Settling is more expensive that paying the 2019 loan charge

[Silverskin]

I have been waiting since October 2016 for one such SAR/DPA request. Complaining to the authorities due to being outside the 40 days is also fruitless, as they just come back and say they can't do anything until the underlying dispute is resolved......crazy, but true !!!

To be fair HMRC did come back to me with a lot more detail than I was expecting. It was just a little frustrating that it took nearly 7 weeks for them to respond.

[EBTContractor]

Now i will turn to the other matter which i would like to draw your attention to and that is the issue of IHT.

I can see the IHT threshold is £325K - anything over taxed at 40%.

Can one assume unless the total loan amount is less than £325K, there is no IHT to pay?

[starstruck]

I'm a bit confused by the 2019 loan charge. Do you wait for HMRC to say, you have these loans which are caught by the charge (because say they have got your details from your scheme provider). Or do you voluntarily declare it yourself on your 2018/19 tax return to avoid something more nasty happening? Are there any useful links that explain it all?

[regron]

I'm a bit confused by the 2019 loan charge. Do you wait for HMRC to say, you have these loans which are caught by the charge (because say they have got your details from your scheme provider). Or do you voluntarily declare it yourself on your 2018/19 tax return to avoid something more nasty happening? Are there any useful links that explain it all?

There are no links to explain it yet, as it hasn't been made law. It was due to be included in the 2017 Finance Act, but was pulled (along with a load of others) due to the snap, general election. Until it is re-inserted (assuming it is) we won't know how it will be managed until we see the finer details.

[starstruck]

First calculate the tax/NIC position for the open years assuming interest will be applied from the due date (31st January following year end) to the date of settlement. Call this X

Second, calculate the tax/NIC due for 2018/19 if closed years are taxed then. In other words, add the loans to income that year. Call this Y

Third, calculate the tax due on closed years if you volunteer the tax in the year the loan was drawn. Call this Z

If X + Y is more than X + Z, then consider settling now.

If X + Y is less than X + Z, then settle open years now and closed years in 2018/19.

If you want to get clever and add in the time value of money/opportunity cost/ lost investment appreciation, that will bring some sophistication to the model.

Would you be kind enough to confirm if the following is correct. When calculating 2019 loan charge:

(1) It does not include employers NI.
(2) It is treated exactly like taxable income so can be offset with pension contributions and standard allowances etc.

When calculating settlement for years prior to 2011:

(2) Use your previous tax calcs for those years (incl. dividends, pension etc..) but add the loan amount as if it was salary in the year it was receievd.
(3) Don't include any NI, penalty or interest.

Many thanks!

[webberg]

Would you be kind enough to confirm if the following is correct. When calculating 2019 loan charge:

(1) It does not include employers NI.
(2) It is treated exactly like taxable income so can be offset with pension contributions and standard allowances etc.

When calculating settlement for years prior to 2011:

(2) Use your previous tax calcs for those years (incl. dividends, pension etc..) but add the loan amount as if it was salary in the year it was receievd.
(3) Don't include any NI, penalty or interest.

Many thanks!

1. I believe it does not include Employers NI
2. I think not. It's NOT a charge on income but a charge on a loan balance. I think therefore probably not "earnings" for the purposes of calculating pension allowances.
2. (Again) yes
3. You include interest from the usual due date (31st January following year end) and HMRC claim NI from 2011/12 onwards.

Caveat - we have yet to see the final version of the law so all the above is subject to change.

[webberg]

I'm a bit confused by the 2019 loan charge. Do you wait for HMRC to say, you have these loans which are caught by the charge (because say they have got your details from your scheme provider). Or do you voluntarily declare it yourself on your 2018/19 tax return to avoid something more nasty happening? Are there any useful links that explain it all?

The rules about declaring loans are not yet settled in terms of the mechanism.

However if the rules do come back in as they were previously, then

IT IS YOUR OBLIGATION TO REPORT

It is not for HMRC to "find out" or tell you.

Further, it looks like you may have to report within 3 months of 5th April 2019.

That however was tied into the "making tax digital" plan and that plan has suffered some delays (and in my opinion is unlikely for at least 5 years).

If you cannot tell HMRC the value of the loan, they will make an estimate.

If you choose not to tell HMRC anything, you risk penalties.

Again

IT IS YOUR OBLIGATION TO REPORT

Do not rely upon any other party to report and that is NOT a defence.

[demby]

The rules about declaring loans are not yet settled in terms of the mechanism.

However if the rules do come back in as they were previously, then

IT IS YOUR OBLIGATION TO REPORT

It is not for HMRC to "find out" or tell you.

Further, it looks like you may have to report within 3 months of 5th April 2019.

That however was tied into the "making tax digital" plan and that plan has suffered some delays (and in my opinion is unlikely for at least 5 years).

If you cannot tell HMRC the value of the loan, they will make an estimate.

If you choose not to tell HMRC anything, you risk penalties.

Again

IT IS YOUR OBLIGATION TO REPORT

Do not rely upon any other party to report and that is NOT a defence.

If you have to report within 3 months when will the tax be due?

[webberg]

If you have to report within 3 months when will the tax be due?

Good question.

I suspect that a "safe" analysis would be to say that as the event creating the charge is one caught by Part 7A, then the due date under 7a is applicable.

That can vary considerably depending on the event.

In some cases it will be the usual PAYE date (19th of month following "payment") or in some cases, perhaps the year end PAYE settlement date which could be April 19th following year end or in some cases July 19th following year end.

I'd have a dig around but until I see the new law, I'm afraid I would be wasting my time and at the moment that is my most precious commodity.

[AnotherContractor]

Closed Years covered by CLSO

hello,

On reading:

https://www.gov.uk/government/consul...l-consultation

It not's clear how HMRC intend to tackle closed years which agreed as part of CLSO.

Will they come back and unpick the agreement and return with a demand for back taxes and interest ?

Cheers.