What is the 2019 Loan Charge?

[phil@pmtc]

Reading through all this makes me think Elon Musk needs to hurry up and sort out his "humans living on moon/mars" plans.

[NoBigFish]

The whole thing is depressing, I have met with my MP, written to the Human Rights Committee as they asked Mel Stride for what Retrospective Tax was in the Finance Bill and he avoided mentioning the 2019 Charge, just written to the Treasury Committee. I will continue to hassle these people until someone takes notice. The more people that keep pressure on their MPs the better.

Also there are a few of us on Twitter trying to keep the profile of this up, a lot are also in the Big Group. The Government says 40,000 are affected by the charge but the number of people I see on Twitter do not in anyway reflect this number. I think we need to start making more noise.

[Cyclonic]

Interesting discussion and thankfully some very knowledgeable posters sharing their thoughts. Thank you.
Iliketax thinks there is no way out of this other than repaying loans, paying the loan charge or settling under CLSO2? None particularly appealing or affordable, but CLSO2 probably the least bad. IHT is a problem.
Webberg seems to think there is another way based on the Rangers decision that the employer should have paid tax, but employers are long gone so liability will just transfer to the employee?
The pension contribution angle sounds like an option to limit the tax in 2019, but finding the funds could be an issue.
What a mess!

[LandRover]

Interesting discussion and thankfully some very knowledgeable posters sharing their thoughts. Thank you.
Iliketax thinks there is no way out of this other than repaying loans, paying the loan charge or settling under CLSO2? None particularly appealing or affordable, but CLSO2 probably the least bad. IHT is a problem.
Webberg seems to think there is another way based on the Rangers decision that the employer should have paid tax, but employers are long gone so liability will just transfer to the employee?
The pension contribution angle sounds like an option to limit the tax in 2019, but finding the funds could be an issue.
What a mess!

Kinda decent summary.

The idiots running UK are clueless of the carnage that will unfold. You can fight or pay up.

[Laxmi]

"Now let's pretend we have a 2006/7 loan that is outstanding on 5 April 2019. You are not resident in 2018/19 and so you have to ask what this notional loan that arises to you on 5 April 2019 is "for"? One obvious answer is that it is a stupid deeming rule and so it is not "for" anything, let alone a tax year you are resident. No tax. The other obvious answer is that it relates to the cash you got a good few years ago and so is "for" a year you were resident in the UK and so fully taxable."




Now you see Iliketax this is where it gets interesting for some.

Are you saying that because it is a tax for a loan in the year of say 06/07 when you were UK resident that this is why the 2019 LC should still apply to non residents as it is effectively for the year when they were in the UK for work undertaken whilst in the UK

Now if this is why you think a person who is non resident for tax purposes in the 18/19 tax year is still liable for the loan charge then surely this is effectively confirming that the LC tax is "retrospective" . Surely then Parliament will have been misled ?

I have seen letters to MPs confirming from Mr Mel Stride that it isn't retrospective ?

If it isn't retrospective as HMRC and HMG argue and it is just a new tax that applies for the 18/19 tax year that just happens to take into account historical loans from for example your 06/07 tax year. Then if it is truly not retrospective in anyway shape or form then surely it can't apply to someone who isn't resident in the UK for the 18/19 tax year. They are quite simply not subject to UK tax law.

I haven't seen anywhere that it is being classed as a deemed source of income like rental income and for that to occur it would have to be for a fixed asset in the UK (like a house). I am sure you can point me to something that states otherwise and for that I think many out there would be grateful.

My understanding is that the LC is a PAYE income only - therefore subject to UK tax laws only.

You see your explanation although well meaning and thorough it just doesn't really add up for me

It can't be both.

I agree. HMRC want to see it any which way they can tax it. If it's about the year the loan was taken clearly it's rretrospective, especially as it applies to ppl that left the UK years ago. Don't agree that UK has taxing powers globally for non residents. It not like the US where citizens are taxed in the US where ever they are. This is all speculation though and feels like Russian rollette .

[Laxmi]

To be honest, I'm not sure what you are actually asking. So I'll answer where I can:



Have a look here: "A person (“P”) is treated as taking a relevant step" Finance (No. 2) Act 2017

That looks pretty deemed to me.



