Sarah Laing summarises recent changes to the ‘disguised remuneration’ loan charge provisions following recommendations made in the Amyas review.
Broadly, the ‘loan charge’ is a charge to tax on employees and traders who were paid via ‘disguised remuneration’ loan arrangements in order to minimise liability to tax and National Insurance contributions.
In general terms, any individual who received a disguised remuneration loan or credit on or after a specified date, which was still outstanding on 5 April 2019, will be liable to the charge, unless they or their employer have previously accounted for any tax due on the loan.
The need for change
When the provisions were first announced the professional bodies generally supported the underlying policy of countering tax avoidance, but also expressed concern about the potential hardship this measure would cause in certain cases, particularly at the lower end, including some people who were misled into using these schemes.
This prompted the government to request an independent review, led by Sir Amyas Morse, who subsequently recommended certain changes to the provisions. The government accepted all but one of the recommendations in the review.
Outcome of the review
In December 2019, the Treasury agreed to limit the loan charge cut-off date to 9 December 2010 instead of 1999, and to waive charges for those who disclosed loan scheme issues to HMRC in instances where the tax authority failed to take action, for loan charges raised between 9 December 2010 and 5 April 2016. To qualify, taxpayers would have had to fully disclose their schemes on their tax return over this period. If HMRC took no action, then their cases will be deemed to have been resolved.
In addition, the Treasury said it would bring forward alternative action to tackle the use of the tax avoidance schemes before 2010, along with new action against promoters of disguised remuneration schemes. Details of the crackdown are expected to be announced at the time of the Budget on 11 March 2020.
Practical implications
Scheme users will be able to defer filing their returns and paying their loan charge liability until September 2020. Taxpayers will be allowed to split the loan balance over three tax years (between 2018/19 and 2020/21) to make bills more affordable.
However, the government rejected a recommendation to introduce a write-off of tax due on the loan charge after ten years for individuals whose time to pay arrangement is longer than ten years. That would allow those who have avoided tax through the use of disguised remuneration tax avoidance schemes more favourable terms than taxpayers with other debts, including tax credit claimants.
The changes reduce bills for more than 30,000 people subject to the loan charge, which means that some 60% of the total number of people affected by the loan charge will obtain some respite from the retrospective legislation. Moreover, it is estimated that some 11,000 taxpayers will be taken out of the charge altogether as a result of the Amyas review recommendations.
Once legislation has been passed, HMRC will repay parts of some settlements reached with taxpayers where they had voluntarily paid amounts due for earlier years.
Help and advice
HMRC has published revised guidance (www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance) to help users of the schemes understand what they have to do and extra time will be provided so that users of schemes can defer sending their return and paying the tax for 2018-19, until the end of September 2020.
HMRC has also recently enhanced their support services for vulnerable customers, and are introducing a 'New Extra Support Service' for customers undergoing compliance checks.
Practical tip
The option to spread the amount of outstanding loan balance as at 5 April 2019 evenly across the three tax years 2018/19 to 2020/21 will give greater flexibility when the outstanding loan balance is subject to tax and may mean that the loan balance is not subject to higher rates of tax.
