Reply to: CLSO2 or Self Assessment 2018/19 for Loan declaration

[Loan Ranger]

So my question is that if I opt-in for Settlement now and later if I don't like the tax figures calculated by HMRC, can I refuse the settlement deal with HMRC and go for LC19 ( as in put loan amount in 18-19 SA)???

Yes. Registering an interest in CLSO doesn't commit you to anything.

[TomG]

Thanks all for your suggestions.

Both settlement route and LC19 has its pros and cons.

Here is what i have concluded:

Settlement Route
Positive: Is cleaner and gives some certainty on the deal and draws a line.
Negative : I would be paying straight above 40% tax (since I was nearly higher tax payer in past years) and wont be able to use pension benefit

LC19
Negative: Less certainty as the cards remain open and chances are HMRC can always raise enquiry to finalise the figures.
Positive: I will pay considerable less tax by managing my 18-19 earnings and also make pension contribution this year which can be used to offset tax on loan amount since it will become earnings


Even if I am making considerable tax gain on LC19, I still feel certainity around settlement is a big deal.

So my question is that if I opt-in for Settlement now and later if I don't like the tax figures calculated by HMRC, can I refuse the settlement deal with HMRC and go for LC19 ( as in put loan amount in 18-19 SA)???

[Loan Ranger]

Loan Ranger’s very helpful article stated “Scheme users need to register an interest in settling by 31 May 2018, and then provide information on the loans to HMRC by 30 September 2018.”

My position and question is, HMRC have made assessments on 3 previous years and these amounts are currently suspended on appeal. If I now want to pay these amounts plus interest do I need to follow the paragraph above or just contact them directly?

Just contact them and say you want to settle.

[Wildfire8]

Suspended on Appeal

Loan Ranger’s very helpful article stated “Scheme users need to register an interest in settling by 31 May 2018, and then provide information on the loans to HMRC by 30 September 2018.”

My position and question is, HMRC have made assessments on 3 previous years and these amounts are currently suspended on appeal. If I now want to pay these amounts plus interest do I need to follow the paragraph above or just contact them directly?

[Loan Ranger]

I don't think HMRC have said how it will all work in practice.

At the moment, all that's known is that you have to provide details of the loans between 6/4/19 and 30/9/19.

As for IHT, I think that depends on the type of Trust that lent the money.

[TomG]

I think that's incorrect.

If you settle after 5/4/19, then the relevant date for LC2019 has passed and the relevant event deemed to have happened and whilst you could settle, that's not going to remove the LC2019 charge.

Like I say it's a lot more complicated than you might think.

Some of you might think why am I asking such a basic question.

What all entails in LC19 loan charge?

So far my knowledge is, I need to declare all my loans in my SA18-19 and pay the tax and NI.
If HMRC is happy with my figure well enouph otherwise expect assessment enquiry.
Then confirm my figure through assessment enquiry and may be pay interest.
Done deal.

Is there more in LC19?
Has anything been finalised at HMRC's end or any confirmation on the amendments they are going to make in SA form to incorporate LC19.
Where are we actully going to put these loans amounts (as other income) or will there be a separate section added in SA1819 form?

Regarding IHT:
If the provider is not agreeing to write the loan off what will be the position of IHT. Can HMRC still force us to pay IHT?

[webberg]

Yes, it's a bit of an odd situation.

Let's suppose you pay £100k on LC19.

If at a later date, a tribunal comes up a figure of £80k, then you'd be due a refund of £20k.

Although HMRC say there is a deadline for CLSO2, they can't prevent you from settling at any time.

You could still settle after paying the £100k on LC19 and, if the settlement figure was £70k, you would be due a refund of £30k.

I think that's incorrect.

If you settle after 5/4/19, then the relevant date for LC2019 has passed and the relevant event deemed to have happened and whilst you could settle, that's not going to remove the LC2019 charge.

Like I say it's a lot more complicated than you might think.

[Delendog]

Yes, it's a bit of an odd situation.

Let's suppose you pay £100k on LC19.

If at a later date, a tribunal comes up a figure of £80k, then you'd be due a refund of £20k.

Although HMRC say there is a deadline for CLSO2, they can't prevent you from settling at any time.

