The following is intended to be as simple a guide as possible to those who have had no prior knowledge of the loan charge.
Ultimately, if you are confused as to how this might apply to your own circumstances, you should take appropriate advice.
What is the loan charge?
It's a charge to tax on the value of all disguised remuneration and disguised self employment profits that have been paid in the form of a loan or other credit in the past and which remain outstanding as at 5th April 2019.
It covers all such loans and credit from 1999 to 5th April 2019.
How is it calculated?
You add the outstanding loan/credit value to your other income in 2018/19 and calculate the total tax due. Deduct tax already paid. The difference is (mainly) the loan charge on unpaid balances.
When is it payable?
31st January 2020.
You may be able to spread the charge but as yet there is no general or specific guidance and this will come down to individual circumstances.
How will HMRC know what is outstanding?
You are legally obliged to tell the employer who made the loan to you, the unpaid balance. In turn that employer is obliged to tell HMRC.
If the employer is no longer around, you must tell HMRC the unpaid balances before 30th September 2019.
And if I don't tell HMRC?
You risk a substantial penalty which could be 60% of the tax due.
And if I don't have any information from so long ago?
Either you can review whatever records you may have (bank statements etc) and produce a reasonable estimate. If you do not have such data, perhaps recalculate from day rates.
If you do not have any idea at all, HMRC will estimate the position, usually on a multiple of salary, and it will then for you to disprove it.
Can the charge be avoided?
Yes.
You can repay the loans in such a way as you never see that money again. Any route that means you do see the money again, risks HMRC claiming that repayment has not happened or that the likelihood of the money coming back to you creates its own tax charge.
You can settle with HMRCV using the present offer. This has to be completed by 5th April 2019 and to do that, you must have data with HMRC by 30th September 2018.
These are the only two certain ways that the charge will not arise.
My promoter tells me that their scheme is outside the rules?
The loan charge is based on disguised remuneration/profits. In theory therefore a loan that is not within the definition, usually a loan from an employer rather than a third party, is not within the disguised remuneration rules and therefore not liable for a loan charge.
In practice, HMRC will claim that that there is always a third party involved in transactions and/or the "intent" of the disguised remuneration rules was to capture such scenarios. Both arguments are contentious and will be very difficult for HMRC to prove.
The Rangers case however means that money paid to you for acting as an employee is probably taxable as remuneration. There is a dividing line therefore between salary and a loan. You need to consider each situation carefully.
As a rule of thumb, if the following elements are missing from any alleged loan, it's likely to be seen as remuneration:
Repayment
Interest payments
Credit checks
I'm not in the UK tax net in 2018/19, am I liable?
Yes. The charge is deemed to be a UK source of income.
Does paying the charge settle enquiries?
No.
HMRC will continue to make enquiries into the years the loans were received. If eventually agreement is reached, the loan charge paid will be used against the liability from those earlier years plus interest.
If the loan charge is more than the tax/interest due, will I get a repayment?
No.
It's therefore important that you manage the liability to the loan charge.
If in the future a case is won in tribunal meaning I have no liability, can I recover the loan charge?
No. It's claimed to be a new tax on a new source and unconnected with other liabilities.
Surely the charge is retrospective, unfair and open to legal challenge?
Yes, yes and yes.
Groups already exist to challenge the legality of the position.
My scheme promoter is missing, what do I do?
Register for HMRC settlement before 30th September 2018, research the position in detail, engage a professional adviser who is unbiased (unconnected with the promoter).
This will bankrupt me and expose my family to harm. Surely it's illegal?
Sadly not.
HMRC promise time to pay if you settle. Perhaps 5 years or more in the right circumstances.
Certain of your assets (family home etc) are unlikely to be seized for tax debts. You would be expected to realise other assets to pay the bill.
New questions?
Ultimately, if you are confused as to how this might apply to your own circumstances, you should take appropriate advice.
What is the loan charge?
It's a charge to tax on the value of all disguised remuneration and disguised self employment profits that have been paid in the form of a loan or other credit in the past and which remain outstanding as at 5th April 2019.
It covers all such loans and credit from 1999 to 5th April 2019.
How is it calculated?
You add the outstanding loan/credit value to your other income in 2018/19 and calculate the total tax due. Deduct tax already paid. The difference is (mainly) the loan charge on unpaid balances.
When is it payable?
31st January 2020.
You may be able to spread the charge but as yet there is no general or specific guidance and this will come down to individual circumstances.
How will HMRC know what is outstanding?
You are legally obliged to tell the employer who made the loan to you, the unpaid balance. In turn that employer is obliged to tell HMRC.
If the employer is no longer around, you must tell HMRC the unpaid balances before 30th September 2019.
And if I don't tell HMRC?
You risk a substantial penalty which could be 60% of the tax due.
And if I don't have any information from so long ago?
Either you can review whatever records you may have (bank statements etc) and produce a reasonable estimate. If you do not have such data, perhaps recalculate from day rates.
If you do not have any idea at all, HMRC will estimate the position, usually on a multiple of salary, and it will then for you to disprove it.
Can the charge be avoided?
Yes.
You can repay the loans in such a way as you never see that money again. Any route that means you do see the money again, risks HMRC claiming that repayment has not happened or that the likelihood of the money coming back to you creates its own tax charge.
You can settle with HMRCV using the present offer. This has to be completed by 5th April 2019 and to do that, you must have data with HMRC by 30th September 2018.
These are the only two certain ways that the charge will not arise.
My promoter tells me that their scheme is outside the rules?
The loan charge is based on disguised remuneration/profits. In theory therefore a loan that is not within the definition, usually a loan from an employer rather than a third party, is not within the disguised remuneration rules and therefore not liable for a loan charge.
In practice, HMRC will claim that that there is always a third party involved in transactions and/or the "intent" of the disguised remuneration rules was to capture such scenarios. Both arguments are contentious and will be very difficult for HMRC to prove.
The Rangers case however means that money paid to you for acting as an employee is probably taxable as remuneration. There is a dividing line therefore between salary and a loan. You need to consider each situation carefully.
As a rule of thumb, if the following elements are missing from any alleged loan, it's likely to be seen as remuneration:
Repayment
Interest payments
Credit checks
I'm not in the UK tax net in 2018/19, am I liable?
Yes. The charge is deemed to be a UK source of income.
Does paying the charge settle enquiries?
No.
HMRC will continue to make enquiries into the years the loans were received. If eventually agreement is reached, the loan charge paid will be used against the liability from those earlier years plus interest.
If the loan charge is more than the tax/interest due, will I get a repayment?
No.
It's therefore important that you manage the liability to the loan charge.
If in the future a case is won in tribunal meaning I have no liability, can I recover the loan charge?
No. It's claimed to be a new tax on a new source and unconnected with other liabilities.
Surely the charge is retrospective, unfair and open to legal challenge?
Yes, yes and yes.
Groups already exist to challenge the legality of the position.
My scheme promoter is missing, what do I do?
Register for HMRC settlement before 30th September 2018, research the position in detail, engage a professional adviser who is unbiased (unconnected with the promoter).
This will bankrupt me and expose my family to harm. Surely it's illegal?
Sadly not.
HMRC promise time to pay if you settle. Perhaps 5 years or more in the right circumstances.
Certain of your assets (family home etc) are unlikely to be seized for tax debts. You would be expected to realise other assets to pay the bill.
New questions?
Comment