What is the 2019 Loan Charge?

[Iliketax]

Hi,
I find point 1 intriguing. If the loan is repaid why is it not acceptable that, that money is returned to the borrower provided that the relevant tax is paid on that distribution/income? HMRC can't be suggesting that people pay the loan back and walk away as clearly no-one would do it. There has to be an implicit understanding that those funds could be distributed assuming this is done legally otherwise there is no incentive to pay the loan back. If the beneficiaries choose to distribute the funds to the original borrower why are they not permitted to do this, provided that these distributions are taxed and further tax avoidance mechanisms are not being employed?

There was nothing in the draft legislation that would stop a genuine repayment of a loan getting you out of the April 2019 tax charge arising. But if this is done, the normal tax consequences of the former lender holding the money and, potentially doing something with it, will apply. These can be penal.

For example, if we pretend that the disguised remuneration that was taken out of the Finance Bill eventually comes in then:

1. To ensure that a loan that is currently outstanding is not outstanding on 5 April 2019, it has to be repaid with "money". So if you repay it with a loan note, a house, some hay or Apple stock, it will still be outstanding and so you still have to pay the tax/NIC. You can find the draft legislation in Schedules 17 (employees) and 18 (self-employed) of the original Finance (No 2) Bill 2017.

2. The loan also needs to be repaid in a way that means it is really repaid. In other words, on a realistic view of the facts, it needs to be repaid. If it isn't, then the loan will still be outstanding. So smoke and mirrors won't do it. This is just the way that legislation is interpreted.

3. The repayment is ignored if there is "any connection (direct or indirect)" with a tax avoidance arrangement. So if the way of getting the money to pay the loan back, or what you are thinking of doing with the money afterwards, has any connection with a tax avoidance arrangement then the repayment is ignored. This is para 3 of Schedule 17 (or Schedule 18) of the original Finance Bill https://www.publications.parliament....0156/17156.pdf

4. If you were self-employed and the money that the ex-lender now has could benefit you, someone connected with you, someone who used to be connected with you or you have the power to enjoy it (incredibly widely defined) then you will pay tax on the money that the ex-lender now holds. Do a ctrl-F for "23A" in the draft legislation I linked to. This point is self-employed specific though. For someone who was an employee then this tax charge probably does not apply (because of para 57 Sch 2 FA 2011). I say "probably" because we don't have the final version of the legislation. Also, this only applies where the ex-lender got the original funds before 6 April 2011.

The bit about tax avoidance is very important. I've seen people say you could do all sort of things to get out of the legislation (become an employee of the trustee, enter into matching "winning" bet and "losing" derivative contract, etc) but these clearly don't work. And by trying to do this sort of thing you may well be in GAAR (60% penalty), DOTAS (financial products hallmark and/or employment income hallmark), APNs, be liable for the April 2019 loan charge (as the repayment will be ignored), etc. Basically, you will end up paying a load of fees for the avoidance scheme and still have to pay the tax (plus penalties, etc).

But for someone who was an employee, who repays the loan with their own money, originally got the loan before April 2011, has nothing to do with a tax avoidance scheme and does not have open years then there may be no April 2019 tax charge (may, because the final legislation is not here yet). Instead the tax will be paid when you (or pretty much anyone else) gets a benefit (even after your death). You will also remain vulnerable to the "April 2021 leaving money in a trust after repaying the loan tax charge" or whatever might come next.

[Dazza]

I have seen the below from a KPMG article


As mentioned in our other article this week, a number of have been removed from Finance Bill 2017 due to the shortened Parliamentary timetable. The Chartered Institute of Taxation, amongst others, had urged the Chancellor to avoid rushing through a large number of tax changes with limited Parliamentary scrutiny and it appears that this advice has been heeded. Approximately 70 percent of the clauses have been dropped and only 25 of the 84 clauses remain, many of which relate to employment tax.

From an employment tax perspective the main points are as follows:

The proposed changes to the Disguised Remuneration legislation included the introduction of a new 2019 loan charge. This aspect of the changes has now been removed;

The proposed changes to Termination Payments and PAYE Settlement Agreements have been removed in full. Both were due to come into effect from 6 April 2018;

The proposed changes to the time limits for making good on benefits have also been removed. These were due to take effect from 6 April 2017.

If I am reading the above right the loan charge aspect for 2019 has been removed for now?

[Silverskin]

I have seen the below from a KPMG article


As mentioned in our other article this week, a number of have been removed from Finance Bill 2017 due to the shortened Parliamentary timetable. The Chartered Institute of Taxation, amongst others, had urged the Chancellor to avoid rushing through a large number of tax changes with limited Parliamentary scrutiny and it appears that this advice has been heeded. Approximately 70 percent of the clauses have been dropped and only 25 of the 84 clauses remain, many of which relate to employment tax.

From an employment tax perspective the main points are as follows:

The proposed changes to the Disguised Remuneration legislation included the introduction of a new 2019 loan charge. This aspect of the changes has now been removed;

The proposed changes to Termination Payments and PAYE Settlement Agreements have been removed in full. Both were due to come into effect from 6 April 2018;

The proposed changes to the time limits for making good on benefits have also been removed. These were due to take effect from 6 April 2017.

If I am reading the above right the loan charge aspect for 2019 has been removed for now?

Won't this just be included in the next finance bill though?

