Loan Charge - a beginners guide

[MyxALot]

I presume it's not Phil or WTT giving you that advice, as they know full well interest isn't applied to the Loan Charge.

Think about it - the sum of loans is added to your income in TY 2018/19 (after all it is 'a new charge on a new source' *cough*absolutebollox*cough*) so how CAN interest be applied?

[ContractorSeven]

I presume it's not Phil or WTT giving you that advice, as they know full well interest isn't applied to the Loan Charge.

Think about it - the sum of loans is added to your income in TY 2018/19 (after all it is 'a new charge on a new source' *cough*absolutebollox*cough*) so how CAN interest be applied?

I am using DSW for advice on settlement and the loan charge. I don't know how many tax advisers they employ but Phil (who I initially spoke to on the phone and was very helpful) isn't the only one.

I've been provided with estimates of what I would owe both for CLSO2 and if I have to pay the loan charge. Both are some way off what I expected. The loan charge estimate has interest applied and I was told "interest will be applied for all years if this does go through to the loan charge. Interest only applies to open years if you go down the settlement route.", which implies interest would be charged for closed years with LC19. My (somewhat surprised) questions about this interest have gone unanswered for a month now.

I have a couple of other issues too.

Yeah, I could chase them again, and I will. However, I don't consider having to chase a firm to reply and answer pretty simple questions as something one should have to do when their fees aren't exactly small. At this point they seem like poor value.

[webberg]

I've been provided with estimates of what I would owe both for CLSO2 and if I have to pay the loan charge. Both are some way off what I expected. The loan charge estimate has interest applied and I was told "interest will be applied for all years if this does go through to the loan charge. Interest only applies to open years if you go down the settlement route.", which implies interest would be charged for closed years with LC19. My (somewhat surprised) questions about this interest have gone unanswered for a month now.

I cannot comment on what Phil has said, but if one of his team has said the above, verbatim, I suspect he will be having a quiet word in their ear.

For the avoidance of doubt, if the loan charge arises and if it falls due, it is tax on outstanding loans and there is no interest unless you fail to pay by the appropriate date (31st Jan 2020).

If you pay in instalments under an agreement, then interest will be due, but only from 31st Jan 2020 onwards on unpaid amounts.

[ContractorSeven]

I cannot comment on what Phil has said, but if one of his team has said the above, verbatim, I suspect he will be having a quiet word in their ear.

For the avoidance of doubt, if the loan charge arises and if it falls due, it is tax on outstanding loans and there is no interest unless you fail to pay by the appropriate date (31st Jan 2020).

If you pay in instalments under an agreement, then interest will be due, but only from 31st Jan 2020 onwards on unpaid amounts.

Interesting. When I chased them today they said that HMRC has ‘suggested’ interest will be charged on all years put through the loan charge. For me this interest is an amount very close to the LC19 tax due on the loan, more or less doubling the total.

Certainty here is important for me as this interest would make the LC a lot more expensive than settling, but without it settling will be more so it would be a no-brainer to wait for the charge (I don’t have any open years).

[webberg]

THERE IS NO INTEREST CHARGED ON THE LOAN CHARGE.

I suspect that whomever you are speaking with has got themselves confused over the way in which the loan charge can be used as a credit against the final agreed position.

The amount paid under the loan charge will be used against the final agreed liability.

Yes - the loan charge is looked upon as a payment on account of an earlier year's liability. HMRC has been very clear that the loan charge will not halt their enquiry and eventual settlement of those earlier years.

That earlier year liability, if finally decided to be due, will attract interest from the original due date.

Where the earlier year is "closed", i.e. not under enquiry, then obviously no liability can arise but the loan charge is paid anyway. Does that trample your protection legally founded in the Taxes Acts? YES. Do HMRC care? NO. Do MPs' care? THEY MIGHT.

For example.

You have loans from 2009/10, 2010/11, 2011/12 of £50,000 each.

The loan charge will bring into account £150,000 of "income" in 2018/19 and you will pay (assuming your salary has absorbed all your allowance and basic rate - say £50,000) around £68,000 of tax.

NO INTEREST.