You could still settle after paying the £100k on LC19 and, if the settlement figure was £70k, you would be due a refund of £30k.

I thought HMRC had clarified that no refund would be due BUT if the LC value was less than the settlement then they would be going for the difference. Taking CLSO2 removes you from the LC.

[Loan Ranger]

Yes, it's a bit of an odd situation.

Let's suppose you pay £100k on LC19.

If at a later date, a tribunal comes up a figure of £80k, then you'd be due a refund of £20k.

Although HMRC say there is a deadline for CLSO2, they can't prevent you from settling at any time.

You could still settle after paying the £100k on LC19 and, if the settlement figure was £70k, you would be due a refund of £30k.

[webberg]

I completely agree with these points but I was not clear on what you meant by "The interaction between the DR charge and earlier years liability is a complex one".

Although the LC2019 charge is said to be a new charge on a new source, there are extensive provisions to allow the subsequent credit (or not) of tax paid to be allocated to earlier liabilities arising from an arguably different source.

As far as I know that's a unique scenario in tax law (or at least not one I've seen or dealt with before).

I am saying therefore that this has the capacity for "interpretation" and cock up in operation.

[ChimpMaster]

Apologies but I don't quite follow what you are saying.

We are told by HMRC (and have started to see) that loans settled under CLSO 2 will not be subject to the LC charge.

We are also told, face to face by HMRC officers, that even after the LC assessment is raised, they will not stop their enquiries into earlier years.

I'm aware that is at variance from opinions here, but it's what we have been told and I can see lots of reasons why it is true and almost no reasons why HMRC would abandon their earlier year enquiries.

I completely agree with these points but I was not clear on what you meant by "The interaction between the DR charge and earlier years liability is a complex one".

[webberg]

Given that 3 or perhaps 4 Tribunal cases will be heard this year on the original HMRC assessments, I suspect that HMRC is ready willing and able to to fight on all fronts.

The LC - if it works as claimed - collects money first and can be argued at leisure later.

You are though correct that BG and others have to deal with both.

[Loan Ranger]

If you haven't settled by 5th April 2019 then you will be required to provide info on ALL loans by 30th Sept 2019.

LC19 makes absolutely no distinction between open and closed years.

Groups like BG will have to fight on two fronts:

1) appealing the underlying tax assessment

and

2) appealing against LC19

My guess is HMRC will direct most of their fire power at (2) ie. making the loan charge stick. They won't want to get drawn into (1) which would mean litigating against dozens of schemes.

[webberg]

For the part I've highlighted in bold I have a strong suspicion that HMRC will not let anything change their view that the LC is due if loans are not declared prior to that under CLSO2. I doubt there is anything substantial - in HMRC's view - about earlier years. Heck, they don't even care about years that closed and beyond enquiry time limits. To them it's all fair game.

Apologies but I don't quite follow what you are saying.

We are told by HMRC (and have started to see) that loans settled under CLSO 2 will not be subject to the LC charge.

We are also told, face to face by HMRC officers, that even after the LC assessment is raised, they will not stop their enquiries into earlier years.

I'm aware that is at variance from opinions here, but it's what we have been told and I can see lots of reasons why it is true and almost no reasons why HMRC would abandon their earlier year enquiries.

[ChimpMaster]

Using CLSO 2 will result in tax being due for each year a loan was made.

Where the year is "open", i.e. you have an unresolved HMRC enquiry, interest will be added. Since early 2009 the interest rate has been at or around 3% pa. Simple interest calculation from due date to date of payment.

Where the year is "closed" i.e. no HMRC enquiry, then HMRC claim that "by concession" they will not charge interest. In fact, the law does not permit an interest charge as interest can arise only on tax and a voluntary payment is not tax.

The DR Charge becomes due, so we are told, 31st January 2020. If it's paid at that time, no interest arises on that charge.

The interaction between the DR charge and earlier years liability is a complex one and I recommend that you seek advice as this will have a part to play in your deliberations.

For the part I've highlighted in bold I have a strong suspicion that HMRC will not let anything change their view that the LC is due if loans are not declared prior to that under CLSO2. I doubt there is anything substantial - in HMRC's view - about earlier years. Heck, they don't even care about years that closed and beyond enquiry time limits. To them it's all fair game.