I think that Parliament very aware of the purpose and effect of what they enacted. While they would have no idea about some of the detail, having read the discussion that did take place, I struggle to see how they were misled.



I guess it is the same as asking whether that dress was gold or blue? If you look at what was done in relation with s58 FA 2008 (Huitson) or with Barclays (deemed release of loan relationships), that is clearly retrospective and clearly targeted at schemes that Parliament thought was aggressive. Labour and Conservative ministers have been very happy to threaten this type of retrospective legislation. From memory, Dawn Primarolo had a great laugh when she introduced some retrospective legislation. I'll have to try to dig that quote out one day.

Then there is the April 2019 loan charge. Is it retrospective? Is it not? It's nothing like those two things that I mention above. If you have something that is commercially a loan then you can do things to sort your self out (i.e. repay it) and stop it applying. People with loans that are, commercially, loans are actually doing that to stop the April 2019 loan charge applying. So at that level it doesn't sound retrospective. But equally if the "loan" is not commercially a loan (like contractor schemes where, viewed realistically, the loan is not really a loan) then its sounds very retrospective.

To me, what matters is whether it being "retrospective" (or not) stops the courts enforcing it. I think that there is plenty of evidence that the courts will enforce it. And if you are interested, you can find UK and ECHR cases that show this. If a case were taken, my opinion is that the courts would say that the government had struck a "fair balance" between the protection of the taxpayers and the public interest in securing taxes. And therefore the UK state is justified in adopting retrospective legislation (if you think it is retrospective). But that is just my view.



Yes. The April 2019 loan charge is PAYE income (being technical, as it is "employment income" and "PAYE employment income" since it is "taxable specific income"). But if there is no employer to withhold then it is still paid via self-assessment. Yes. It is subject to UK tax laws only. But so what? The UK is the one that wants the tax (assuming it is "for" a year where you are resident in the UK or have UK duties).

BArclays didn't suffer a long time retrospection, I think it was 3months. Parliament t has a tendency to be misled e.g 2008 section 58 stating clarification as opposed to retrospection, and off topic Iraq war was another example of parliament being misled. I think the fact that MPs aren't interested in details allows these draconian measures to be passed.

[Theythinkitsallover]

Non resident

"commercially a loan then you can do things to sort your self out (i.e. repay it) and stop it applying. People with loans that are, commercially, loans are actually doing that to stop the April 2019 loan charge applying."

Now why would they bother doing that?

Surely individuals in this situation would seek clarity from HMRC that it was a legitimate commercial loan or at the very least get clearance that the loan charge wont apply if it genuinely is a legitimate commercial loan with no tax avoidance motivation.

Now, I understand why Iliketax would choose to highlight that commercial loans situation against those pesky contractors whose "loans" weren't really loans scenario, because it supports his views on retrospection and the fairness of the new loan charge applying no matter what. Put simply dont moan you contractors... you can pay it back and it all goes away.

If these commercial loans you refer to really are genuine commercial transactions why would anyone seek to repay them just to avoid something that wont affect them anyway?? Why would you highlight this? Perhaps you could clarify ?

Iliketax I get where you come from when you post. You have a generic view that - you forum users out there were all avoiding tax and therefore you should pay and don't whinge about it or expect public sympathy or dare to try and find a way around it because there just isn't one and you knew what you were doing so therefore..

Now I get that stance I genuinely do. However, sometimes I feel what your posts lack a certain balance. The cases you mention are all good and well but they tend to be biased towards wins for HMRC.

For example the Gibson case you mention in relation to non residents is for a termination payment for works carried out whilst they were UK resident and therefore the payment even though they were non resident at the time it arose is subjected to UK tax.

Now, I understand again why you would choose to highlight this particular case as it validates your views as to why someone being non resident should be taxed in relation to the Loan Charge.

I think personally however, that it is a rather tenuous example when trying to relate it to the new one off tax called the Loan Charge that btw supposedly "isnt retrospective" so therefore it can't possibly relate to those works carried out while in the UK now can it. The Gibson case does not in my opinion support or validate your reasons why the LC should apply to non residents. A clever lawyer would wipe the floor with that example tbh. The LC is not retrospective "Remember"

When I look at Phil's response I see a much more balanced view. He has worked on the inside so he knows better than most.