Let's assume that 9/10 and 10/11 are open and are eventually agreed and your liability from those years is around £15,000 for each year. Total £30,000.

Interest will be due of around £7,500.

Total liability of £37,500.

This will be covered by the tax paid on the loan charge.

The 11/12 year is closed. No adjustment can be made.

If the liability under settlement would have been say £15,000 (no interest are not open), then the comparison to be made is between that liability if you settled, and the amount of tax paid on the loan charge not used, £68,000 less £37,500 = £30,500.

Clearly more than the settlement value - in this example by £15,500.

That last amount is NOT REPAYABLE.

So, when comparing your settlement vs not settling position, you need to consider how you mitigate the loan charge and whether that law is so flawed that you can recover any overpaid tax when the dust settles, or whether there are ways and means to achieve a repayment.

There are a number of calculators around that allow you to run "what if" scenarios. We have one and like most others, they are free to use.

I hope that helps, (even if it is a bit scary).

[Moss Piglet]

You mentioned free to use calculators to do 'what if' scenarios. Can you post a link to them please. Thanks.

[webberg]

You mentioned free to use calculators to do 'what if' scenarios. Can you post a link to them please. Thanks.

I'm afraid that I can't post a link to our own as that transgresses the rules on advertising ere.

Equally, whilst I could post a link to others, I've not verified that they work the way I think they should work, consequently, I'm not going to endorse them.

There are some well known firms posting to these threads and I suggest that looking for their websites and following the links is the best option.

[Newbie27]

Confused Newbie

Thanks for the beginners guide; after receiving what my umbrella company have deemed a ‘phishing’ letter with non specific information from HMRC I’m struggling to see where I fall with current arrangements.

I don’t recieve a loan from third party, and have repayment dates and interest from my employer directly, so am I correct in assuming this falls outside of the disguised renumeration legislation? (My umbrella company also seem to think this isn’t anything to be concerned about).

Any help would be appreciated!

[ContractorSeven]

THERE IS NO INTEREST CHARGED ON THE LOAN CHARGE.

I suspect that whomever you are speaking with has got themselves confused over the way in which the loan charge can be used as a credit against the final agreed position.

Thanks, Webberg. Everything I had read on here (and the LCAG forum) suggested that this is the case, so I was concerned to be told otherwise by my tax advisor (and told again when I asked them to confirm) who I am paying to try to bring certainty to all of this!

[webberg]

I don’t recieve a loan from third party, and have repayment dates and interest from my employer directly, so am I correct in assuming this falls outside of the disguised renumeration legislation? (My umbrella company also seem to think this isn’t anything to be concerned about).

Any help would be appreciated!

Have a look at this.

https://assets.publishing.service.go...__company_.pdf

See paras 10.3 and 10.4

These discuss whether Part 7A - one of the conditions for which is that a third party is in the chain of payments - can, when the INTENT of Parliament in approving that legislation is analysed, apply to situations where the loan was made by an employer but subsequently moved to another party.

They come very close to saying that the third party is irrelevant and that if an employee is rewarded by a loan, the intent of the law is that the loan should be taxed.

This analysis skirts a lot of philosophical tenets in taxation and is very close to saying that "tax law can mean whatever a Judge thinks it can". In other words, it comes close to overturning the rule of law and its entire purpose.

This is music to HMRC's ears.

They will believe that having secured this opinion (and another very similar), that they can (and no doubt will) be quoting this to taxpayers in their NUDGE letters and hope to avoid having this opinion tested in a Court.

In my opinion, the GAAR panel has come close to usurping the law making powers of Parliament and the judiciary powers to examine and interpret law.

Am I surprised?

Not in the least. This was, in my opinion, always the intention of the GAAR process (tax by stealth - HMRC's way or no way) and loading the Panel with HMRC people was always going to produce this result.

So your umbrella may be right.

However I think it likely that you will be asked to defend that position in Court (or cave in to HMRC's view) and you need to be asking yourself whether the Umbrella has the necessary guns and ammunition to fight for you. Even if they do, do they have any appetite for what promises to be a very long and dirty campaign?