What will the Loan Charge Figure actually be?

[mayfire]

I am trying to work out what the loan charge will actually look like if/when it hits.
I am currently looking at 45% of my total loan amount as a rough guide. What else is likely to be added to that? Fines/Fees/Penalities etc...does anyone know what we should expect?

My understanding is that settlement will involve adding on interest for late payment, but I don’t know what will be added to the loan charge.

Thanks for any help you can give.

[webberg]

I am trying to work out what the loan charge will actually look like if/when it hits.
I am currently looking at 45% of my total loan amount as a rough guide. What else is likely to be added to that? Fines/Fees/Penalities etc...does anyone know what we should expect?

My understanding is that settlement will involve adding on interest for late payment, but I don’t know what will be added to the loan charge.

Thanks for any help you can give.

Go to our website for a free calculator.

www.wttconsulting.co.uk

[mayfire]

Thanks for that where is the calculator I can’t find it on your site?

Am I safe to assume there shouldn’t be interest added as they are charging it as income for 2019?

Also why do people keep seeing ‘they will come back for more’ - how and why will they come back for more? I thought it was a choice between settlement amount plus interest or loan charge at 45%? What else is there?

[Groundhogdays]

Thanks for that where is the calculator I can’t find it on your site?

Am I safe to assume there shouldn’t be interest added as they are charging it as income for 2019?

Also why do people keep seeing ‘they will come back for more’ - how and why will they come back for more? I thought it was a choice between settlement amount plus interest or loan charge at 45%? What else is there?

For settlement, my understanding and reading of all this:

It depends on the scheme and type of loans, and whether you were an employee or self-employed, and whether the tax years in question are open or closed.

If an employee and all tax years are closed, then you are looking at income tax and employee NICs only, based on the net amount of loans to you.

As above, but any open tax years will also have interest chargeable.

For either or mixed scenario of open/closed tax years, for settlement this is likely to change one's taxable income for those earlier tax years, and therefore could push one into the next higher tax bracket, thereby attracting more tax on the whole. So it will likely be more than just the loan exposure you see up front. Maybe we are more protected with closed years, but I have my suspicions with HMRC.

If trust loans are involved, then depending on that arrangement, HMRC are likely to also push for an IHT charge on any outstanding loan with a trust, as part of settlement.

For anyone minded to settle, that should be enough to give one pause, especially since settlement means you can never get your money back, even if the Loan Charge gets overturned later.

Balance that against the Loan Charge itself, which although made deliberately scary to contemplate, isn't due for quite a while yet, doesn't include IHT (as far as I know), and doesn't require signing away one's right to redress, individually or as part of a group action.

Brexit is coming, or not (if a 2nd referendum becomes an option) and a lot can happen in a year or two.

In the meantime, there is nothing to stop one registering an interest to settle, which leaves that door open, but is non-binding until you accept an HMRC offer...

All that, and the legal weaknesses of the Loan Charge have not yet been tested. I would think that the precedent of future retrospective tax is more of a threat than the Loan Charge itself, which is the first wave use of such, so is also being used to gauge the level of real opposition 'to see if they can get away with it' (a familiar phrase, originally aimed at us, in order to get the Loan Charge rubber-stamped by parliament).

Interesting times.

[mayfire]

Thanks for that Groundhog, so the ‘more’ people speak of for the settlement refers to IHT? Do you know how much this is supposed to be?

And there shouldn’t be any ‘more’ if you are hit with the loan charge?

If this is the case it may well be a similar amount for me, settlement vs loan charge. The interest they are putting on yh settlement figure is crazy.

Also, to clarify...are any years that haven’t been closed by time passing considered ‘open’ - for example 2016 was never opened but obviously isn’t considered closed already because enough time hasn’t passed?

[mayfire]

Sorry. Another question.

When is the loan charge actually being applied? I keep reading april 2019. Does that mean it will be added on to this years income? The year that ends March 2019? ( I ask because I’ve heard it mentioned that a large pension contribution may help in the year it will be applied?) ((not that I have that sort of money but I want to know all the options whether relevant or not))
Or will it be applied the tax year starting April 2019?

Thanks for your help I am finding this forum far more helpful than my accountant, mp, and hmrc put together.

[Groundhogdays]

Sorry. Another question.

