Penalties Letter Received from HMRC

[Confusedetc]

Just to be clear, as part of the LC, you spread the total of all the loans received equally on your tax returns for 2018/19, 2019/20 and 2020/21.
They're accusing of non-disclosure on the 2017/18, 2018/19 and 2019/20 returns?

Presumably, there were no loans disclosed on the 2017/18 return?

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I wonder if they've got into a muddle because you initially started down the LC route and now (ironically at their behest) you are settling?

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If it was me, I'd write back to them stating that you declared all DR loans on the 2018/19, 2019/20 and 2020/21 returns in full compliance with the LC. And that you therefore cannot understand how you could possibly be liable for any penalties.

And yes, you should request details of the supposed inaccuracies.

If you can't resolve this with them, it's the sort of thing you can take to your MP to intervene on your behalf.

I'll just explain my situation a bit further so can be clear on your first points.
So I had loans 15-16 / 16-17 / 17-18 / 18-19 / 19-20 ...but 15-16 & 19-20 was only a few.
I was not required to do tax returns as I was not self employed, I was a contractor through an umbrella company (soon after becoming a contractor from perm in 15-16 somebody recommended me this other umbrella company with the loan company and I stupidly didn't read any of the paperwork and just presumed was all fine normal umbrella company, I was stupidly wrong)

In Dec 2019 HMRC sent me a letter saying they suspected me of receiving money in the form of loans, and asked me to do tax returns for tax years ending 16 & 17.
They gave me 3 months to do it. I left it until after Xmas.
Early Jan 2020 they asked me to do a tax return for year ending 19.
Later Jan 2020 they sent me letter about loan charge and completing for all outstanding loans and combine and split by 3 over tax returns for next 3 yrs ending 19 / 20 / 21.
I called them and asked them what am I supposed to do. They said include loans received in 15-16 in tax return for end 16, and 16-17 in return end 17.
The rest (so 17-18 & 18-19) combine and split over the 3 tax returns. And they said 19-20 loan put as extra amount in 19-20 return but not combined with rest to be split.

So regarding your query:
They're accusing of non-disclosure on the 2017/18, 2018/19 and 2019/20 returns?

Presumably, there were no loans disclosed on the 2017/18 return?

Yeh that's what confused me a bit, I never did a return for 2017/18 as they never asked me to, and included the loans for that year in the combine over the following 3 years returns like they asked. Now they are saying they believe my tax return for that year contains inaccuracies !?

I wonder if they've got into a muddle because you initially started down the LC route and now (ironically at their behest) you are settling?

It could well be and wouldn't surprise me, this whole thing as felt like a mess and everytime I try to speak to somebody at HMRC by phone or email nobody seems to know what they are talking about or what the rules are etc.

If it was me, I'd write back to them stating that you declared all DR loans on the 2018/19, 2019/20 and 2020/21 returns in full compliance with the LC. And that you therefore cannot understand how you could possibly be liable for any penalties.

And yes, you should request details of the supposed inaccuracies.

If you can't resolve this with them, it's the sort of thing you can take to your MP to intervene on your behalf

Yeh I think that's what going to do on your points. Cheers for the advice on the MP will look at that if comes to it.

[Confusedetc]

The 2020 Settlement Terms require you to pay the loan charge first, so I don’t think that that’s the issue.

Another possibility is that the loan charge that you’ve paid doesn’t match (rightly or wrongly), the loan charge that HMRC was expecting.

Just to clarify, there wasn’t one “loan charge”, but in fact two different loan charges which depended very much on which “scheme” or “schemes” you’ve been in.

If the records don’t match, then this may have caused the issue?

Well the loan charge was just me paying tax on the loans outstanding combined and split by 3 in tax returns 18-19 / 19-20 / 20-21.
I never got any sort of conclusion from them on it, and then suddenly got a letter from them about settlement.
Yeh I guess they think something is wrong but makes no sense what, I was hoping just to get a letter from them saying yeh we see you've paid all the tax on the loans, settlement is this, and as you've paid the tax already which we calculated the same, all good. But nope the saga continues 3 years now...and everyday I get home dreading a brown envelope through the door.

I hope they can clarify what the issue is or once I explain I have paid what I believe to be the right values they may have made a mistake.

