2019 Loan Charge and APNs

[User999]

Hi

Just got a message from HMRC re settlement v loan charge

"You should also be aware the Accelerated Payment Notices (if applicable) cannot be set against the Loan Charge"

Anyone else had this? I thought the APNs where in effect a payment on account. If the above is true, they are now fine/penalty if you don't settle.

So not only does the loan charge ignore individual year allowances and make you pay tax on promoter fees you did not receive, any APNs you have been forced to pay will not be used to offset the final demand.

[GreenMirror]

Is that via letter, email or phone call?

[User999]

Is that via letter, email or phone call?

Letter

[nobody123]

I have always assumed that total APN amount paid would be offset.... so if this is true, when would the APN amount be returned to the individual?

[webberg]

In my view, section 554Z11E ITEPA permits a "provisional payment of tax" to be deducted from the loan charge, "upon application".

The form and style of the application has yet to be seen.

An APN is a provisional payment of tax.

The kicker is that if you have paid/are paying the APN and eventually there is no (or a lower) liability, then the APN balance is repaid.

If you elect to have the APN set against the loan charge, I think the repayment ability is denied.

What I'm unclear about is what happens if the loan charge is subsequently reduced. I'm looking into that.

However the statement from the OP seems to me to have been taken out of context perhaps. I think HMRC mean that an APN paid cannot reduce the amount of loan brought into charge.

Where the APN paid is more than the loan balance (can that ever happen?) then you can apply for postponement of the loan charge.

[User999]

Here is the full paragraph

"HMRC expect that the Load Charge will cost you more than settling before it is incurred, and even if you pay it, you will still need to settle or litigate on your liabilities as you deam appropriate, as the Loan Charge is a separate charge from your original liability on your income. You should also be aware the Accelerated Payment Notices (if applicable) cannot be set against the Loan Charge"

Not sure what any of that means

[Dmac]

Here is the full paragraph

"HMRC expect that the Load Charge will cost you more than settling before it is incurred, and even if you pay it, you will still need to settle or litigate on your liabilities as you deam appropriate, as the Loan Charge is a separate charge from your original liability on your income. You should also be aware the Accelerated Payment Notices (if applicable) cannot be set against the Loan Charge"

Not sure what any of that means

So looking at that from HMRC, why would anyone wait for the loan charge to hit them, since by paying that (which would in most cases be far higher than a settlement) you will STILL have to settle earlier years tax "liabilities" - so a double-whammy for those who choose not to settle.

[GreenMirror]

Sounds to me like HMRC are talking a whole load of nonsense to scare those without advisers.

Remember that poster who settled - then got hit with IHT once his loans were cancelled?

[webberg]

Here is the full paragraph

"HMRC expect that the Load Charge will cost you more than settling before it is incurred, and even if you pay it, you will still need to settle or litigate on your liabilities as you deam appropriate, as the Loan Charge is a separate charge from your original liability on your income. You should also be aware the Accelerated Payment Notices (if applicable) cannot be set against the Loan Charge"

Not sure what any of that means

My understanding (and I invite corrections if necessary) is as follows.

The underlying principle of the loan charge is that it should not subject the same income to tax twice. To achieve this there are two relieving provisions at section 554Z5 and 554Z11B et seq of ITEPA.

The first (Z5) applies where you have settled earlier years before the relevant step for the loan charge happens, i.e. 5th April 2019. Clearly if you are in this position, then APNs paid against those earlier periods will be credit against the tax liability and hopefully will all be reconciled at the time the settlement is agreed.

The second (Z11) is where the loan charge arises. In other words, you have not agreed pre 5/4/19 to settle. Here the full amount of loans unpaid comes into charge and only if the amount fo APN you have paid, exceeds the loan balance (and I don't know if this is done on a year by year or cumulative basis) can you "set off" the APN value, reducing the gross amount brought into charge.

I think that will rarely happen.

In Z11E, there are provisions to allow an application to be made to have a provisional payment of tax to be allowed as a credit.

I agree that this is not clear. We do have people with HMRC today and we are asking this question.

We do know that where the loan charge is paid and the earlier years subsequently agreed, then any excess of loan charge over that earlier liability plus interest is not refundable.

To expect a loan charge to be paid whilst HMRC is sitting on disputed tax - for the same income - seems contrary to natural justice.

Whilst it would not surprise me if HMRC intended this effect, the storm this will cause if true is going to be epic.

[Calmbeforethestorm]

My understanding (and I invite corrections if necessary) is as follows.

The underlying principle of the loan charge is that it should not subject the same income to tax twice. To achieve this there are two relieving provisions at section 554Z5 and 554Z11B et seq of ITEPA.

The first (Z5) applies where you have settled earlier years before the relevant step for the loan charge happens, i.e. 5th April 2019. Clearly if you are in this position, then APNs paid against those earlier periods will be credit against the tax liability and hopefully will all be reconciled at the time the settlement is agreed.

The second (Z11) is where the loan charge arises. In other words, you have not agreed pre 5/4/19 to settle. Here the full amount of loans unpaid comes into charge and only if the amount fo APN you have paid, exceeds the loan balance (and I don't know if this is done on a year by year or cumulative basis) can you "set off" the APN value, reducing the gross amount brought into charge.

I think that will rarely happen.

In Z11E, there are provisions to allow an application to be made to have a provisional payment of tax to be allowed as a credit.

I agree that this is not clear. We do have people with HMRC today and we are asking this question.

We do know that where the loan charge is paid and the earlier years subsequently agreed, then any excess of loan charge over that earlier liability plus interest is not refundable.

To expect a loan charge to be paid whilst HMRC is sitting on disputed tax - for the same income - seems contrary to natural justice.

Whilst it would not surprise me if HMRC intended this effect, the storm this will cause if true is going to be epic.

But, the same cannot be said for IHT which will be taxing the same amount twice.

If the LC is less than the settlement plus IHT it must make sense to go that route, pay an extra 5% and leave the loans in perpetuity.If your loans are in excess of £325k it looks unwise to settle, especially if the loans are pre 2011 and settlement excludes any interest.Thoughts please.