When is the loan charge actually being applied? I keep reading april 2019. Does that mean it will be added on to this years income? The year that ends March 2019? ( I ask because I’ve heard it mentioned that a large pension contribution may help in the year it will be applied?) ((not that I have that sort of money but I want to know all the options whether relevant or not))
Or will it be applied the tax year starting April 2019?

Thanks for your help I am finding this forum far more helpful than my accountant, mp, and hmrc put together.

No apologies - we all help each other out on here. But please do your own verification of everything I have said to satisfy yourself whether I and others are correct in what is said. I am no expert. My viewpoint comes from cross-checking various postings and articles here and elsewhere, and talking with my accountant. Nor have I let myself be rushed or panicked into it, despite the intended ever-present legalised extortion threat of the Loan Charge.

That said - to your questions:

LOAN CHARGE

The loan charge will be applied to THIS TAX YEAR 2018 - 2019, but it is not payable until 2020. However, there is a now a legal requirement to report all outstanding loans - by which HMRC mean any loans that haven't been paid back physically in cash value (ignoring whatever other mechanism may have been used to release loans) - by 30th October 2018. Don't know what the penalties might be for not doing so, but there might be some legal exemption criteria for not having to so report at this time, say if one is already part of some legal action, or has already notified details of loans elsewhere, DOTAS, etc. My conjecture.

The Loan Charge whacks a charge on the outstanding loans, but does not resolve the loans themselves - so they could be exposed to more tax grab later, with the Loan Charge applied against a subsequent year. It also rolls the loans up and adds them to current year 2018/2019 income for taxable income purposes. Not only is this designed to shove you into the 45% tax bracket, but you get whacked on your personal allowance, which is lost completely due to being in the upper bracket. That's right - a double whammy!

But at least its not payable until 2020, and you don't lose your right to redress and money back if the Loan Charge is scrapped by then or else later.


SETTLEMENT

Open Years & Closed Years

Open Years - these include the one year timeframe after a tax return during which HMRC can raise an tax return enquiry, and I believe also a six year window in which they can revisit a tax year, or else where an enquiry has been raised to 'protect' (i.e. leave a tax year open in order to revisit it later) a year. This latter has clearly been abused by HMRC leaving years open for a decade or so without progressing enquiries, until they could win strategic cases or bring in new legislation. THAT alone ought to be looked at in court as a form of entrapment.

In the settlement context, HMRC can charge interest as well as income tax & NIC's, along with IHT as applicable (it may or may not come to latter). I believe they have just put the interest rate up to align with recent Bank of England base rate hike. So this is obviously variable, until settlement is resolved, whenever. There are anecdotes of HMRC taking six months to even respond to correspondence...

Closed Years - where the one year period and six year periods have been missed by HMRC, or where enquiries have officially closed with official verification of tax years involved as closed.

[webberg]

LOAN CHARGE

The loan charge will be applied to THIS TAX YEAR 2018 - 2019, but it is not payable until 2020. However, there is a now a legal requirement to report all outstanding loans - by which HMRC mean any loans that haven't been paid back physically in cash value (ignoring whatever other mechanism may have been used to release loans) - by 30th October 2018. Don't know what the penalties might be for not doing so, but there might be some legal exemption criteria for not having to so report at this time, say if one is already part of some legal action, or has already notified details of loans elsewhere, DOTAS, etc. My conjecture.

Without wishing to sound patronising, this is a very good summary.

A couple of corrections from me.

First, there has always been an obligation on the borrower to report loans as part of this measure.

Second, if your option is to repay the loans in cash (and for the reasons below I would not recommend that), the deadline is 5th April 2019.

The last date to report loans is 30th September 2019.

So, why should you not repay?

A. It's unlikely that you would want to give more money to those who created this mess, i.e. the promoters.

B. If you did, would you expect to see it again?

C. If not, then go ahead as it will prevent the loan charge arising.

D. If you do want the money back, then i) it's unlikely that HMRC will agree you have repaid the loan within the terms of the loan charge - cue enquiry, and ii) it's likely that the earmarking of the funds for you, immediately or later, will be a taxable event.

