (employees) for each year a loan was had.

    Compare that to whatever rate tax the cumulative loan pushes you into in 2018/19, adding NIC.

    For example.

    You had loans for 2007/08, 2008/09 and 2009/10 and these were 70,000 each. Your income in those years was say 10,000.

    So in 2007/08 your gross income was 80.000, allowances say 6,000 (I'm guessing) and taxable is 74,000.

    Tax would be around 30k at 20% and 44k at 40%, so 23,600.

    Repeat for the next two years, so liability to tax 70,800.

    Add interest. For the first year that would be around 6,400. For the next two years, around 5,700 and 5,000. Again I'm using the back of an envelope here.

    So on settlement you owe income tax of 70,800 plus interest of 17,100. A total of 87,900.

    You may owe some IHT eventually. You still owe the lender the loan and they may ask you for it.

    If you choose not to do that, and in 2018/19 you get a loan charge based on adding 210,000 to your income for that year, you need to calculate the position.

    If you are smart and reduce your income that year to say 12,000, you have all of your basic rate available, but you lose your personal allowance.

    So you have 222,000 of income, say 34k at 20%, say 116k at 40% and 72k at 45% which is 85,800. You will owe NIC. That for employee rate on that income is perhaps 7,000.

    So a total bill of say 92,800.

    You may owe some IHT in due course and again, you still owe the lender the 222k.

    HMRC may claim to be able to help you exit the arrangement, but their name is not on the loan agreement and therefore they have no power to intervene in whether the lender forgives you or not from repayment.

    Clear?

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    Quote Originally Posted by webberg View Post
    What?

    If HMRC say that the loan was 11,000 because you borrowed 1,000 to pay fees, (And I repeat I see nowhere in the legislation a provision for that - happy to be corrected), and assume your tax rate was 40% in the year the loan was made, you owe 4,400. If that was due to be paid say 31/1/13 (11/12 tax year) and has not been, then you owe interest on the 4,400 at 2.75% from 31/1/13 to whenever you pay.

    So why would HMRC be asking you for 1,000 that year and every subsequent year? Have I misunderstood what you mean?

    Comparing settlement now to 2019 charge is really quite simple.

    Calculate the tax plus interest and for periods after 2010/11 NIC (employees) for each year a loan was had.

    Compare that to whatever rate tax the cumulative loan pushes you into in 2018/19, adding NIC.

    For example.

    You had loans for 2007/08, 2008/09 and 2009/10 and these were 70,000 each. Your income in those years was say 10,000.

    So in 2007/08 your gross income was 80.000, allowances say 6,000 (I'm guessing) and taxable is 74,000.

    Tax would be around 30k at 20% and 44k at 40%, so 23,600.

    Repeat for the next two years, so liability to tax 70,800.

    Add interest. For the first year that would be around 6,400. For the next two years, around 5,700 and 5,000. Again I'm using the back of an envelope here.

    So on settlement you owe income tax of 70,800 plus interest of 17,100. A total of 87,900.

    You may owe some IHT eventually. You still owe the lender the loan and they may ask you for it.

    If you choose not to do that, and in 2018/19 you get a loan charge based on adding 210,000 to your income for that year, you need to calculate the position.

    If you are smart and reduce your income that year to say 12,000, you have all of your basic rate available, but you lose your personal allowance.

    So you have 222,000 of income, say 34k at 20%, say 116k at 40% and 72k at 45% which is 85,800. You will owe NIC. That for employee rate on that income is perhaps 7,000.

    So a total bill of say 92,800.

    You may owe some IHT in due course and again, you still owe the lender the 222k.

    HMRC may claim to be able to help you exit the arrangement, but their name is not on the loan agreement and therefore they have no power to intervene in whether the lender forgives you or not from repayment.

    Clear?
    No sorry I mean in terms of HMRC's argument that any scheme post DR (loan or not loan), they will pursue the gross amount so not only the loan but also any fees that were paid before you were paid the loan amount.
    My point is that this argument with HMRC remains outstanding if you paid the LC for that tax year and you will continue to have an open enquiry.

    I was only making the comparison with settlement as you don't want to have an ongoing open enquiry.

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    Quote Originally Posted by webberg View Post
    What?
    Comparing settlement now to 2019 charge is really quite simple.
    So having worked out it is cheaper to settle closed years (no NI, no interest) than pay the loan charge. I'm wondering the following: the loan charge is not actually law yet, will HMRC stop settling decade old closed years once it becomes law? The risk being waiting for the loan charge to become law and then losing the chance to settle. Is there even time to settle now before the charge becomes law? Obviously the counter risk is you settle and the loan charge never happens or it doesn't include closed years; but both seem pretty unlikely to me.

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