Reply to: Settling is more expensive that paying the 2019 loan charge

[Delendog]

answer

Hi

I received £160,000 in EBT loans over 3.5 years 2008-2011

Can I please ask,

What would be the loan charge be for this?
And if I settled with HMRC what would be the total tax and how long would I have to pay it back?

My brother said he would pay my loan charge if I was desperate, so I am wondering if I should take a risk and not settle and hope I don't get anything from HMRC. If I do, I have my brother to fall back on to pay the charge, as a last resort?



Thanks

No one can answer this based on this information. For the settlement you need to add the value of the loans in each tax year to other income and then work out any interest due. For the LC it is value of all loans added to income in this tax year.

[rshome]

Hi

I received £160,000 in EBT loans over 3.5 years 2008-2011

Can I please ask,

What would be the loan charge be for this?
And if I settled with HMRC what would be the total tax and how long would I have to pay it back?

My brother said he would pay my loan charge if I was desperate, so I am wondering if I should take a risk and not settle and hope I don't get anything from HMRC. If I do, I have my brother to fall back on to pay the charge, as a last resort?

Thanks

[Iliketax]

It is to be hoped that the point is made clearer when we see it again

It was published a couple of weeks ago.

[webberg]

perhaps they don't know how to google

It's the view of a random person on the internet of course, for anything else consult a professional.

Point taken.

The legislation was withdrawn in the days before the Election.

It is to be hoped that the point is made clearer when we see it again and that the changes that may be required in order to fit the Rangers decision into the process, will not dilute what little protections do exist.

We also have the issue that the HMRC work on contractor schemes is being moved to Scotland and whilst that may help as there will be few preconceptions of what they need to do, it will inevitably lead to more misunderstandings.

[AnotherContractor]

perhaps they don't know how to google

IANAL but for pre-2011 closed years where a settlement was agreed the intention is to update Finance Act 2011 Schedule 2 Paragraph 59 relief to make it crystal clear that these planned 2019 changes won't affect any CLSO settlement.

The relief is written in the HMRC manual here - tax compliance conditions - agreement between HMRC and you (to settle): https://www.gov.uk/hmrc-internal-man...anual/eim45935

And here's the planned legislation - last line of the PDF relates to connecting the relief to the outstanding loan charge: https://www.gov.uk/government/public...ed-legislation

Because 2019 loan charge legislation builds on Finance Act 2011 legislation which builds on ITEPA 2003 legislation...

HMRC look to be planning to honour the settlement agreements in place - presumably because otherwise they'll be another huge round of court cases. It's the same relief section you'd go under if you request to settle today: https://www.gov.uk/government/public...r-31-july-2015

That's the view of a random person on the internet of course, for anything else consult a professional.

Interesting...so are the HMRC intending to target those who haven't settled by opening retrospective queries with the 2019 loan charge?

[bobajob]

However HMRC officers say that their internal guidance does not recognise that.

perhaps they don't know how to google

IANAL but for pre-2011 closed years where a settlement was agreed the intention is to update Finance Act 2011 Schedule 2 Paragraph 59 relief to make it crystal clear that these planned 2019 changes won't affect any CLSO settlement.

The relief is written in the HMRC manual here - tax compliance conditions - agreement between HMRC and you (to settle): https://www.gov.uk/hmrc-internal-man...anual/eim45935

And here's the planned legislation - last line of the PDF relates to connecting the relief to the outstanding loan charge: https://www.gov.uk/government/public...ed-legislation

Because 2019 loan charge legislation builds on Finance Act 2011 legislation which builds on ITEPA 2003 legislation...

HMRC look to be planning to honour the settlement agreements in place - presumably because otherwise they'll be another huge round of court cases. It's the same relief section you'd go under if you request to settle today: https://www.gov.uk/government/public...r-31-july-2015

That's the view of a random person on the internet of course, for anything else consult a professional.

[webberg]

hello,

On reading:

https://www.gov.uk/government/consul...l-consultation

It not's clear how HMRC intend to tackle closed years which agreed as part of CLSO.

Will they come back and unpick the agreement and return with a demand for back taxes and interest ?

Cheers.

That is an excellent question that I have asked HMRC on a number of occasions - sadly without getting an answer.

The Technical Note said something like "years implicitly covered under a prior agreement, will not be subject to the DR charge" (I'm without access to that document right now so I have perhaps provided the gist rather than the words).

However HMRC officers say that their internal guidance does not recognise that.

I think it's one more area of this charge that can and should be challenged.

[AnotherContractor]

Closed Years covered by CLSO

hello,

On reading:

https://www.gov.uk/government/consul...l-consultation

It not's clear how HMRC intend to tackle closed years which agreed as part of CLSO.

Will they come back and unpick the agreement and return with a demand for back taxes and interest ?

Cheers.

[webberg]

If you have to report within 3 months when will the tax be due?

