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Loan Charge - a beginners guide

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    Loan Charge - a beginners guide

    The following is intended to be as simple a guide as possible to those who have had no prior knowledge of the loan charge.

    Ultimately, if you are confused as to how this might apply to your own circumstances, you should take appropriate advice.

    What is the loan charge?

    It's a charge to tax on the value of all disguised remuneration and disguised self employment profits that have been paid in the form of a loan or other credit in the past and which remain outstanding as at 5th April 2019.

    It covers all such loans and credit from 1999 to 5th April 2019.

    How is it calculated?

    You add the outstanding loan/credit value to your other income in 2018/19 and calculate the total tax due. Deduct tax already paid. The difference is (mainly) the loan charge on unpaid balances.

    When is it payable?

    31st January 2020.

    You may be able to spread the charge but as yet there is no general or specific guidance and this will come down to individual circumstances.

    How will HMRC know what is outstanding?

    You are legally obliged to tell the employer who made the loan to you, the unpaid balance. In turn that employer is obliged to tell HMRC.

    If the employer is no longer around, you must tell HMRC the unpaid balances before 30th September 2019.

    And if I don't tell HMRC?

    You risk a substantial penalty which could be 60% of the tax due.

    And if I don't have any information from so long ago?

    Either you can review whatever records you may have (bank statements etc) and produce a reasonable estimate. If you do not have such data, perhaps recalculate from day rates.

    If you do not have any idea at all, HMRC will estimate the position, usually on a multiple of salary, and it will then for you to disprove it.

    Can the charge be avoided?

    Yes.

    You can repay the loans in such a way as you never see that money again. Any route that means you do see the money again, risks HMRC claiming that repayment has not happened or that the likelihood of the money coming back to you creates its own tax charge.

    You can settle with HMRCV using the present offer. This has to be completed by 5th April 2019 and to do that, you must have data with HMRC by 30th September 2018.

    These are the only two certain ways that the charge will not arise.

    My promoter tells me that their scheme is outside the rules?

    The loan charge is based on disguised remuneration/profits. In theory therefore a loan that is not within the definition, usually a loan from an employer rather than a third party, is not within the disguised remuneration rules and therefore not liable for a loan charge.

    In practice, HMRC will claim that that there is always a third party involved in transactions and/or the "intent" of the disguised remuneration rules was to capture such scenarios. Both arguments are contentious and will be very difficult for HMRC to prove.

    The Rangers case however means that money paid to you for acting as an employee is probably taxable as remuneration. There is a dividing line therefore between salary and a loan. You need to consider each situation carefully.

    As a rule of thumb, if the following elements are missing from any alleged loan, it's likely to be seen as remuneration:

    Repayment
    Interest payments
    Credit checks

    I'm not in the UK tax net in 2018/19, am I liable?

    Yes. The charge is deemed to be a UK source of income.

    Does paying the charge settle enquiries?

    No.

    HMRC will continue to make enquiries into the years the loans were received. If eventually agreement is reached, the loan charge paid will be used against the liability from those earlier years plus interest.

    If the loan charge is more than the tax/interest due, will I get a repayment?

    No.

    It's therefore important that you manage the liability to the loan charge.

    If in the future a case is won in tribunal meaning I have no liability, can I recover the loan charge?

    No. It's claimed to be a new tax on a new source and unconnected with other liabilities.

    Surely the charge is retrospective, unfair and open to legal challenge?

    Yes, yes and yes.

    Groups already exist to challenge the legality of the position.

    My scheme promoter is missing, what do I do?


    Register for HMRC settlement before 30th September 2018, research the position in detail, engage a professional adviser who is unbiased (unconnected with the promoter).

    This will bankrupt me and expose my family to harm. Surely it's illegal?

    Sadly not.

    HMRC promise time to pay if you settle. Perhaps 5 years or more in the right circumstances.

    Certain of your assets (family home etc) are unlikely to be seized for tax debts. You would be expected to realise other assets to pay the bill.

    New questions?
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

    #2
    What if I was lied to about a tax scheme??

