Settling is more expensive that paying the 2019 loan charge

[Delendog]

Sorry I do not have any HMRC contacts, I am not settling direct. I am in Big Group.

What I have been told is that settling with HMRC directly for years prior to 2011 that no NIC is chargeable.

Settling closed years prior to 2011 no NIC or Interest.

Someone who was with Cascade and who has access to the Matt Hall's HMRC note should be able to confirm this.

[CDJ]

(For transparency - I used an EBT scheme from 06-09 and settled via the CLSO)

I am not sure what HMRC are offering those that are contacting them to settle now, but under CLSO, the key points being No NIs,; Promoter fees not included as income (or allowable deductions) and importantly in terms of your calculations that Unopened years would be deemed "settled" and the indication from the draft announcement is that these years will still be settled in terms of the 2019 loan charge.

You are right in pointing out that by waiting for the 2019 Charge you will avoid any interest charges - for some, this could be decisive. But you need to balance that with the fact that all of your loans will likely be calculated at the higher rates (both %40 and 45% brackets) and note, there is every chance these rates could be increased (or other changes to income tax are introduced). I would suggest that the saving from not paying interest and not being able to use lower tax rates for the loan amounts in year, could quickly be eroded for those with a number of scheme years.

There is also the APN issue.. those that have paid APNs will pay no interest, but again due to the higher tax bracket this could also make it more advantageous to settle early.

Absolutely right that everyone should think about the calculation though, I just don't think that everyone would find a similar advantage to waiting.

[rcgeorge23]

I think it's also worth noting that the 2019 charge may not actually be the end of it.

If you take what Saleos say at face value, it sounds like HMRC will come back for the difference if 2019 is less than what you would have paid if the loans are treated as income and taxed in year drawn + interest + scheme fees.

[regron]

I think it's also worth noting that the 2019 charge may not actually be the end of it.

If you take what Saleos say at face value, it sounds like HMRC will come back for the difference if 2019 is less than what you would have paid if the loans are treated as income and taxed in year drawn + interest + scheme fees.

The longer this saga goes on and the more uncertainty and moving of goalposts there are, bankruptcy and starting over again seems the only 100% way of getting out of it all !!!! Not for everyone I know and not ideal and completely barmy to even see it that way

[Loan Ranger]

Example 1

£600k total loans
£150k in 08/09, 09/10, 10/11 and 11/12
10% uplift for promoters fee (10/9 * £150k = £167k)
£20k salary in each year
£100k salary in 2018/19

All open years. Assuming settlement includes NICs and interest.

Settlement now - £326k
2019 charge - £284k

[eek]

£600k total loans
£150k in 08/09, 09/10, 10/11 and 11/12
10% uplift for promoters fee (10/9 * £150k = £167k)
£20k salary in each year
£100k salary in 2018/19

All open years. Assuming settlement includes NICs and interest.

Settlement now - £326k
2019 charge - £284k

[Loan Ranger]

Example 2

£145k loans received in 2008/9
£20k salary in 2008/9
£40k salary in 2018/19

Settlement now - £78k
2019 charge - £66k

[CDJ]

£600k total loans
£150k in 08/09, 09/10, 10/11 and 11/12
10% uplift for promoters fee (10/9 * £150k = £167k)
£20k salary in each year
£100k salary in 2018/19

All open years. Assuming settlement includes NICs and interest.

Settlement now - £326k
2019 charge - £284k

Hmmm.. not sure your sums are right here.. quick calc putting £700k into a standard 2017-18 tax calculator returns income tax (i.e. excl any NI) of £301,100..

Total Tax due 43.0% £301,100.00
20.0% rate 0.9% £6,400.00
40.0% rate 6.7% £47,200.00
45.0% rate 35.4% £247,500.00

even with NIs, I think you'd still be right (as in better off), but I don't think your advantage would be as much.. (and of course it depends whether Hammond introduces any further surprises for us)

[Dylan]

I guess until we know if the above is true regarding HMRC coming back if they get less than they would under settlement it is all up in the air.

The lack of clarity is classic HMRC, utter ****wits.

[Loan Ranger]

Hmmm.. not sure your sums are right here.. quick calc putting £700k into a standard 2017-18 tax calculator returns income tax (i.e. excl any NI) of £301,100..

Total Tax due 43.0% £301,100.00
20.0% rate 0.9% £6,400.00
40.0% rate 6.7% £47,200.00
45.0% rate 35.4% £247,500.00

even with NIs, I think you'd still be right (as in better off), but I don't think your advantage would be as much.. (and of course it depends whether Hammond introduces any further surprises for us)

Sorry, I should have made it clear. The figures I gave are the extra you would have to pay by settling or paying the charge.

In the case of £100k salary and £600k loan charge, £284k is the difference between tax/nics on £100k and £700k.