Good question.

I suspect that a "safe" analysis would be to say that as the event creating the charge is one caught by Part 7A, then the due date under 7a is applicable.

That can vary considerably depending on the event.

In some cases it will be the usual PAYE date (19th of month following "payment") or in some cases, perhaps the year end PAYE settlement date which could be April 19th following year end or in some cases July 19th following year end.

I'd have a dig around but until I see the new law, I'm afraid I would be wasting my time and at the moment that is my most precious commodity.

[demby]

The rules about declaring loans are not yet settled in terms of the mechanism.

However if the rules do come back in as they were previously, then

IT IS YOUR OBLIGATION TO REPORT

It is not for HMRC to "find out" or tell you.

Further, it looks like you may have to report within 3 months of 5th April 2019.

That however was tied into the "making tax digital" plan and that plan has suffered some delays (and in my opinion is unlikely for at least 5 years).

If you cannot tell HMRC the value of the loan, they will make an estimate.

If you choose not to tell HMRC anything, you risk penalties.

Again

IT IS YOUR OBLIGATION TO REPORT

Do not rely upon any other party to report and that is NOT a defence.

If you have to report within 3 months when will the tax be due?

[webberg]

I'm a bit confused by the 2019 loan charge. Do you wait for HMRC to say, you have these loans which are caught by the charge (because say they have got your details from your scheme provider). Or do you voluntarily declare it yourself on your 2018/19 tax return to avoid something more nasty happening? Are there any useful links that explain it all?

The rules about declaring loans are not yet settled in terms of the mechanism.

However if the rules do come back in as they were previously, then

IT IS YOUR OBLIGATION TO REPORT

It is not for HMRC to "find out" or tell you.

Further, it looks like you may have to report within 3 months of 5th April 2019.

That however was tied into the "making tax digital" plan and that plan has suffered some delays (and in my opinion is unlikely for at least 5 years).

If you cannot tell HMRC the value of the loan, they will make an estimate.

If you choose not to tell HMRC anything, you risk penalties.

Again

IT IS YOUR OBLIGATION TO REPORT

Do not rely upon any other party to report and that is NOT a defence.

[webberg]

Would you be kind enough to confirm if the following is correct. When calculating 2019 loan charge:

(1) It does not include employers NI.
(2) It is treated exactly like taxable income so can be offset with pension contributions and standard allowances etc.

When calculating settlement for years prior to 2011:

(2) Use your previous tax calcs for those years (incl. dividends, pension etc..) but add the loan amount as if it was salary in the year it was receievd.
(3) Don't include any NI, penalty or interest.

Many thanks!

1. I believe it does not include Employers NI
2. I think not. It's NOT a charge on income but a charge on a loan balance. I think therefore probably not "earnings" for the purposes of calculating pension allowances.
2. (Again) yes
3. You include interest from the usual due date (31st January following year end) and HMRC claim NI from 2011/12 onwards.

Caveat - we have yet to see the final version of the law so all the above is subject to change.

[starstruck]

First calculate the tax/NIC position for the open years assuming interest will be applied from the due date (31st January following year end) to the date of settlement. Call this X

Second, calculate the tax/NIC due for 2018/19 if closed years are taxed then. In other words, add the loans to income that year. Call this Y

Third, calculate the tax due on closed years if you volunteer the tax in the year the loan was drawn. Call this Z

If X + Y is more than X + Z, then consider settling now.

If X + Y is less than X + Z, then settle open years now and closed years in 2018/19.

If you want to get clever and add in the time value of money/opportunity cost/ lost investment appreciation, that will bring some sophistication to the model.

Would you be kind enough to confirm if the following is correct. When calculating 2019 loan charge:

(1) It does not include employers NI.
(2) It is treated exactly like taxable income so can be offset with pension contributions and standard allowances etc.

When calculating settlement for years prior to 2011:

(2) Use your previous tax calcs for those years (incl. dividends, pension etc..) but add the loan amount as if it was salary in the year it was receievd.
(3) Don't include any NI, penalty or interest.

Many thanks!

[regron]

I'm a bit confused by the 2019 loan charge. Do you wait for HMRC to say, you have these loans which are caught by the charge (because say they have got your details from your scheme provider). Or do you voluntarily declare it yourself on your 2018/19 tax return to avoid something more nasty happening? Are there any useful links that explain it all?

There are no links to explain it yet, as it hasn't been made law. It was due to be included in the 2017 Finance Act, but was pulled (along with a load of others) due to the snap, general election. Until it is re-inserted (assuming it is) we won't know how it will be managed until we see the finer details.

[starstruck]

I'm a bit confused by the 2019 loan charge. Do you wait for HMRC to say, you have these loans which are caught by the charge (because say they have got your details from your scheme provider). Or do you voluntarily declare it yourself on your 2018/19 tax return to avoid something more nasty happening? Are there any useful links that explain it all?