[EBTContractor]

KPMG article link

https://home.kpmg.com/uk/en/home/ins...gislation.html

[Dazza]

https://home.kpmg.com/uk/en/home/ins...gislation.html

This is a later update from KPMG from last Friday

https://home.kpmg.com/uk/en/home/ins...yment-tax.html

[difficulttimes]

Temporary stay of execution

The 2019 LC has been removed but I'm sure it will go straight back in there in the Autumn when Parliament resumes. Of course this on the proviso that the Tories get their majority but of course if Labour get in they will raise tax rates for the 'wealthy' which would have an impact on the tax on your loans come 18/19.

I suppose the interesting bit was that the 2019 LC was going to remain in the revised FB then at the last moment taken out. If you were clutching at straws this could be seen as a positive. There must have been concerns with it as they kept in the updated IR35 changes.

I think until we get a definite that it is going ahead, I wouldn't be settling on closed years just yet.

[demby]

The 2019 LC has been removed but I'm sure it will go straight back in there in the Autumn when Parliament resumes. Of course this on the proviso that the Tories get their majority but of course if Labour get in they will raise tax rates for the 'wealthy' which would have an impact on the tax on your loans come 18/19.

I suppose the interesting bit was that the 2019 LC was going to remain in the revised FB then at the last moment taken out. If you were clutching at straws this could be seen as a positive. There must have been concerns with it as they kept in the updated IR35 changes.

I think until we get a definite that it is going ahead, I wouldn't be settling on closed years just yet.

Do you think it will it become the 2020 Loan Charge?

[Dazza]

Do you think it will it become the 2020 Loan Charge?

Do we know for sure whether this will be included in the next Finance Bill? What's to say it won't be dropped altogether- we will have to see what the Tory and Labour manifestos say?

[regron]

Do we know for sure whether this will be included in the next Finance Bill? What's to say it won't be dropped altogether- we will have to see what the Tory and Labour manifestos say?

It will appear in the future and if it doesn't, I will happily come back on here and eat my hat. First sign of that is here:

extract from The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con) when the bill went through the House of Lords

Finally, while some changes to address tax avoidance and evasion originally included in the Bill have been omitted and will be legislated for at the next available opportunity, the Bill includes a number of changes that advance the Government’s aims in this area. This Government are committed to tackling tax avoidance and evasion at all levels in order to ensure that everyone, no matter who they are, pays the right amount of tax at the right time. Since 2010, we have invested more than £1.8 billion in HMRC to tackle evasion, avoidance and non-compliance, helping to secure more than £140 billion in additional tax revenues. This includes more than £45 billion from large businesses and more than £2.5 billion from the very wealthiest. The UK also has one of the lowest tax gaps in the world, and the Government have announced more than 35 policies in this Parliament which are forecast to raise more than £18.5 billion by 2021-22. The Finance Bill extends that record by making changes to ensure that those who promote tax avoidance schemes cannot circumvent the rules by reorganising their business while continuing to use high-risk tactics in promoting avoidance schemes. It tackles abuse of the VAT relief for adapted motor vehicles and introduces a new charge on loans from disguised remuneration schemes that have allowed beneficiaries to avoid paying the tax that should have been due on their employment. The Government’s record on tackling avoidance and evasion and making sure that tax is paid fairly is one of which I am proud.

So to conclude, this Finance Bill supports our commitment to a fair and sustainable tax system, one that can support our critical public services and gets the country back to living within its means. I beg to move.


The whole Hansard can be found here:

https://hansard.parliament.uk/Lords/2017...e(No2)Bill

[difficulttimes]

It will appear in the future and if it doesn't, I will happily come back on here and eat my hat. First sign of that is here:

extract from The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con) when the bill went through the House of Lords

Finally, while some changes to address tax avoidance and evasion originally included in the Bill have been omitted and will be legislated for at the next available opportunity, the Bill includes a number of changes that advance the Government’s aims in this area. This Government are committed to tackling tax avoidance and evasion at all levels in order to ensure that everyone, no matter who they are, pays the right amount of tax at the right time. Since 2010, we have invested more than £1.8 billion in HMRC to tackle evasion, avoidance and non-compliance, helping to secure more than £140 billion in additional tax revenues. This includes more than £45 billion from large businesses and more than £2.5 billion from the very wealthiest. The UK also has one of the lowest tax gaps in the world, and the Government have announced more than 35 policies in this Parliament which are forecast to raise more than £18.5 billion by 2021-22. The Finance Bill extends that record by making changes to ensure that those who promote tax avoidance schemes cannot circumvent the rules by reorganising their business while continuing to use high-risk tactics in promoting avoidance schemes. It tackles abuse of the VAT relief for adapted motor vehicles and introduces a new charge on loans from disguised remuneration schemes that have allowed beneficiaries to avoid paying the tax that should have been due on their employment. The Government’s record on tackling avoidance and evasion and making sure that tax is paid fairly is one of which I am proud.

So to conclude, this Finance Bill supports our commitment to a fair and sustainable tax system, one that can support our critical public services and gets the country back to living within its means. I beg to move.


The whole Hansard can be found here:

https://hansard.parliament.uk/Lords/2017...e(No2)Bill

I agree that it is but the only possible silver lining is that HMRC will stop being so dogmatic when it comes to their so called 'settlement terms'.
I think this Baroness may get a letter from me as she sounds a bit deluded.