New loan charge letters from HMRC

[webberg]

I'll try to sum up some of the above.

The letters going out now are largely a shot in the dark. They seem to be confined to those who have submitted SATRs in the last 4 or 5 years and who may (or may not) have made use of a loan scheme. They are a bit like beaters on a pheasant shoot putting up birds for the benefit of the shooters.

They have no legal power to force you into doing anything and you could, if you wished, throw them away and continue taking no action.

That would however not be a strategy.

Before 1st October 2019, you are obliged to disclose to HMRC whether you had any loans from a "scheme" and the quantum of those loans. This is via an online reporting system accessed via gov.uk.

This is a legal obligation and failing to do this can lead to penalties.

The loan charge is up next. You are required to disclose the same information as above in a SATR before 31st January 2020. You should NOT wait to be contacted by HMRC. If you need to submit a SATR then register NOW and create the conditions to enable you to make that return before the deadline. Again, failure to submit when legally obliged can lead to penalties.

Remember, we have a SELF ASSESSMENT basis of taxation which means that the obligation is on YOU and is NOT on HMRC to find you and remind you of your obligations. Claiming later that HMRC never told you, is not an excuse that a Court will accept.

The loan charge is being contested on various levels by LCAG and they are doing a good job. Ultimately however the loan charge will be removed or will stay or will stay but apply only to loans from a date later than 6th April 1999.

If the loan charge is removed, then any (tax) year in which HMRC has failed to open an enquiry, will be safe from any further adjustment. We call these closed years.

If the loan charge is not removed, then ALL years in which loans were received will be taxed as though the amount was income in the 2018/19 year.

If all of your years are closed and the loan charge disappears, no more tax for any year prior to 2015/16 and perhaps a lower chance of assessment for that year and later.

Once the loan charge disclosure is made, HMRC are likely to use that data to identify potential loan charge payers and to target them with reminders. These reminders have little legal effect other than to allow HMRC to show that they have tried to "help".

The loan charge arises from the tax return. In the event that you choose to make an incorrect or incomplete (or no) return, be aware that this can bring penalties. If this is your chosen option, make sure that you understand the consequences.

Settlement is an option that strictly too late now. You were obliged to register before 5th April 2019 and complete the process before 31st August 2019. In fact HMRC are running seriously late and will not finish by the end of August and also still seem to be accepting (or suggesting) that people can settle despite the above deadline. If this is your option, apply now.

If you do not settle, the loan charge arising is NOT settlement. If you open enquiry years, you will be obliged to agree those years in due course. There is then a complicated dance around applying tax paid via the loan charge against the liability for earlier years. It is NOT always the case that there is a "tax v tax" set off and there are situations in which you could pay more than the liability from the open year.

Also be aware that tax paid under the loan charge is non refundable. Therefore even if it is eventually held that there is no liability (see below) that money is not coming back to you. (I suspect that legal actions will be underway to challenge that, but as the law stands, this is the situation).

I am aware that in the last 3 months, two loan schemes have been to a Tribunal. These seek to argue that the liability arising on the loan payments should be met by the "employer". A victory for either case will be appealed by HMRC. The appeal will go to another Tribunal, perhaps first half of next year. In the event that HMRC win, it will be up to those running the case to appeal or not. I have no information on whether this is likely.

A final decision in Tribunal (or above) is binding upon all users of schemes that are similar.

If you do not wish to settle, do not wish to pay the loan charge, wish to await the decision of a Tribunal, you will need to take some advice as to the bully boy tactics of HMRC and how to resist them. There are advisers who stalk these pages. I am one. A few minutes searching will find others.

Bankruptcy for tax debt is a lot rarer than you think. If you ultimately do have a liability, HMRC will usually agree a time to pay. Not always pain free but at least it keeps HMRC away from your doorstep. There are also various intermediate steps before bankruptcy.

If you are unable to agree a time to pay, then making a final instalment offer and then starting payments is a good way of showing a magistrate (to whom HMRC must apply if they are seeking an insolvency order) that you are doing your best. If so, a magistrate will be sympathetic to your situation.