    If the promoter of the scheme lied and never mentioned that a loan or a balance was being accrued for penalty at a later date is that an argument that can be discussed with HMRC?
    I was told that the scheme I used through Glen May was not a loan and was a legal profit share arrangement, i even laid corporation tax whilst using it. It was sold to me in the same vein of using a scheme that was like those used by PWC/Amazon who get away with attrotious missapropriation of tax revenue, and these large tax avoiders get away with? I suppose HMRC cannot afford to fight them, they just destroy the small business owner as it's better for business outcomes?
    Basically is it an argument worth persuing?

    Comment


      #3
      Loans and interest

      I have found a document from the Trustees who ran the scheme i may have been involved with stating that

      " Interest and other deductions" this is the header to the next paragraph,

      "You are expected to pay us £xxxx in respect of the accrued interest on the sub-loan to 30th xxxx 20xx.

      The loan draw down detailed in the attached table will not be made available to you until the outstanding interest has been paid in full."

      So this to me suggests any monies i received were a loan from the company and i paid interest on said loan !!

      Does this help me ??

      Comment


        #4
        Originally posted by jezzah123 View Post
        If the promoter of the scheme lied and never mentioned that a loan or a balance was being accrued for penalty at a later date is that an argument that can be discussed with HMRC?
        I was told that the scheme I used through Glen May was not a loan and was a legal profit share arrangement, i even laid corporation tax whilst using it. It was sold to me in the same vein of using a scheme that was like those used by PWC/Amazon who get away with attrotious missapropriation of tax revenue, and these large tax avoiders get away with? I suppose HMRC cannot afford to fight them, they just destroy the small business owner as it's better for business outcomes?
        Basically is it an argument worth persuing?
        Unfortunately not.

        If you think you have been misled or deceived, then you remedy is via the legal system and not the tax system.

        There is no benchmarking of your situation to a big business. HMRC claim to be fair to all but in reality, you are right in that you have fewer resources to fight injustice.
        Best Forum Adviser & Forum Personality of the Year 2018.

        (No, me neither).

        Comment


          #5
          Originally posted by LaurieDriver View Post
          I have found a document from the Trustees who ran the scheme i may have been involved with stating that

          " Interest and other deductions" this is the header to the next paragraph,

          "You are expected to pay us £xxxx in respect of the accrued interest on the sub-loan to 30th xxxx 20xx.

          The loan draw down detailed in the attached table will not be made available to you until the outstanding interest has been paid in full."

          So this to me suggests any monies i received were a loan from the company and i paid interest on said loan !!

          Does this help me ??
          In terms of the loan charge? No.
          Best Forum Adviser & Forum Personality of the Year 2018.

          (No, me neither).

          Comment


            #6
            2019 Loan Charge - Essential Beginners Reading

            I think for somebody trying to understand the 2019 Loan Charge, then the following articles are essential reading! Really good and both give an accurate opinion and overview of what all the fuss is! -

            <mod snip>
            Last edited by cojak; 21 August 2018, 11:52. Reason: URLs removed.

            Comment


              #7
              tax relief - loan charge

              Can the loan charge be offset with pension contributions or EIS investments?

              Comment


                #8
                Originally posted by webberg View Post
                The following is intended to be as simple a guide as possible to those who have had no prior knowledge of the loan charge.

                How is it calculated?

                You add the outstanding loan/credit value to your other income in 2018/19 and calculate the total tax due. Deduct tax already paid. The difference is (mainly) the loan charge on unpaid balances.
                Is the loan of any previous year added to 2018/19, or is the loan of a specific year added to the income of that same year?

                Comment


                  #9
                  Originally posted by Pigeon45 View Post
                  Is the loan of any previous year added to 2018/19, or is the loan of a specific year added to the income of that same year?
                  You add the aggregate of loans from ALL previous years to income in 2018/19
                  Best Forum Adviser & Forum Personality of the Year 2018.

                  (No, me neither).

                  Comment


                    #10
                    I have been advised (by one of the tax advisers recommended on this forum) that the Loan Charge will have interest applied. I haven't seen this stated anywhere else. They seem unable to point to anything authoritative that describes how this interest works or what it is based on.

                    I'm not overly impressed by the advice I've paid quite a lot of money for. Can I just confirm that this isn't the case, and the loan charge is simply a tax charge on the total loan amounts received since 1999?

                    Comment

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