Reply to: The loan charge is NOT a settlement "option"

[lowpaidworker]

I have been reading this thread with interest. Due to personal circumstances, I have been given an extension until the end of Nov to decide whether to pay the settlement or raise an EYU to pay the Loan Charge over 2018-19 / 2019-20 / 2020-21 SATRs. I would appreciate some clarity on how the tax calculations would be done, especially as during the above years I was a Director of a Ltd company and took a low salary and the rest in dividends,

Obviously if we were just talking tax based on salary then this would be straight-forward, as the additional tax would be relevant to whatever tax bracket my earnings has reached, however for the year 2018-2019 I wasn’t taxed on PAYE at all (as my salary was below the threshold), however I was taxed on dividends (into the higher tax bracket).

When I spoke to a HMRC person two days ago (he wasn’t overly confident on his answer), he stated that any Loan Charge amount would be taxed at %20 for the first £34.5k, %40 up to the next 45%, etc and that the amount earned as dividends would not impact salary bracketing. This could be a significant difference in my calculations.

Is this your understanding as well – I.e. tax brackets can be applied in parallel to both dividends and PAYE? Meaning I would benefit from the lower rates on both sides. Or would they effectively be stacked, so any Loan Charge amount would be all taxed in the higher bracket?

Additionally, it has been made clear to me (by a tax advice company) that if I pay the settlement then there is no way to recover any money if any litigation is successful in the future (assuming it aligns to my situation), however, If I pay the Loan Charge then there is a potential to reclaim my additional tax paid - does anyone on here agree with this statement?

Many thanks in advance...

What will happen is on your original SATR where you had 2000 tax free then some in 7.5% some in 34.5% and some in 38.1% (depending on how much in dividends you pay yourself ) they will add your loan amounts to your basically salary and recalculate the tax as all PAYE. Then they add your dividends to the gross PAYE income and then tax your dividends (less the 2000 tax free). So yes ulltimately your dividend tax will also get recalculated which may push dividends amounts into the higher tax bands.

they then add the restated PAYE to the new Dividend tax amounts/bands to calculate what tax you should have paid and then deduct the amount you actually paid back in Jan to work out what the loan charge will be.

So simply your dividends will end up in higher tax bands as they decide these bands after your loan amount is added to your existing small salary.

Here are the bands for your info

Tax Free £2000
Basic rate x 7.5%
Higher rate x 32.5%
Additional rate x 38.1%

[Fred Bloggs]

So not much use for the year 2018-2019 which was the one the person was asking about..

My mistake then.

[eek]

Obviously not, but the allowance can be carried over to offset as much as possible for the current year up to £120,000 available to off set taxable earnings.

So not much use for the year 2018-2019 which was the one the person was asking about..

[Fred Bloggs]

For 2018/19 and 2019/20?

Obviously not, but the allowance can be carried over to offset as much as possible for the current year up to £120,000 available to off set taxable earnings.

[eek]

Generous contribution to a pension may help limit the damage here, I should think?

For 2018/19 and 2019/20?

[Fred Bloggs]

For the years where you've taken dividends rather than salary, what will happen is that you salary will be increased from £9k to say £50k and your dividends would then be taxed not at 7.5% but at the higher rate.

Generous contribution to a pension may help limit the damage here, I should think?

[eek]

I have been reading this thread with interest. Due to personal circumstances, I have been given an extension until the end of Nov to decide whether to pay the settlement or raise an EYU to pay the Loan Charge over 2018-19 / 2019-20 / 2020-21 SATRs. I would appreciate some clarity on how the tax calculations would be done, especially as during the above years I was a Director of a Ltd company and took a low salary and the rest in dividends,

Obviously if we were just talking tax based on salary then this would be straight-forward, as the additional tax would be relevant to whatever tax bracket my earnings has reached, however for the year 2018-2019 I wasn’t taxed on PAYE at all (as my salary was below the threshold), however I was taxed on dividends (into the higher tax bracket).

When I spoke to a HMRC person two days ago (he wasn’t overly confident on his answer), he stated that any Loan Charge amount would be taxed at %20 for the first £34.5k, %40 up to the next 45%, etc and that the amount earned as dividends would not impact salary bracketing. This could be a significant difference in my calculations.

