Reply to: Penalties Letter Received from HMRC

[DealorNoDeal]

So this morning I came down to the frontdoor to find the dreaded brown letter of HMRC on the floor.
(After I replied to their previous letter to says I have paid all tax under loan charge scheme etc)

The letter said to my amazement:
"Thank you for contacting us to let us know that you wanted to settle your disguised remuneration scheme use under our 2020 settlement terms.
This letter is to confirm that we have reviewed your case and can confirm there is nothing left to settle, therefore no further action is required"

A real unexpected surprise, I was expecting this to go on and on and for them to charge penalties, late payment interest, inheritance tax, and tax on accrued interest on the loans.
So I won't question it and hopefully can move on now finally after 3 long years.

It sounds like they got themselves even more confused etc than you.

[Confusedetc]

So this morning I came down to the frontdoor to find the dreaded brown letter of HMRC on the floor.
(After I replied to their previous letter to says I have paid all tax under loan charge scheme etc)

The letter said to my amazement:
"Thank you for contacting us to let us know that you wanted to settle your disguised remuneration scheme use under our 2020 settlement terms.
This letter is to confirm that we have reviewed your case and can confirm there is nothing left to settle, therefore no further action is required"

A real unexpected surprise, I was expecting this to go on and on and for them to charge penalties, late payment interest, inheritance tax, and tax on accrued interest on the loans.
So I won't question it and hopefully can move on now finally after 3 long years.

[Confusedetc]

I’m beginning suspect you’ve applied for settlement when you didn’t need to, and this in turn is what has upset HMRC’s mailing machine in to sending out its letter.

The settlement scheme applies for what HMRC terms as open years up to 18/19, and to “close” these tax disputes.

To be an “open year” you need to either have a discovery assessment or an open enquiry into your self assessment tax return, which has not been closed. None of this seems to apply from what you said.

I doubt HMRC even could now issue a valid discovery now for 17/18 under circumstances described, but a tax professional could confirm, meanwhile you say you have included these loans in the loan charge.

Separately the 19/20 year you said you have declared the 19/20 loans as income. There’s no enquiry or assessment here from what you’ve said and I doubt there’s any additional liabilities (unless there are any errors in your self assessment)

One learning from dealing with HMRC is a lack of cross referencing, so although undesirable it’s understandable that you might have perhaps put yourself back on their radar.

I would write back and explain, and perhaps be very wary of (and appeal) any discoveries that come through the post in the meantime.

Good luck!

Thanks for your replies and thoughts mate much appreciated.
I will now add some of this context in my reply to them, glad I waited before replying and found the closure letter and got a bit more understading from yourself.
Yes there does seem to be a lack of cross referencing from them, it's pretty poor when somebodies financies / penalties etc are at stack.
Will see what they say (probably 6 months+ down the line or something by time they respond)

[Chevalier]

I’m beginning suspect you’ve applied for settlement when you didn’t need to, and this in turn is what has upset HMRC’s mailing machine in to sending out its letter.

The settlement scheme applies for what HMRC terms as open years up to 18/19, and to “close” these tax disputes.

To be an “open year” you need to either have a discovery assessment or an open enquiry into your self assessment tax return, which has not been closed. None of this seems to apply from what you said.

I doubt HMRC even could now issue a valid discovery now for 17/18 under circumstances described, but a tax professional could confirm, meanwhile you say you have included these loans in the loan charge.

Separately the 19/20 year you said you have declared the 19/20 loans as income. There’s no enquiry or assessment here from what you’ve said and I doubt there’s any additional liabilities (unless there are any errors in your self assessment)

One learning from dealing with HMRC is a lack of cross referencing, so although undesirable it’s understandable that you might have perhaps put yourself back on their radar.

I would write back and explain, and perhaps be very wary of (and appeal) any discoveries that come through the post in the meantime.

Good luck!

[Confusedetc]

To be honest, I’m a bit confused if you’ve got anything to actually “settle”

Did HMRC open enquiries into the various years, and then issue closure notices? If so the matters looked into are now closed, settled etc etc. So if HMRC looked at the DR scheme and loan charge declared in 2019 these matters are now settled.

You said you didn’t file a 17/18 return, and I presume HMRC never issued a notice to file? If so it’s now too late for self assessment anyway

With regards to penalties for inaccuracies, these can only come about if you are actually assessed for additional taxes.

Well yeh I guess the original tax return requests for 16/17/19 only were enquiries and they have since closed them, but just after they sent those tax return requests / enquiries they also sent me the loan charge request, so I made the 19 return part of the loan charge process when I submitted it, in my mind, but seems they didn't maybe treat it as such and closed it as part of their original enquiry.

Yeh HMRC never issued a notice to file 17/18 like you say. (so I included those loans within the loan charge process)

I was previously told on here that going through the loan charge does not settle things, and I still need to settle, so I applied for settlement 2020.

It still leaves years ending 18 and 20 open or unsettled currently, but I thought it was being done so via the loan charge.
Seems they have got mixed up between enquiries into those years and then me doing the loan charge process (or so I thought I was even though I didn't elect to on their online form as they never asked me to) and now settlement. It's all a bit of a mess it seems and frustrating as they have never been clear or seem to known what they are talking about when called to discuss.

I am hoping years ending 16/17/19 being closed will help things at least in terms of extra things I might need to pay.

[Chevalier]

To be honest, I’m a bit confused if you’ve got anything to actually “settle”

Did HMRC open enquiries into the various years, and then issue closure notices? If so the matters looked into are now closed, settled etc etc. So if HMRC looked at the DR scheme and loan charge declared in 2019 these matters are now settled.

You said you didn’t file a 17/18 return, and I presume HMRC never issued a notice to file? If so it’s now too late for self assessment anyway

With regards to penalties for inaccuracies, these can only come about if you are actually assessed for additional taxes.

[Confusedetc]

I think you will find that the letter is probably a standard one from someone who has no idea you are talking to them, I'd respond and give them the details of who you are talking to and ask them to respond to you again.

I'm hoping, it does say settlement terms 2020 at the bottom, but yeh hopefully not linked the previous stuff done and taxes paid etc.
I just realised I have a letter from HMRC from 2021 saying my open enquiries into tax year ending 16,17 & 19 are now closed.
So does that mean if they have already looked into 19 they couldn't charge a inaccuracy penalty ? and the other 2 years (18 / 20) if it's over a year since I completed the tax returns surely they can't give a penalty for inaccuracy as I thought it had to be within a year for them to do so, or is it different with settlement.

[Delendog]

I think you will find that the letter is probably a standard one from someone who has no idea you are talking to them, I'd respond and give them the details of who you are talking to and ask them to respond to you again.

[DealorNoDeal]

You should definitely challenge the issuing of penalties.

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

[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

[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
>>>

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.

>>>

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

[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.

[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.

[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]

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?