There's a newer version of that Pension guide

[1887wwfc]

If you are settling, then there is no loan charge and therefore no need to mitigate the charge with a pension contribution?

The loan charge IS NOT SETTLING.

If you have settled via the contract route, then no need to make a SA return.

I appreciate that.

What I am saying is that for me (assuming no penalties or interest in my settlement), if going the Loan Charge route works out far less than Settlement (as I have very little current income so loans mostly taxed @ 20%), can I just opt for that route and inform HMRC that I will pay the Loan charge and are there any consequences or differences to consider for choosing that over settlement via CLS02

[webberg]

I appreciate that.

What I am saying is that for me (assuming no penalties or interest in my settlement), if going the Loan Charge route works out far less than Settlement (as I have very little current income so loans mostly taxed @ 20%), can I just opt for that route and inform HMRC that I will pay the Loan charge and are there any consequences or differences to consider for choosing that over settlement via CLS02

The settlement will include interest. (We've not seen any with penalties).

Let's assume the following.

Open years 11/12 and 12/13. Loans of £50k in each year.

Tax liability on the loans in those years is £15k, in 11/12 and £13k in 12/13.

Tax liability under loan charge is £30k (mix of 20% and 40%).

You choose not to settle and pay the loan charge in January 2020.

Some time later, say January 2021, you finally agree 11/12 and 12/13. The liability is as above. Now that the years are settled, the interest can be calculated.

Ignoring minor changes in rates, interest from 11/12 is £15k x 3% x 7 (period from due date to date loan charge paid) = £3k.

Interest from 12/13 is £13k x 3% x 6 = £2,500.

(I'm rounding the numbers).

So, you owe £15k + £13k + £5.5k = £33.5k. You have paid £30k. You owe another £3.5k at that time.

(And before some pedant jumps on the above and quotes sections and guidance notes about how the legal process is different, I am happy that the EFFECT is as above.)

[starstruck]

The settlement will include interest. (We've not seen any with penalties).

Let's assume the following.

Open years 11/12 and 12/13. Loans of £50k in each year.

Tax liability on the loans in those years is £15k, in 11/12 and £13k in 12/13.

Tax liability under loan charge is £30k (mix of 20% and 40%).

You choose not to settle and pay the loan charge in January 2020.

Some time later, say January 2021, you finally agree 11/12 and 12/13. The liability is as above. Now that the years are settled, the interest can be calculated.

Ignoring minor changes in rates, interest from 11/12 is £15k x 3% x 7 (period from due date to date loan charge paid) = £3k.

Interest from 12/13 is £13k x 3% x 6 = £2,500.

(I'm rounding the numbers).

So, you owe £15k + £13k + £5.5k = £33.5k. You have paid £30k. You owe another £3.5k at that time.

(And before some pedant jumps on the above and quotes sections and guidance notes about how the legal process is different, I am happy that the EFFECT is as above.)

I believe the poster said in an earlier post their years are closed so none of the above is applicable to them.

[1887wwfc]

I believe the poster said in an earlier post their years are closed so none of the above is applicable to them.

I did Starstruck and thanks for your reply earlier.

Basically with closed years I was just asking the question if you've requested settlement Via CLS02 and HMRC come back with a settlement figure (which I am hoping confirms no open years. interest or penalties) and I then calculate the Loan Charge is a few thousand cheaper in PAYE tax terms are there any other considerations, eg. do I have to pay employees NI as well? I was advised at the start that Settlement might be the easiest solution but I guess they didn't know all my circumstances, such as I only draw a small income currently, so I was just exploring which option would give be the best and cheapest, hence also the question about pension offsetting.

[webberg]

Thank you for pointing out me error - which is accepted and I apologise for.

You are correct.

Settling a closed year will not attract interest or penalty.

The loan charge will not have interest because it does not fall due until January 2020.

Employee NIC? Probably not.

[dammit chloe]

Thank you for pointing out me error - which is accepted and I apologise for.

You are correct.

Settling a closed year will not attract interest or penalty.

The loan charge will not have interest because it does not fall due until January 2020.

Employee NIC? Probably not.

Are you saying no Employee NIC on Loan Charge ( I have read yes and no on this before )?

If so is there going to be confirmation. Makes a difference to me as the nearer my settling and not settling costs are the more obvious the decision to do the latter.