[Confusedetc]

The only other thing I can think they mean by this letter is that, as I did not include the loan details originally in 18 / 19 / 20 at the time of receiving the loans, they are now punishing me for it and giving me penalties. Whether I included during the loan charge process or my subsequent settlement submission doesn't matter.
Just I thought any punishment would come at the settlement stage when they were concluding that.
But it's strange as they say the tax returns contain inaccuracies, but I never did a tax return for 18 and wasn't obligated too at that time as wasn't self employed.

[Chevalier]

Yes that's the problem.

a) No not really, they sent me a letter in Jan 2020 'changes to the loan charge following the independent review' after sending me tax return requests in Dec 2019 asking me to do tax returns for 15-16 / 16-17 (as I never did them until they asked as I was not self employed but a contractor with umbrella) ...and so they asked me to do the loan charge process for outstanding loans.

This may be the root of the problems. If you didn’t make an election of spreading on the loan charge reporting form (NB not the self assessment returns) then HMRC are probably expecting to see all of the loans subject to the charge in the 18/19 return.

It should be remembered that the loan charge doesn’t settle prior year tax disputes -although the residual tax will be forgiven in certain circumstances, but if the loan charge wasn’t correctly reported, then this may have triggered the letter for the 17/18 year

You did say you received loans in 2019. Did you receive any loans after 5th April 2019? If you did, these were not subject to the loan charge but probably should have been reported as income. This might explain why the inaccuracy for the 19/20 year?

[Confusedetc]

This may be the root of the problems. If you didn’t make an election of spreading on the loan charge reporting form (NB not the self assessment returns) then HMRC are probably expecting to see all of the loans subject to the charge in the 18/19 return.

It should be remembered that the loan charge doesn’t settle prior year tax disputes -although the residual tax will be forgiven in certain circumstances, but if the loan charge wasn’t correctly reported, then this may have triggered the letter for the 17/18 year

You did say you received loans in 2019. Did you receive any loans after 5th April 2019? If you did, these were not subject to the loan charge but probably should have been reported as income. This might explain why the inaccuracy for the 19/20 year?

There was nothing on the letter they sent me about making an election of spreading or a loan charge reporting form, well said more detail would be available in early 2020 but I never heard anything since. I spoke to HMRC on the phone many times trying to get information on the best way to declare things and they just said do the returns and include the info etc.

Appreciate the loan charge doesn't settle things as it were, I kept saying to them I wanted to settle as I understood this needed to be done too, and they would always say I am too late to settle, and the just got this settlement letter (earlier this year I have now realised looking at it)

Yeh I received 1 last loan just after 5th April. I included this in the 19-20 tax return (seperate to the other loans combined) as was instructured by HMRC to do that.

[Chevalier]

I think you may need professional help here.

Don’t know if the loan charge helpline is still active, but you could also try here

There is a small possibility of a late election but whether anyone at HMRC will listen is another matter.

https://www.gov.uk/guidance/find-out...#spreadbalance

https://www.gov.uk/government/public...ractice-1-2020

I’m not sure when you submitted the returns, but the ability to alter them only normally lasts a year.

[Jumper]

Hi Confused.

From what I have ready you have got the rather generic ‘inaccuracies’ penalty letter.

In order to have kept your nose clean, settlement of loans should have been registered for by the latest Sept 2019 and all loans taken prior to this disclosed. It sounds like you have not done this, therefore the 2018 settlement terms were changed to the 2020 settlement terms.

You have mentioned that there were no inaccuracies in your 15/16 tax return as you were employed, whilst this may have been the case, in HMRC’s eye you had further income in which you did not declare, ie the loans in that year. Therefore you have not declared the loans in 15/16, you subsequently did not declare the loans under the 2018 settlement terms by completing the settlement forms which are inaccuracies. It would seem therefore you’ve reacted to HMRC’s contact and openly provided requested information from that point on, as a result the inaccuracies penalty will be between 15-30% of the tax due.

just to also check, do you have any open enquiries or did they simply ask you to submit tax returns? I’m not 100% sure whether a late submission of greater than 18 months is classed as an inaccuracy too given the passage of time.

[Confusedetc]

I think you may need professional help here.