Effectively he says HMRC will always say the income is taxable no matter what and that they will just apply whatever snippets of law they want to suit them to say it does.

Does Phil believe that the LC could be contested from a non res perspective? Well yes I think he probably does think there are possible valid arguments. Does he think these arguments will be tested in the courts? Then yes I think he knows they definitely will.

You see I think Phil is smart. He worked for HMRC he spotted the storm clouds ahead and decided to leap to the other side and make a living out of sorting it out and working for the individuals who will be affected. If he thought it was game over and a done deal with no hope for anyone he wouldn't have left now would he and he certainly wouldn't be on this forum.

Iliketax I love your posts they are informative and clear, but what I never really see you comment on is that HMRC might actually be partially to blame for this situation or that yes their new rules and laws could be interpreted differently by advisors and lawyers in the future and that until we reach that point in court well we just don't really know what the true outcome will be.

I never see you comment anywhere or take a balance view that maybe just maybe HMRC don't have it all wrapped up and that the Rangers ruling is possibly a huge inconvenience for them. Phil gets it.

The Rangers ruling might just end up biting HMRC on the butt big time. Look at the case today in relation to the BBC presenter. HMRC make some interesting comments on this.

A spokesperson for HMRC said it could not comment on individual cases but added: "Employment status is never a matter of choice; it is always dictated by the facts"

An interesting viewpoint. Remind me again - what were the facts in Rangers ? Who was liable again ? Oh and that employer who is responsible for the tax based on the facts is who again ??? Oh and yes in the first instance aren't we supposed to ask that employer for the tax based on the facts of the individual?? Oh and that employer based on these facts again might just might be in the UK and might just still exist ??

Imagine the possible inconvenience of it all !

Iliketax/Phil I really would be interested to hear your viewpoints on Rangers and the inconvenience it might just cause when applying the Loan Charge to individuals and whether the individuals affected really have ever actually taken a "relevant step" for the DRbrules to even apply to them.

I just want to be clear here, I am not a contractor I have no financial stake or motives in any of the questions I ask you. What I do have is a real concern for the mental state and impact on family life that this situation is causing and will cause to many.

The things you say have a huge impact on many out there using this forum and that sometimes just sometimes it is healthy to admit that you may not at this stage have or know all the answers.

[Iliketax]

"commercially a loan then you can do things to sort your self out (i.e. repay it) and stop it applying. People with loans that are, commercially, loans are actually doing that to stop the April 2019 loan charge applying."

Now why would they bother doing that?

Situation 1: Let's say you are a partner in a fund manager. You've done a deal where a bank lends a limited partnership of which you non-domiciled spouse £10m to buy coinvest. It's been structured so that tax relief is available on the interest. This was done pre-April 2017. The April 2019 loan charge will apply. So you arrange to borrow £10m yourself from the bank and use that to make a contribution to the LP and so allow it to repay the bank.

Situation 2: Your family trust owns a Malta based company. You work for its Jersey incorporated, UK tax resident subsidiary. The Jersey company pays a £30m dividend to Malta which then lends the money to the trust. The trust uses that £30m loan to buy a vineyard in France where you fly down to at the weekends when you are not sailing or shooting. This was done before April 2018. The April 2019 loan charge will apply. The trust borrows £30m money from the bank and repays the loan.

Situation 3: You are again back to being a partner in a fund manager. And in 2014 you set up your first fund. As it is early in its life no income or gains have arisen and so you take your £8m priority profit shares as an advance. You stop this in April 2015 as a result of s809EZA ITA 2007. But the loans are still there. So the April 2019 loan charge applies. So you borrow £8m and repay your advance before April 2019 and take an actual profit share in due course.

In each of these situation those are loans that can be repaid without changing the commercial position (other than perhaps the loss of a bit of tax relief on interest). Why would you not repay these loans to avoid an unnecessary April 2019 loan charge?

