Loan charge - review outcomes - impact on settlement

[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.

[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to the loan charge are needed or that it will be limited in time or limited according to individual circumstance or withdrawn completely or until a later date.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]

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to the loan charge are needed or that it will be limited in time or limited according to individual circumstance or withdrawn completely or until a later date.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).