Loan Charge Pension Offset for Open Years?

[Albert49]

I understand how pension offset of the LC worked for closed (unprotected years) , but am unclear for Open years.
Scenario (simplified for clarity) : I earned and declared up to the top of the 20% tax band in 2011/12, 2012/13, 2013/14 and 2014/15 , and had a loan for £30k in each year (total Loan £120k), all years open (protected).
I declare the loans for LC purposes spread over 2018/19, 2019/20 and 2020/21 (£40K each year), I earn up to the top of the 20% tax band in the same 3 years, and make a £40k gross pension contribution (£32k net) in 2019/20 and 2020/21.

For 2018/19 I assume I would be assessed to pay £16k (40% of £40k) for the loan charge, as I would in 2019/20 and 2020/21, however for these latter 2 years I would have received £8k pension top up and my LC would also be reduced by £8k, so in effect the £16K of tax for each year would go into my pension.

If I then settle the 4 open years at a later date, there will be £48k plus interest due in tax (4 x £12k for each year (40% of £30k))

Question: I assume I can offset the £16K of LC paid for 2018/19 from the £48K due for settlement, can I also offset the £32K LC for 2019/20 and 2020/21 LC (£16K each year) that I paid, but that actually ended up in my pension?

Also LC attracts NI, can I offset the NI paid for the LC from that due on the loans when settling?

[starstruck]

I understand how pension offset of the LC worked for closed (unprotected years) , but am unclear for Open years.
Scenario (simplified for clarity) : I earned and declared up to the top of the 20% tax band in 2011/12, 2012/13, 2013/14 and 2014/15 , and had a loan for £30k in each year (total Loan £120k), all years open (protected).
I declare the loans for LC purposes spread over 2018/19, 2019/20 and 2020/21 (£40K each year), I earn up to the top of the 20% tax band in the same 3 years, and make a £40k gross pension contribution (£32k net) in 2019/20 and 2020/21.

For 2018/19 I assume I would be assessed to pay £16k (40% of £40k) for the loan charge, as I would in 2019/20 and 2020/21, however for these latter 2 years I would have received £8k pension top up and my LC would also be reduced by £8k, so in effect the £16K of tax for each year would go into my pension.

If I then settle the 4 open years at a later date, there will be £48k plus interest due in tax (4 x £12k for each year (40% of £30k))

Question: I assume I can offset the £16K of LC paid for 2018/19 from the £48K due for settlement, can I also offset the £32K LC for 2019/20 and 2020/21 LC (£16K each year) that I paid, but that actually ended up in my pension?

Also LC attracts NI, can I offset the NI paid for the LC from that due on the loans when settling?

LC does not attract NI.

[DealorNoDeal]

Question: I assume I can offset the £16K of LC paid for 2018/19 from the £48K due for settlement, can I also offset the £32K LC for 2019/20 and 2020/21 LC (£16K each year) that I paid, but that actually ended up in my pension?

I wouldn't be surprised if even HMRC couldn't answer that. I doubt they'll be expecting many people, who've paid the LC, to then request a settlement, never mind convoluting it with pension contributions.

[Albert49]

"LC does not attract NI."

See Report and account for your disguised remuneration loan charge - GOV.UK



Calculate your loan charge
A loan is classed as outstanding if the total sums loaned are more than the total repayments made. The charge takes the total balance of all outstanding disguised remuneration loans on 5 April 2019 and treats them as income received on that date or trade profits arising in the tax year 2018 to 2019.

This means that loans outstanding on this date will incur an Income Tax and National Insurance contributions charge as if they were earnings or profits received in the tax year 2018 to 2019.

[starstruck]

"LC does not attract NI."

See Report and account for your disguised remuneration loan charge - GOV.UK



Calculate your loan charge
A loan is classed as outstanding if the total sums loaned are more than the total repayments made. The charge takes the total balance of all outstanding disguised remuneration loans on 5 April 2019 and treats them as income received on that date or trade profits arising in the tax year 2018 to 2019.

This means that loans outstanding on this date will incur an Income Tax and National Insurance contributions charge as if they were earnings or profits received in the tax year 2018 to 2019.

Hmmmm, not sure about that. I'm talking about EBT schemes where you were an employee and loaned money from a trust; where you put the loan amount in Box 21 of the SATR. There is definitely no NI for those, because I submitted my return (pre-review) and no NI was due, plus it was checked by my accountant and I got my amount due from HMRC and there was no NI. Maybe you're on a self-employed/partnership scheme and they have a NI charge; sorry, I don't know about those. But I think for the vast majority there is no NI.

[Albert49]

I wouldn't be surprised if even HMRC couldn't answer that. I doubt they'll be expecting many people, who've paid the LC, to then request a settlement, never mind convoluting it with pension contributions.

Paying the LC does not settle the underlying tax, so in my example the 4 tax years (2011/12, 2012/13, 2013/14 and 2014/15) would remain open if I pay the LC and would need to settled at some point either via agreement with HMRC or via or litigation, so since the LC now only applies to open years then everyone who pays the Loan Charge will also need to settle the years that the loans were received in.

[Albert49]

Hmmmm, not sure about that. I'm talking about EBT schemes where you were an employee and loaned money from a trust; where you put the loan amount in Box 21 of the SATR. There is definitely no NI for those, because I submitted my return (pre-review) and no NI was due, plus it was checked by my accountant and I got my amount due from HMRC and there was no NI. Maybe you're on a self-employed/partnership scheme and they have a NI charge; sorry, I don't know about those. But I think for the vast majority there is no NI.

Yes I was talking about a Self Employed scheme, I believe many post 2011 schemes were on a self employed basis.

[DealorNoDeal]

Paying the LC does not settle the underlying tax, so in my example the 4 tax years (2011/12, 2012/13, 2013/14 and 2014/15) would remain open if I pay the LC and would need to settled at some point either via agreement with HMRC or via or litigation, so since the LC now only applies to open years then everyone who pays the Loan Charge will also need to settle the years that the loans were received in.

You could be in for a long wait if you leave it to HMRC to progress this to a conclusion.

I'm sure all of their focus will now be on the pre-2010 open years.

[starstruck]

Yes I was talking about a Self Employed scheme, I believe many post 2011 schemes were on a self employed basis.

Ok, apologies for adding confusion.