Loan charge - review outcomes - impact on settlement

[webberg]

We are all aware that largely down to the efforts of LCAG, HM Treasury has been forced to concede a review of the impact of the loan charge.

It is to be hoped that the review is meaningful and I see that Zac Goldsmith MP tabled a question recently which looks to hold the government to produce a comprehensive and reliable piece of work.

That review is due to report no later than 30th March. Not only is that a Saturday, but is also the day after we leave the EU (assuming our politicians can stop their selfish playground squabbling and get on with the job the referendum instructed them to do).

Let's be generous and say that the review is published 27th March.

The review may suggest that no changes to the loan charge are needed or that it will be limited in time or limited according to individual circumstance or withdrawn completely or until a later date.

For those engaged in the settlement process with HMRC, the timing causes some issues.

HMRC claim that in order to avoid the loan charge, settlement - meaning in this case an agreement to pay the tax due on loans - has to be agreed by 5th April 2019.

We think "agreed" probably means your signing and returning of the contract agreeing the "offer" rather than being in possession of a contract countersigned by HMRC (we have a client who has been waiting since August 2018 for one such).

If that is the case, then there will be very little time to spare at the end of March/early April.

The outcome of the review can have a major impact on whether settlement is the right route for you or not.

The key difference that a limitation or removal of the charge will make is on whether you need to settle - or not - closed years.

A closed year is a year for which there is no valid HMRC enquiry or valid discovery assessment. Space is too short here to discuss those points further.

The loan charge ignores closed years and taxes all loans.

Settlement can (we believe) be limited to open years and closed years can be excluded.

(Closed years can be included of course by way of "voluntary" payments).

We suggest that you consider carefully the possible scenarios here.

If all of your years are open and you do not wish to dispute the claimed liability, then push hard for settlement to be agreed.

If you have closed years then do three calculations.

First, assume the loan charge is limited to years 2011/12 onwards (when DR rules first appeared). Remove the tax due on closed years prior to 2011/12 due via settlement and its comparator, litigation + loan charge.

Second, assume the loan charge is limited to years 2016/17 onwards and do the same calculations.

Third, assume the loan charge is removed completely and therefore take all closed years out of the equation. (For now).

If all your years are open - the above has no impact and you need to pursue settlement (if that is your choice) as hard as you can.

If you have closed years then the above will have an effect. Whether that is a big enough effect to disuade you from settlement or in fact encourage you to settle, only you can say.

Whatever the result, do the equations now. Prepare as best you can by progressing the settlement process with HMRC. Once you reach contract stage, wait for the review. (Be sure to appraise yourself of the possible risks of doing that).

[kryten22uk]

Very useful, thanks for writing.

The review may suggest that no changes to the loan charge are needed or that it will be limited in time or limited according to individual circumstance or withdrawn completely or until a later date.

Out of interest, how does it follow that a 'review of the impact' would also produce such 'recommendations'. Wouldn't we just expect treasury to make a statement of impact, and leave any subsequent actions to be debated and proposed by MPs?

[webberg]

Out of interest, how does it follow that a 'review of the impact' would also produce such 'recommendations'. Wouldn't we just expect treasury to make a statement of impact, and leave any subsequent actions to be debated and proposed by MPs?

Sort of.

In theory the law was reviewed and approved by MP's back in 2016 or 2017.

This review is essentially saying that the MPs passed the law in error perhaps or at least without access to a proper impact assessment (called a TIIN) and can we therefore please see a proper review before we decide if we were right all along or some nefarious character somewhere between HMRC/HMT tricked us.

If they feel they have been tricked, they can call for the law to amended or removed.

[ContractorSeven]

If you have closed years then do three calculations.

First, assume the loan charge is limited to years 2011/12 onwards (when DR rules first appeared).

Hang on... let me check I have this right. I don't have any open years and all of my loans are for closed years pre-2010. If I make this assumption then I won't owe anything at all. What am I missing?