[webberg]

SETTLEMENT

Open Years & Closed Years

Open Years - these include the one year timeframe after a tax return during which HMRC can raise an tax return enquiry, and I believe also a six year window in which they can revisit a tax year, or else where an enquiry has been raised to 'protect' (i.e. leave a tax year open in order to revisit it later) a year. This latter has clearly been abused by HMRC leaving years open for a decade or so without progressing enquiries, until they could win strategic cases or bring in new legislation. THAT alone ought to be looked at in court as a form of entrapment.

Closed Years - where the one year period and six year periods have been missed by HMRC, or where enquiries have officially closed with official verification of tax years involved as closed.

Couple of observations.

Correct in that an enquiry window is based on tax return submission date in the majority of instances and is 12 months from then,

Correct in that HMRC has used a "discovery" process to make assessments after that window has closed. The discovery assessment dates are 4, 6 or 20 years after the end of the year being assessed. The difference depends on the degree to which the error leading to the "discovery" is deliberate or otherwise.

Correct in that interest rates vary according to base rate. As a rule of thumb the rate since 2009 has been at or around 3% pa, and is calculated on a "simple" basis.

Incorrect I'm afraid, or at least exceedingly hard to prove, that there has been entrapment. If you had an enquiry and HMRC refused to advance it, your remedy at the time and now is to go to a Tribunal and ask them to force HMRC into action. You had as many rights as HMRC to go this route and the Tribunal system is designed to make the process accessible to all.

In most instances however the promoters continued to whisper in your ear that everything was going as expected, the enquiries were "just routine", the QC remains confident, HMRC will have to apply the literal letter of the law, don't worry. Consequently, relying on that advice, you did nothing proactive and neither did the promoters who did not want to shoot the golden goose.

Correct on closed years. Usually 4 years after the year end as so far the number of 6 year discovery assessments is very low but I predict will become more common place after the settlement period closes.

A closed year cannot, under the rules of the settlement process, attract tax or interest. Instead you are invited to "volunteer" and amount equivalent to the tax as part of the settlement. You can choose not to and wait for closed years to be picked up by the loan charge. Interest cannot be charged on a voluntary amount (although HMRC and certain advisers have presented this legal fact as a "concession" that has been agreed - it's not).

Again our calculator takes this option into account.

If you (or anybody else) wants to use it and con't find it, PM me and I'll send you a link.

[Groundhogdays]

Couple of observations.

Correct in that an enquiry window is based on tax return submission date in the majority of instances and is 12 months from then,

Correct in that HMRC has used a "discovery" process to make assessments after that window has closed. The discovery assessment dates are 4, 6 or 20 years after the end of the year being assessed. The difference depends on the degree to which the error leading to the "discovery" is deliberate or otherwise.

Correct in that interest rates vary according to base rate. As a rule of thumb the rate since 2009 has been at or around 3% pa, and is calculated on a "simple" basis.

Incorrect I'm afraid, or at least exceedingly hard to prove, that there has been entrapment. If you had an enquiry and HMRC refused to advance it, your remedy at the time and now is to go to a Tribunal and ask them to force HMRC into action. You had as many rights as HMRC to go this route and the Tribunal system is designed to make the process accessible to all.

In most instances however the promoters continued to whisper in your ear that everything was going as expected, the enquiries were "just routine", the QC remains confident, HMRC will have to apply the literal letter of the law, don't worry. Consequently, relying on that advice, you did nothing proactive and neither did the promoters who did not want to shoot the golden goose.

Correct on closed years. Usually 4 years after the year end as so far the number of 6 year discovery assessments is very low but I predict will become more common place after the settlement period closes.

A closed year cannot, under the rules of the settlement process, attract tax or interest. Instead you are invited to "volunteer" and amount equivalent to the tax as part of the settlement. You can choose not to and wait for closed years to be picked up by the loan charge. Interest cannot be charged on a voluntary amount (although HMRC and certain advisers have presented this legal fact as a "concession" that has been agreed - it's not).

Again our calculator takes this option into account.

If you (or anybody else) wants to use it and con't find it, PM me and I'll send you a link.

All noted, and thank you - I don't feel remotely patronised, just educated. I allowed myself to let off a little steam there.

In the first instance, the intelligent thing to do is have a clear grasp of all the tax year figures and what criteria does or doesn't apply to calculation of settlement vs loan charge. One then approaches either outcome with certainty and accurate exposure data. Better than trying to deal with HMRC calculations unprepared. So I will PM you for the calculator link - thanks.