Don’t know if the loan charge helpline is still active, but you could also try here

There is a small possibility of a late election but whether anyone at HMRC will listen is another matter.

https://www.gov.uk/guidance/find-out...#spreadbalance

https://www.gov.uk/government/public...ractice-1-2020

I’m not sure when you submitted the returns, but the ability to alter them only normally lasts a year.

Thanks I will have a look into that. It's really frustrating when I emailed and called them numerous times with information about what I was doing on their requests, and they never said about election of the loan charge stuff. Noone on their helplines has never really seemed to know what they are talking about or what the correct processes are etc.

I submitted the 15-16 & 16-17 returns in early 2020, and then the rest of the returns in the time of the required return ie 18-19 / 19-20 / 20-21 ...at end of each tax year

I have looked through my emails and I have an email from them In Jan 2021 when I challenged a late payment penalty and late payment interest for tax year ending 17 and they said:

Whilst the penalties were correctly charged, by concession I have cancelled these penalties. A revised SA statement is being sent separately, via post.

I can confirm the advice you were given regarding declaring the loans received in 2015-16 and 2016-17 was correct. The advice given regarding the completion of your 2018-19 return, as stated in your email dated 13 September 2020, was also correct.

Unfortunately, we are not able to process your appeal against Late Payment Interest for the tax year ended 5 April 2017. HMRC charges interest in line with legislation and has no discretion in applying the law.

Interest is different from penalties. It is charged to ensure that individuals who pay their tax late do not gain an unfair advantage over those who pay their tax liability when it is due.

You can settle your disguised remuneration loans under the 2020 settlement terms. For more information, including how to request the settlement, please follow the link below.

https://www.gov.uk/guidance/disguise...ur-tax-affairs
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Then I had a call with them and they sent me an email in March 2021:

The settlement will allow you to resolve all tax years subject to an open enquiry either by way of settlement or by closure notice.

For open enquiries including loans subject to the loan charge, HMRC will take into account how much loan charge has been paid.

Where there is an amount remaining to settle these enquiries (HMRC refers to this amount as residual tax), it will need to be paid to resolve the open enquiries.

HMRC will not collect an individual’s residual tax where all the following criteria are met:

• the loan charge has been paid
• the average annual income provided to the individual through a disguised remuneration scheme to the individual is £75,000 or less in each tax year
• no litigation has been started before a court or tribunal in relation to the residual tax or loan charge

Late payment interest will be charged from the date the tax was originally due until the expected date of settlement.

However, if the tax due has been already paid or a payment on account has been made, no further interest will accrue.

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So In my view I had taken part in the loan charge even though I hadn't elected officially but had done all they asked for and now was doing the settlement stuff

[Confusedetc]

Hi Confused.

From what I have ready you have got the rather generic ‘inaccuracies’ penalty letter.

In order to have kept your nose clean, settlement of loans should have been registered for by the latest Sept 2019 and all loans taken prior to this disclosed. It sounds like you have not done this, therefore the 2018 settlement terms were changed to the 2020 settlement terms.

You have mentioned that there were no inaccuracies in your 15/16 tax return as you were employed, whilst this may have been the case, in HMRC’s eye you had further income in which you did not declare, ie the loans in that year. Therefore you have not declared the loans in 15/16, you subsequently did not declare the loans under the 2018 settlement terms by completing the settlement forms which are inaccuracies. It would seem therefore you’ve reacted to HMRC’s contact and openly provided requested information from that point on, as a result the inaccuracies penalty will be between 15-30% of the tax due.

just to also check, do you have any open enquiries or did they simply ask you to submit tax returns? I’m not 100% sure whether a late submission of greater than 18 months is classed as an inaccuracy too given the passage of time.

Hi Jumper
Yeh you're right about Sept 2019 settlement, when I got the letter about tax return in Dec 2019 I asked to settle but it was too late.
I did declare the 15-16 loan in the return like they asked though if you see my post above.
Not sure about oepn enquiries, I presume so as this is an ongoing case. They asked me to complete the tax returns as they suspected loans and then asked me to do the loan charge process and include any outstanding ones which I did

[DealorNoDeal]

You should definitely challenge the issuing of penalties.

But if they still go ahead and issue them, you can appeal against them.