What is the 2019 Loan Charge?

[phil@pmtc]

"They are quite simply not subject to UK tax law. .
.

Yes they are (unfortunately). Its UK' income' in the eyes of HMRC and therefore taxable.

[madame SasGuru]

"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.

A comment interesting enough for me to return to comment on.

To an extent I think you are right but I don’t think it helps you as I suspect any tax regime with an agreement with Hmrc will see a demand based on £100,000+ Of uk “income” and think let’s persue this as we could get a part of that tax.

[Iliketax]

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

I haven't seen anywhere that it is being classed as a deemed source of income

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.

Surely then Parliament will have been misled ?

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.

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

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.

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

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).

[Iliketax]

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.

Found it:

Let me dispel the notion that uncertainty prevails among practitioners—some of whom, I am sorry to say, perhaps supplied the amendments that we are discussing—by quoting from a post-Budget publication, issued by a firm of active advisers, appropriately called the “Tax Planning Newsletter”. It states:

“The main problem area for our clients would have been for those...who used one of the schemes which enabled bonuses to be taken from companies tax free. We had been warned by Dawn Primarolo that there was a danger of retrospective legislation in this area and we passed that warning on to clients. For some, however, it was a risk worth taking but it now appears that she meant what she said.”

Absolutely; I meant what I said.

It got quite a few laughs at the time. Probably less funny now.

[Theythinkitsallover]

Non resident

"Yes they are (unfortunately). Its UK' income' in the eyes of HMRC and therefore taxable."

Really Phil ? A UK PAYE income tax is chargeable to someone who is non resident for UK tax purposes in the year it arises ??

Or are you classing it as deemed source of income and therefore taxable wherever u are in the world ?

Iliketax thanks for your response. I am fortunately going out now down the pub now and dont have time at the moment to read and digest. I will however have a good read in the morning (probably with a slightly fuzzy head) and come back to you on your response your detailed response is as ever welcome and I am sure there are many out there who will look forward to the debate.

Have a good evening

[Iliketax]

A UK PAYE income tax is chargeable to someone who is non resident for UK tax purposes in the year it arises ??

Yep. Google Nichols v Gibson (as an example of something similar that has been tested in the courts).

[phil@pmtc]

"Yes they are (unfortunately). Its UK' income' in the eyes of HMRC and therefore taxable."

Really Phil ? A UK PAYE income tax is chargeable to someone who is non resident for UK tax purposes in the year it arises ??

Or are you classing it as deemed source of income and therefore taxable wherever u are in the world ?

Iliketax thanks for your response. I am fortunately going out now down the pub now and dont have time at the moment to read and digest. I will however have a good read in the morning (probably with a slightly fuzzy head) and come back to you on your response your detailed response is as ever welcome and I am sure there are many out there who will look forward to the debate.

Have a good evening

sorry - was actually a lazy response from myself as I was simply meaning that's how hmrc will see it. As it happens I think they will run with either/both in that they will say that a/you were resident in that year and therefore taxable and ignoring the retrospective part with the same argument that its not as could've paid "the loan" back (I'm aware that's hugely ridiculous btw and contradictory but again I'm saying what I think will occur) or b/they will as you mention, say its deemed income and not really answer the question other than repeatedly stating "its taxable". Id be v surprised if the answer was "its not taxable/no charge"
Whichever they run with, my original, poorly stated, point was that it means, in their eyes, they have power to collect it wherever the person may be as one way or the other its uk income and taxable

[Loan Ranger]

LC19 is treated as UK earnings in 2018/19. That's why you can get pension tax relief on it, as reported here:

https://forums.contractoruk.com/hmrc...ml#post2530297

I don't think it matters as to which year(s) the loans were received.

You have to pay tax on UK income, even if you're non-resident. See here:

https://www.gov.uk/tax-uk-income-live-abroad

The country you're resident in might try to tax you on your UK income and, if there is a DTA, you might be able to get relief.

https://www.gov.uk/tax-uk-income-liv...ad/taxed-twice

But note, if the rate in the other country is different to the UK, you'll pay the higher of the two.

Bottom line: being non-resident doesn't help.

[madame SasGuru]

sorry - was actually a lazy response from myself as I was simply meaning that's how hmrc will see it. As it happens I think they will run with either/both in that they will say that a/you were resident in that year and therefore taxable and ignoring the retrospective part with the same argument that its not as could've paid "the loan" back (I'm aware that's hugely ridiculous btw and contradictory but again I'm saying what I think will occur) or b/they will as you mention, say its deemed income and not really answer the question other than repeatedly stating "its taxable". Id be v surprised if the answer was "its not taxable/no charge"
Whichever they run with, my original, poorly stated, point was that it means, in their eyes, they have power to collect it wherever the person may be as one way or the other its uk income and taxable

Equally I suspect other countries tax collection services will happily push the point for either the ability to charge you more hey you earnt oz $300,000 last year give us our share or let’s ensure Hmrc owe us a favour.

Yes I know I’m utterly cynical but even my most cynical view has matched reality down the line

[madame SasGuru]

LC19 is treated as UK earnings in 2018/19. That's why you can get pension tax relief on it, as reported here:

https://forums.contractoruk.com/hmrc...ml#post2530297

I don't think it matters as to which year(s) the loans were received.

You have to pay tax on UK income, even if you're non-resident. See here:

https://www.gov.uk/tax-uk-income-live-abroad

The country you're resident in might try to tax you on your UK income and, if there is a DTA, you might be able to get relief.

https://www.gov.uk/tax-uk-income-liv...ad/taxed-twice

But note, if the rate in the other country is different to the UK, you'll pay the higher of the two.

Bottom line: being non-resident doesn't help.

And may encourage your current country of residence to claim the difference between our rates and theirs if it’s higher.

Only added to be explicit in what the possible consequences will be. Thankfully the only time that will matter for most countries is the period 1st Jan to 5th April 2019 so you may still have time to resolve this issue.