[webberg]

Hang on... let me check I have this right. I don't have any open years and all of my loans are for closed years pre-2010. If I make this assumption then I won't owe anything at all. What am I missing?

Nothing.

If all your years are closed, then the loan charge is HMRC's only hope of collecting money from you.

If the loan charge is amended, then you may owe nothing.

(Part of me says that if the loan charge falls because it was introduced on false data - not the first or only time that has happened - then HMRC's revenge for being caught out may be swift and terrible. For the moment however, let's worry about the real.)

[ChimpMaster]

Nothing.

If all your years are closed, then the loan charge is HMRC's only hope of collecting money from you.

If the loan charge is amended, then you may owe nothing.

(Part of me says that if the loan charge falls because it was introduced on false data - not the first or only time that has happened - then HMRC's revenge for being caught out may be swift and terrible. For the moment however, let's worry about the real.)

A lot of us are hinging on this. The 11 years from 1999 to 2010 are critical as it comprises the many, many thousands of contractors who participated in loan schemes before GAAR and the subsequent somewhat tepid 'outlawing' (and I use the term loosely) of such schemes.

My view is that HMRC are grossly negligent and ignorant, which is a view shared by many but certainly overlooked by the Treasury and HMRC who smell only blood regardless of innocence or impact. I am still shocked that they are able to get away with this, or rather that they are trying to.

So many of us have only Closed years preceding 2010 and have since moved on with our lives, but are now being told to pay 6-figure tax sums that we are expected to pull out of thin air. You could make a movie out of the injustice HMRC are inflicting, it really is that dramatic and abhorrent. A story that the history books will tell, when we are all 6 feet under. The fight is still ongoing but nothing can be taken for granted until the LC is 'reviewed' fairly and judgement applied within the remit of law.

[Joolsey86]

A lot of us are hinging on this. The 11 years from 1999 to 2010 are critical as it comprises the many, many thousands of contractors who participated in loan schemes before GAAR and the subsequent somewhat tepid 'outlawing' (and I use the term loosely) of such schemes.

My view is that HMRC are grossly negligent and ignorant, which is a view shared by many but certainly overlooked by the Treasury and HMRC who smell only blood regardless of innocence or impact. I am still shocked that they are able to get away with this, or rather that they are trying to.

So many of us have only Closed years preceding 2010 and have since moved on with our lives, but are now being told to pay 6-figure tax sums that we are expected to pull out of thin air. You could make a movie out of the injustice HMRC are inflicting, it really is that dramatic and abhorrent. A story that the history books will tell, when we are all 6 feet under. The fight is still ongoing but nothing can be taken for granted until the LC is 'reviewed' fairly and judgement applied within the remit of law.

The one thing that is worrying me is the recent, HoL and McCann stating possibly remove LC for those that declared Dotas. But my EBT was pre-DOTAs implementation and so even though it ended in 2006, I would be caught due to bad timing.

Fingers crossed whatever the review outcome states, it is fair and treats all people the same, understanding that the contractors didnt decide to declare or to declare, that was their accountants, and stuff like this is completely out of our hands.

[Delendog]

The one thing that is worrying me is the recent, HoL and McCann stating possibly remove LC for those that declared Dotas. But my EBT was pre-DOTAs implementation and so even though it ended in 2006, I would be caught due to bad timing.

Fingers crossed whatever the review outcome states, it is fair and treats all people the same, understanding that the contractors didnt decide to declare or to declare, that was their accountants, and stuff like this is completely out of our hands.

I believe he said those that declared loans on their returns.

[Joolsey86]

I believe he said those that declared loans on their returns.

Gulp. Hopefully my accountants *(Horizon)* did that

[dammit chloe]

Gulp. Hopefully my accountants *(Horizon)* did that

I believe the HoL full quote adds " or years that would otherwise be closed to enquiry. " That said, wouldn't read too much into these things as there has to be enough pressure first for the Government to even budge an inch first.

Hence everyone keep on following LCAG, tweeting etc. We need all LCAG members doing what they can and not pinning their hopes on others.