Is this your understanding as well – I.e. tax brackets can be applied in parallel to both dividends and PAYE? Meaning I would benefit from the lower rates on both sides. Or would they effectively be stacked, so any Loan Charge amount would be all taxed in the higher bracket?

Additionally, it has been made clear to me (by a tax advice company) that if I pay the settlement then there is no way to recover any money if any litigation is successful in the future (assuming it aligns to my situation), however, If I pay the Loan Charge then there is a potential to reclaim my additional tax paid - does anyone on here agree with this statement?

Many thanks in advance...

For the years where you've taken dividends rather than salary, what will happen is that you salary will be increased from £9k to say £50k and your dividends would then be taxed not at 7.5% but at the higher rate.

[SparkyB]

Calculating the Loan Charge taxes & recourse refunding

I have submitted my Loan via my SATR 18/19. I also did some quick tallying up. The difference between the Loan Charge and tax at the time for these years is about £800 less in favour of LC. Those numbers include back dated interest.

Its quite easy to do as all you need is numbers that were calculated on your SATR. A good website that calculates paye. (I used this one Income tax calculator: Find out your take-home pay - MSE)

On HMRC is a list of histrocial interest rates. Plug those in based on 31 Jan of the year the tax should have been paid. Diff the two. Its not difficult and should give those that settled via LC some piece of mind if HMRC come back after you for more.

I have been reading this thread with interest. Due to personal circumstances, I have been given an extension until the end of Nov to decide whether to pay the settlement or raise an EYU to pay the Loan Charge over 2018-19 / 2019-20 / 2020-21 SATRs. I would appreciate some clarity on how the tax calculations would be done, especially as during the above years I was a Director of a Ltd company and took a low salary and the rest in dividends,

Obviously if we were just talking tax based on salary then this would be straight-forward, as the additional tax would be relevant to whatever tax bracket my earnings has reached, however for the year 2018-2019 I wasn’t taxed on PAYE at all (as my salary was below the threshold), however I was taxed on dividends (into the higher tax bracket).

When I spoke to a HMRC person two days ago (he wasn’t overly confident on his answer), he stated that any Loan Charge amount would be taxed at %20 for the first £34.5k, %40 up to the next 45%, etc and that the amount earned as dividends would not impact salary bracketing. This could be a significant difference in my calculations.

Is this your understanding as well – I.e. tax brackets can be applied in parallel to both dividends and PAYE? Meaning I would benefit from the lower rates on both sides. Or would they effectively be stacked, so any Loan Charge amount would be all taxed in the higher bracket?

Additionally, it has been made clear to me (by a tax advice company) that if I pay the settlement then there is no way to recover any money if any litigation is successful in the future (assuming it aligns to my situation), however, If I pay the Loan Charge then there is a potential to reclaim my additional tax paid - does anyone on here agree with this statement?

Many thanks in advance...

[lowpaidworker]

For those that have settled i.e either declared the loans or signed and agreed the settlement what is the next stage. How do TTP gets sorted.... are we supposed to contact them or while they write to us. The settlement letter says they will write to us if they accept our offer to settle.

But also what if you have part settlement part loan charge declaration. Do they also write to you regarding the payment of the loan charge ?

Its been two weeks now and not heard anythig from then for either ?

[regron]

Latest update here. New settlement terms coming for those who paid LC and still have liabilities. They are not, as expected, going away.

HMRC issue briefing: settling disguised remuneration scheme use and/or paying the loan charge - GOV.UK

[DealorNoDeal]

If paying the LC works out considerably cheaper than settling then it may be worth a punt.

Only time will tell what HMRC does with people who've paid the LC.

[regron]

Settlement / reaching a settlement with HMRC.

Or litigation.

[eek]

What then actually will close an open enquiry?

Settlement / reaching a settlement with HMRC.

[TakenAlongForaRide]

I think some people (not just on here) are getting settlement vs paying the loan charge mixed up thinking paying the LC closes an open enquiry which it doesn't.

What then actually will close an open enquiry?

[regron]

I think some people (not just on here) are getting settlement vs paying the loan charge mixed up thinking paying the LC closes an open enquiry which it doesn't.

One thing to point out though which I believe was discussed before, if settlement is signed and sealed and paid, that would be closure to the open Enq. Even though you may not receive a letter/correspondence to confirm that?

I wouldn’t want someone to come back a few years later asking for some more interest because an admin process was not followed....