I hope this demystifies things a bit.

[zedskidder]

Not wanting to be flippant, but what did you bankruptcy agreement say? If it wasn't listed on that, and wasn't a debt at that point in time, i can see why HMRC would want to claim it is a new debt, not covered by your bankruptcy, and therefore due.

They could take that view, but that would be especially cruel. I have been squeaky clean with respect to my tax affairs since bankruptcy (I’ve been PAYE the entire period). The whole point is that you lose everything, go through 6 years of financial castration and come out of it with a fresh start.

All debts are included in bankruptcy, aside from a very limited list - whether included in the petition or not. Debts to HMRC, specifically, are included. It should also include the loans, but the issue is one of jurisdiction. I suppose the loans could still be outstanding because of IoM jurisdiction. I will take pro advice, but asking here in case anyone has come across this. I know it’s an edge case.

[zedskidder]

I'll try to sum up some of the above.

The letters going out now are largely a shot in the dark. They seem to be confined to those who have submitted SATRs in the last 4 or 5 years and who may (or may not) have made use of a loan scheme. They are a bit like beaters on a pheasant shoot putting up birds for the benefit of the shooters.

They have no legal power to force you into doing anything and you could, if you wished, throw them away and continue taking no action.

That would however not be a strategy.

Before 1st October 2019, you are obliged to disclose to HMRC whether you had any loans from a "scheme" and the quantum of those loans. This is via an online reporting system accessed via gov.uk.

This is a legal obligation and failing to do this can lead to penalties.

The loan charge is up next. You are required to disclose the same information as above in a SATR before 31st January 2020. You should NOT wait to be contacted by HMRC. If you need to submit a SATR then register NOW and create the conditions to enable you to make that return before the deadline. Again, failure to submit when legally obliged can lead to penalties.

Remember, we have a SELF ASSESSMENT basis of taxation which means that the obligation is on YOU and is NOT on HMRC to find you and remind you of your obligations. Claiming later that HMRC never told you, is not an excuse that a Court will accept.

The loan charge is being contested on various levels by LCAG and they are doing a good job. Ultimately however the loan charge will be removed or will stay or will stay but apply only to loans from a date later than 6th April 1999.

If the loan charge is removed, then any (tax) year in which HMRC has failed to open an enquiry, will be safe from any further adjustment. We call these closed years.

If the loan charge is not removed, then ALL years in which loans were received will be taxed as though the amount was income in the 2018/19 year.

If all of your years are closed and the loan charge disappears, no more tax for any year prior to 2015/16 and perhaps a lower chance of assessment for that year and later.

Once the loan charge disclosure is made, HMRC are likely to use that data to identify potential loan charge payers and to target them with reminders. These reminders have little legal effect other than to allow HMRC to show that they have tried to "help".

The loan charge arises from the tax return. In the event that you choose to make an incorrect or incomplete (or no) return, be aware that this can bring penalties. If this is your chosen option, make sure that you understand the consequences.

Settlement is an option that strictly too late now. You were obliged to register before 5th April 2019 and complete the process before 31st August 2019. In fact HMRC are running seriously late and will not finish by the end of August and also still seem to be accepting (or suggesting) that people can settle despite the above deadline. If this is your option, apply now.

If you do not settle, the loan charge arising is NOT settlement. If you open enquiry years, you will be obliged to agree those years in due course. There is then a complicated dance around applying tax paid via the loan charge against the liability for earlier years. It is NOT always the case that there is a "tax v tax" set off and there are situations in which you could pay more than the liability from the open year.

Also be aware that tax paid under the loan charge is non refundable. Therefore even if it is eventually held that there is no liability (see below) that money is not coming back to you. (I suspect that legal actions will be underway to challenge that, but as the law stands, this is the situation).

I am aware that in the last 3 months, two loan schemes have been to a Tribunal. These seek to argue that the liability arising on the loan payments should be met by the "employer". A victory for either case will be appealed by HMRC. The appeal will go to another Tribunal, perhaps first half of next year. In the event that HMRC win, it will be up to those running the case to appeal or not. I have no information on whether this is likely.