Surely individuals in this situation would seek clarity from HMRC that it was a legitimate commercial loan or at the very least get clearance that the loan charge wont apply if it genuinely is a legitimate commercial loan with no tax avoidance motivation.

Why would HMRC give clearance if they are squarely in the scope of the legislation? The self-employed legislation has a "tax advantage" threshold which is lower than tax avoidance.

Just because the loan is commercial does not mean that it is not part of a scheme with a main purposes of avoiding tax. The close companies' gateway requires that.

But just to be clear, none of the above is relevant to contractors. The April 2019 loan charge is designed to be much, much wider than contractors.

Remind me again - what were the facts in Rangers ? Who was liable again ? Oh and that employer who is responsible for the tax based on the facts is who again ??? Oh and yes in the first instance aren't we supposed to ask that employer for the tax based on the facts of the individual?? Oh and that employer based on these facts again might just might be in the UK and might just still exist ??

If the employer has paid the tax by April 2019 then there is no April 2019 loan charge. End of story. The double tax relieving rules apply.

If the employer is still around in April 2019 then they are liable for the PAYE and NIC. The double tax relieving rules apply so the April 2019 loan charge doesn't apply. The employer might ask you to reimburse the PAYE (there is a case that says that it has a common law right to get it back) and there is a penal tax charge if you don't reimburse with 90 days. So maybe not the end of the story for the individual.

But if the employer hasn't paid. Then the April 2019 tax liability belongs to the individual. Can the double tax rules apply to get rid of that liability? If you can convince a judge that "paid in full" means "not paid but should have done" then the double tax relieving rules will apply. Happy days. But I struggle with "paid in full" actually means anything else. As an aside, for some tax purposes PAYE regulation allow you to pretend that the tax has actually been paid. The April 2019 loan charge is not one of those. [For completeness agreeing time to pay with HMRC is ok. If you want to read more about that, look at s554Z5(4).]

So I get what you are saying about the Rangers result. It is just I'm not clever enough to see how that is actually relevant to the individual paying the April 2019 loan charge when the employer no longer exists and has not actually paid the tax. If the Supreme Court had looked at s554Z5 and said "oh, clearly for reasons x, y and z the tax that the employer should have paid but didn't pay is absolutely 110% cross-my-heart-and-hope-to-die 'paid in full' then that may be different. But they didn't. It wasn't argued in court. They didn't discuss it. They didn't even think about it because it didn't get on to the statute books until after the court hearing.

So help me. What am I missing?

Iliketax/Phil I really would be interested to hear your viewpoints on Rangers and the inconvenience it might just cause when applying the Loan Charge to individuals and whether the individuals affected really have ever actually taken a "relevant step" for the DRbrules to even apply to them.

I don't see any inconvenience. The legislation already on the books (plus that in the current Finance Bill) means that Rangers does not matter (unless it means that employer now coughs up and pays the tax).

Just for the sake of pretending I know something, as to whether the individuals "have ever actually taken a 'relevant step'", they can't. It is just not possible for an individual to take a relevant step. It is only a relevant third person (who can't be the employee or the employer) that can take a relevant step. But who cares.

The things you say have a huge impact on many out there using this forum and that sometimes just sometimes it is healthy to admit that you may not at this stage have or know all the answers.

I absolutely know that loan charge will have a huge impact on people and their families. But I see all sorts of scams and dodgy schemes that are touted by 'boutiques' and targeted at the trusting and ill informed to get around the April 2019 loan charge (want to buy a derivative that you are almost certain to lose money on and buy a bet that you are almost certain to win, and then give the losing derivative to the trust? And, rhetorically, what could possibly go worng?). I personally think people should go to prison for that. They have wrecked lives. But it's not happened yet.

[phil@pmtc]

Theythinkitsallover - thanks for the complimentary comments.
I’ll reply tomorrow offering my view to your queries, not well today so will wait until I have a clear head.

[Laxmi]

"commercially a loan then you can do things to sort your self out (i.e. repay it) and stop it applying. People with loans that are, commercially, loans are actually doing that to stop the April 2019 loan charge applying."

Now why would they bother doing that?

Surely individuals in this situation would seek clarity from HMRC that it was a legitimate commercial loan or at the very least get clearance that the loan charge wont apply if it genuinely is a legitimate commercial loan with no tax avoidance motivation.

