The LC is like a Payment on Account

[DealorNoDeal]

I don't know if HMRC regard the LC as a PoA but webberg has mentioned it a few times, and I'm not disagreeing.

If it is like a PoA, then what's wrong with paying it (instead of settling) if it costs less? (Now that you can spread the LC over 3 years it might work out cheaper than settling for many more people.)

Sure, you may have to hand over more at some point in the future, but so long as people understand this, what's wrong with going down this route?

Why, as has been alluded to on several occasions, is this a bad idea?

[lowpaidworker]

I don't know if HMRC regard the LC as a PoA but webberg has mentioned it a few times, and I'm not disagreeing.

If it is like a PoA, then what's wrong with paying it (instead of settling) if it costs less? (Now that you can spread the LC over 3 years it might work out cheaper than settling for many more people.)

Sure, you may have to hand over more at some point in the future, but so long as people understand this, what's wrong with going down this route?

Why, as has been alluded to on several occasions, is this a bad idea?

Im waiting to see the exact details of how you can spread the charge but it could work out less than agreeing a settlement. Bearing in mind a lot of people will have years going back to 2010/11 and on. The interest charges are quite sizeable and so the LC over 3 years could be a cheaper alternative maybe.... ?

[RickG]

Doesn't stop interest accumulating on the underlying amount. In some cases, that can be quite sizable.

It also does not resolve the underlying enquiry - therefore it does not bring "closure", which is probably what many are looking for.

[webberg]

I don't know if HMRC regard the LC as a PoA but webberg has mentioned it a few times, and I'm not disagreeing.

If it is like a PoA, then what's wrong with paying it (instead of settling) if it costs less? (Now that you can spread the LC over 3 years it might work out cheaper than settling for many more people.)

Sure, you may have to hand over more at some point in the future, but so long as people understand this, what's wrong with going down this route?

Why, as has been alluded to on several occasions, is this a bad idea?

It's not a bad idea, just one that does not work.

If you have an open year and the liability is £20,000, then that is ultimately the sum due.

If the loan charge falls due and is £15,000 - when that falls due is irrelevant for this purpose, then all you have achieved is some form of payment plan.

You have paid (indeed may be legally obliged to pay) the loan charge and then you need to pay the balance - in this example £5,000 - sometime later, i.e. upon settlement.

So the loan charge/settlement/agreement equation ALWAYS comes to the same net outflow from your bank account.

The timing of the payments may vary and clearly the later tax due is actually paid will increase interest charges, but there is no question of the loan charge route being cheaper.

[lowpaidworker]

It's not a bad idea, just one that does not work.

If you have an open year and the liability is £20,000, then that is ultimately the sum due.

If the loan charge falls due and is £15,000 - when that falls due is irrelevant for this purpose, then all you have achieved is some form of payment plan.

You have paid (indeed may be legally obliged to pay) the loan charge and then you need to pay the balance - in this example £5,000 - sometime later, i.e. upon settlement.

So the loan charge/settlement/agreement equation ALWAYS comes to the same net outflow from your bank account.

The timing of the payments may vary and clearly the later tax due is actually paid will increase interest charges, but there is no question of the loan charge route being cheaper.

thanks for the explanation.

So no point really opting for the LC. Better off agreeing a settlement if you are looking to settle.

[DealorNoDeal]

Doesn't stop interest accumulating on the underlying amount. In some cases, that can be quite sizable.

It also does not resolve the underlying enquiry - therefore it does not bring "closure", which is probably what many are looking for.

Both true.

However, unless money is no problem, given the choice between paying £100k LC and £200k settlement, some may opt for the former. Even though they may have to come up with another £100k at some point in the future. The key thing for some people will be that "some point in the future" is not NOW. Paying the "cheaper" LC buys time.

[webberg]

Both true.

However, unless money is no problem, given the choice between paying £100k LC and £200k settlement, some may opt for the former. Even though they may have to come up with another £100k at some point in the future. The key thing for some people will be that "some point in the future" is not NOW. Paying the "cheaper" LC buys time.

As I said, the LC/settlement route is essentially a time to pay arrangement.

My view is that HMRC is being relatively generous about time to pay anyway and if your preference is to ultimately settle then going that way and agreeing a time to pay is likely to be a more flexible and affordable (in terms of timing) route.

Going into the loan charge process and then unpicking it later, means that you need HMRC to

a. understand the process
b. be able to match all the payments made and reallocate them
c. possibly pay an agent to sort out the inevitable confusion

I also question the benefit of "buying time".

[DealorNoDeal]

I also question the benefit of "buying time".

Why? In my example...

Settlement of £200k, even over the longest TTP HMRC will agree to, might be a financial ruin situation.

Whereas, £100k LC spread over 3 years with possible further TTP, might be manageable.

Btw, if you haven't already registered for a settlement, is there even a choice in the matter? Aren't you stuck with paying the LC?

[webberg]

Why? In my example...

Settlement of £200k, even over the longest TTP HMRC will agree to, might be a financial ruin situation.

Whereas, £100k LC spread over 3 years with possible further TTP, might be manageable.

Btw, if you haven't already registered for a settlement, is there even a choice in the matter? Aren't you stuck with paying the LC?

In this example, when does the £200k become due?

There are three choices.

1. Upon settlement - say June 2020
2. Upon withdrawing appeals after cases are heard - say June 2021
3. Upon failure of litigation - say June 2022

Let's assume that the same loans under the spread loan charge (LC3 as we call it) produces the £100k charge you mention and it falls due 31/1/20 (£33k), 31/1/21 and 31/1/22 of £33k each.

Under 1 above, you settle and let's say interest has added another £3k.

You owe £203k of which you have paid £33k via the loan charge in 11 days time. The balance of £170k will be subject to a TTP of between say 2 and 12 years depending upon circumstances, to which you can add some forward interest. Let's say though you get 7 years to pay and we ignore forward interest (because I'm on a train and cannot calculate it easily), you have paid

January 2020 = £33k
July 2020 to June 2027 = £2,023 a month.

Under 2 above, you withdraw appeals and with interest, you owe £209k. By then you have paid £33k in January 2020 and another £33k in January 2021. You owe £143k which again may be subject to a TTP which you might hope would be as generous as the settlement in option 1 above. You have paid:

Janaury 2020 = £33k
January 2021 = £33k
July 2021 to June 2028 = £1,702 a month


Under 3 above, you lose the litigation and now owe £215k including interest. You will have paid £99k in loan charge and consequently owe £116k following litigation. This falls due in June 2022 but may also be subject to a TTP. You have paid:

January 2020 = £33k
January 2021 = £33k
January 2022 = £33k
July 2022 to June 2021 = £1,380 a month

If you settled rather than pay the loan charge and also get 7 years to pay, you pay

July 2020 to June 2027 = £2,380 a month

Forward interest will make a difference.

[DealorNoDeal]

In this example, when does the £200k become due?

OK, let's think about that.

(Obviously the following only applies to open years. Once you've paid the LC for a closed year, that's the end of the matter.)

Let's assume you pay the LC and then do nothing. Your tax appeal is just left dormant.

What could happen to change this dormant state? The only two things I can think of are:
1) HMRC issues you with a Closure Notice
2) HMRC issues you with a Follower Notice because your scheme has been defeated at tribunal

(1) doesn't seem very likely, given that they'll be focusing their attention on pre-2010 open years which aren't covered by the LC

(2) could be many years into the future