A final decision in Tribunal (or above) is binding upon all users of schemes that are similar.

If you do not wish to settle, do not wish to pay the loan charge, wish to await the decision of a Tribunal, you will need to take some advice as to the bully boy tactics of HMRC and how to resist them. There are advisers who stalk these pages. I am one. A few minutes searching will find others.

Bankruptcy for tax debt is a lot rarer than you think. If you ultimately do have a liability, HMRC will usually agree a time to pay. Not always pain free but at least it keeps HMRC away from your doorstep. There are also various intermediate steps before bankruptcy.

If you are unable to agree a time to pay, then making a final instalment offer and then starting payments is a good way of showing a magistrate (to whom HMRC must apply if they are seeking an insolvency order) that you are doing your best. If so, a magistrate will be sympathetic to your situation.

I hope this demystifies things a bit.

Thank you webberg for your comprehensive reply, much appreciated.

[HollyGolightly]

Thank you so much for that clarification, webberg. It is hugely helpful. Could I ask a couple of questions?

How can you tell which years are 'open' and which years are 'closed'? The original correspondence I had from HMRC only related to one year and my accountant appealed that and the appeal was accepted by HMRC. Would this year still be open? If HMRC has not mentioned any other years, are these now out of scope from a settlement perspective? If I declare loans for these additional years as part of the Loan Charge, could HMRC then 'open' these years and try to take additional tax / interest also?

Really appreciate your help, not least the knowledge that (a) I am not alone and (b) the letter holds no legal force.

[HollyGolightly]

Oh, and one other question if I may. I no longer have any records of any of my finances related to the period when I was supposedly in a disguised remuneration scheme and the company running the scheme no longer exists. I will be going through my old bank statements to get the best figures I can. I understand HMRC will penalise me at least £300 if the information is correct. Aside from my bank statements, is there any other way I can get the correct information? Thanks.

[webberg]

Thank you so much for that clarification, webberg. It is hugely helpful. Could I ask a couple of questions?

How can you tell which years are 'open' and which years are 'closed'? The original correspondence I had from HMRC only related to one year and my accountant appealed that and the appeal was accepted by HMRC. Would this year still be open? If HMRC has not mentioned any other years, are these now out of scope from a settlement perspective? If I declare loans for these additional years as part of the Loan Charge, could HMRC then 'open' these years and try to take additional tax / interest also?

Really appreciate your help, not least the knowledge that (a) I am not alone and (b) the letter holds no legal force.

If there is an appeal and you have nothing from HMRC saying everything is settled, then it's open.

Nothing is out of scope for settlement, just now beyond the deadline for applying (5th April 2019). You can include open and closed years in a settlement.

It is not a question of "if" in terms of loan charge disclosure. You are legally obliged to disclose.

No, a disclosure for loan charge will NOT create an "open" year.

(I recommend that you search/research the issue of discovery on this website as that may be applicable).

[Iliketax]

I received one of these letters today! Prior to today I have received no communication from HMRC at all regarding this. I used Sanzar for a couple of years, but I have not engaged in any avoidance scheme since HMRC made me bankrupt in 2010. Bankruptcy certainly taught me a lesson and it's not a pleasant process, which I thought I was now through. Shouldn't all of my liabilities have been included in that bankruptcy?

There are two issues here:

1. Do you owe money to whoever lent it to you? No idea. I know nothing about insolvency law.

2. Do you have a tax liability under the April 2019 loan charge rules? No idea. But the answer to this question is entirely separate to the answer to the first one. My worry is that by just reading the tax legislation, the answer will be "yes".

The April 2019 loan charge is based on the amount of the loan that is "outstanding". This is a technical tax definition that is basically, (i) what you borrowed, less (ii) what you actually repaid. If the lender, for example, formally waived an obligation to repay the loan then it is still "outstanding" for the purposes of the April 2019 loan charge. If the obligation to repay the loan disappears as part of the insolvency process then it may well still be treated as "outstanding" for the purposes of the April 2019 loan charge.