Now, I understand why Iliketax would choose to highlight that commercial loans situation against those pesky contractors whose "loans" weren't really loans scenario, because it supports his views on retrospection and the fairness of the new loan charge applying no matter what. Put simply dont moan you contractors... you can pay it back and it all goes away.

If these commercial loans you refer to really are genuine commercial transactions why would anyone seek to repay them just to avoid something that wont affect them anyway?? Why would you highlight this? Perhaps you could clarify ?

Iliketax I get where you come from when you post. You have a generic view that - you forum users out there were all avoiding tax and therefore you should pay and don't whinge about it or expect public sympathy or dare to try and find a way around it because there just isn't one and you knew what you were doing so therefore..

Now I get that stance I genuinely do. However, sometimes I feel what your posts lack a certain balance. The cases you mention are all good and well but they tend to be biased towards wins for HMRC.

For example the Gibson case you mention in relation to non residents is for a termination payment for works carried out whilst they were UK resident and therefore the payment even though they were non resident at the time it arose is subjected to UK tax.

Now, I understand again why you would choose to highlight this particular case as it validates your views as to why someone being non resident should be taxed in relation to the Loan Charge.

I think personally however, that it is a rather tenuous example when trying to relate it to the new one off tax called the Loan Charge that btw supposedly "isnt retrospective" so therefore it can't possibly relate to those works carried out while in the UK now can it. The Gibson case does not in my opinion support or validate your reasons why the LC should apply to non residents. A clever lawyer would wipe the floor with that example tbh. The LC is not retrospective "Remember"

When I look at Phil's response I see a much more balanced view. He has worked on the inside so he knows better than most.

Effectively he says HMRC will always say the income is taxable no matter what and that they will just apply whatever snippets of law they want to suit them to say it does.

Does Phil believe that the LC could be contested from a non res perspective? Well yes I think he probably does think there are possible valid arguments. Does he think these arguments will be tested in the courts? Then yes I think he knows they definitely will.

You see I think Phil is smart. He worked for HMRC he spotted the storm clouds ahead and decided to leap to the other side and make a living out of sorting it out and working for the individuals who will be affected. If he thought it was game over and a done deal with no hope for anyone he wouldn't have left now would he and he certainly wouldn't be on this forum.

Iliketax I love your posts they are informative and clear, but what I never really see you comment on is that HMRC might actually be partially to blame for this situation or that yes their new rules and laws could be interpreted differently by advisors and lawyers in the future and that until we reach that point in court well we just don't really know what the true outcome will be.

I never see you comment anywhere or take a balance view that maybe just maybe HMRC don't have it all wrapped up and that the Rangers ruling is possibly a huge inconvenience for them. Phil gets it.

The Rangers ruling might just end up biting HMRC on the butt big time. Look at the case today in relation to the BBC presenter. HMRC make some interesting comments on this.

A spokesperson for HMRC said it could not comment on individual cases but added: "Employment status is never a matter of choice; it is always dictated by the facts"

An interesting viewpoint. Remind me again - what were the facts in Rangers ? Who was liable again ? Oh and that employer who is responsible for the tax based on the facts is who again ??? Oh and yes in the first instance aren't we supposed to ask that employer for the tax based on the facts of the individual?? Oh and that employer based on these facts again might just might be in the UK and might just still exist ??

Imagine the possible inconvenience of it all !

Iliketax/Phil I really would be interested to hear your viewpoints on Rangers and the inconvenience it might just cause when applying the Loan Charge to individuals and whether the individuals affected really have ever actually taken a "relevant step" for the DRbrules to even apply to them.

I just want to be clear here, I am not a contractor I have no financial stake or motives in any of the questions I ask you. What I do have is a real concern for the mental state and impact on family life that this situation is causing and will cause to many.

The things you say have a huge impact on many out there using this forum and that sometimes just sometimes it is healthy to admit that you may not at this stage have or know all the answers.

Well stated. What if the promoter no longer exists, is that the point where hmrc pass on the liability . Although out of the chain of people involved, who the employer was needs to be clarified.