As I don't know what the insolvency legislation says about how loans disappear, I can't answer whether its processes would be treated as a "repayment". If it is, there is no April 2019 tax charge and no need to report. Reading the tax legislation strictly, I would think that insolvency law would need to be very explicit and very clear, saying something like "for all purposes, including income tax purposes, the individual is treated as repaying the loan" for you to stand a chance. I very much doubt if it says that though and so you will be in a very difficult position as the April 2019 loan charge would appear to apply to you. However, as I say, I know nothing about insolvency law.

I've added "strictly" in my reply as the words of the legislation seem clear. However, I don't know how the public policy objectives of the insolvency processes would interact with the tax legislation. If public policy is that the insolvency process is to find a way of separating what happened in the past from the future then the tax legislation may be read in a different context to just reading it as standalone tax legislation. But as I keep saying, I know nothing about insolvency.

You can't rely on a random stranger on the internet though and so it would be worthwhile taking your own independent advice based on your personal circumstances. My guess is that most tax advisers will not be able to give you comfort without (i) talking to an insolvency specialist, and (ii) discussing it with HMRC based on your own specific facts. That's likely to be expensive. If you don't have any tax adviser then it may be worth giving TaxAid a call as they know a lot about bankruptcies and so point you in the right direction.

Here's a link to the Low Income Tax Reforms Group's note on the April 2019 loan charge for more background: The loan charge – here’s how to deal with it | Low Incomes Tax Reform Group


If you are interested, the legislation can be found here Finance (No. 2) Act 2017 and includes:

(7) For the purposes of this paragraph, whether an amount of a loan or quasiloan
is outstanding at a particular time—

(a) is to be determined in accordance with the following provisions of this Schedule, and
(b) does not depend on the loan or quasi-loan subsisting at that time.

Meaning of “outstanding”: loans
3 (1) An amount of a loan is “outstanding” for the purposes of paragraph 1 if the relevant principal amount exceeds the repayment amount.

(2) In sub-paragraph (1) “relevant principal amount”, in relation to a loan, means the total of—

(a) the initial principal amount lent, and
(b) any sums that have become principal under the loan, otherwise than by capitalisation of interest.

(3) In sub-paragraph (1) “repayment amount”, in relation to a loan, means the total of—

(a) the amount of principal under the loan that has been repaid before 17 March 2016, and
(b) payments in money made by the relevant person on or after 17 March 2016 by way of repayment of principal under the loan.

[webberg]

I would second a lot of Iliketax's comments around insolvency.

We do not advise on that matter, preferring instead to pass clients on to professionals.

I suggest however that when you speak with such a person, you mention whether or not you included the loans as liabilities in the previous bankruptcy and if so, whether the professional at that time contacted the "lender".

[HollyGolightly]

If there is an appeal and you have nothing from HMRC saying everything is settled, then it's open.

Nothing is out of scope for settlement, just now beyond the deadline for applying (5th April 2019). You can include open and closed years in a settlement.

It is not a question of "if" in terms of loan charge disclosure. You are legally obliged to disclose.

No, a disclosure for loan charge will NOT create an "open" year.

(I recommend that you search/research the issue of discovery on this website as that may be applicable).

Thanks so much - I will inform myself of discovery.

I really appreciate you taking the time to answer my questions, it's very kind.

[Thin White Duke]

Before 1st October 2019, you are obliged to disclose to HMRC whether you had any loans from a "scheme" and the quantum of those loans. This is via an online reporting system accessed via gov.uk.

This is a legal obligation and failing to do this can lead to penalties.

Is this true? The letter says...

Disguised Remuneration Loans that you need to tell us about

By 30 September 2019, you must tell us about a loan if any of the following apply:

It was outstanding on 5 April 2019, or
It was provided through a trade based scheme, was outstanding on 5 December 2016 and you then repaid it at a later date with anything other than money, or
your employer provided the loan, either directly or through a third party, and it was outstanding on 17 March 2016 (even if you repaid it at a later date)

So no obligation to tell them if you had a loan but repaid it long before the dates mentioned above? It doesn't say that you have to tell them about 'any' loans; only those that meet the criteria.