2019 Loan Charge: HMRC answers ContractorUK readers' top complaints

(Continued from yesterday)

8. Is it true that HMRC will offer me support – financial & monetary (such as with other creditors) and also refer me to emotional/relationship support networks, if I agree to settle? I’ve heard from a colleague that getting the ball rolling for settlement results in HMRC helping the taxpayer with the mess they’re in (but the help is not forthcoming otherwise).

HMRC has processes in place to ensure that anyone who needs extra support, for example, those with disabilities or those suffering from a mental health condition, receive it. HMRC can also offer help to people by agreeing a manageable payment plan.

HMRC staff will always deal with people sensitively and may, in particular circumstances, suggest to people that they contact other support networks, such as the Samaritans and MIND, who will be able to provide emotional support to help anyone struggling to cope. You can also authorise an agent or friend or relative to act on your behalf to help you.

HMRC can help you to get your tax affairs in order, but it would not be appropriate for a tax authority to provide the other services you mention. You may wish to read this article featuring the Low Incomes Tax Reform Group, which touches on the help that may be available to you.

9. I’ve received a settlement pack from HMRC. It looks like I’m going to need to enlist a knowledgeable accountant or tax adviser because the pack consists of a spreadsheet requiring numbers, and calculations that I don’t know how to make. Will HMRC help me with the cost of employing an accountant/tax expert for help? I’m PAYE currently and the disputed amount is ages ago and much smaller than many other people’s alleged liabilities.

The settlement pack asks for the information required to calculate settlement; you are not required to make any complicated calculations. HMRC will calculate the settlement amount based on the information you provide.

If you want to submit your own tax calculations HMRC will accept them for consideration, but are happy to do this for you. It is your choice whether or not to engage an adviser.

The numbers you will need to complete the settlement pack are:

  • Details of the loan amounts that you received
  • The years you received them

If you feel that you can’t provide these numbers without the help of an adviser then you should consider engaging one, but HMRC will not be able to help with the costs of doing so.

You can call HMRC if you have any questions about the settlement pack and for help completing it.

10. How does the 2019 Loan Charge work in relation to those who have Accelerated Payment Notices issued, where the APN has been put on hold pending tribunal and /or witness statements issued for hardship?

Where an APN has been paid, either in part or full, then double taxation provisions can apply to offset the amount paid against the loan charge. There is more detailed information from us here.

Where an APN is unpaid (for whatever reason), then there is no payment to offset, therefore the full loan charge remains payable.

11. What does HMRC mean when it says it can help me “exit tax avoidance?” What can HMRC do about the loan, in practical terms?

HMRC can agree with you to settle your avoidance use through a contract settlement. HMRC were not involved in the making of the loans so can’t deal with that, but can provide confirmation that the tax has been dealt with to allow loans to be released or written off at the appropriate time.

HMRC can also help if you wish to exit tax avoidance, but will face financial difficulty doing so. If you settle ahead of the loan charge arising, you can pay the amount due over a period of up to five years, as long as:

  • your expected current year taxable income is less than £50,000 (for employees, this is your expected gross earnings, for self-employed people, this is your expected net profit)
  • you’re no longer engaged in tax avoidance

If your income is higher or you need a longer period to pay, HMRC can still help you but would need more detailed financial information from you before agreeing an arrangement.

There are no defined minimum or maximum time periods for payment arrangements.

12. How many contractors, contractor companies, and households (so non-contractors as well), does HMRC expect to be impacted by the 2019 LC?

It is estimated that up to 50,000 individuals, including 10,000 self-employed people, will be directly impacted.

13. What happens by the end of April 2019 if I haven’t paid HMRC but they claim I owe £30K under the LC? And does HMRC endorse the likes of BIG GROUP which I’ve applied to join, and how would HMRC like the group’s “secondary resolution strategy” to differ to the initial one, under which 1,000 contractors settled with HMRC?

If you haven’t settled with HMRC and the loan charge arises then you will need to pay this as part of your 2018/19 self-assessment tax return by January 31st 2020. HMRC can’t comment on claims regarding any external strategy; earlier years will need to be settled in full, or the loans fully repaid, otherwise the loan charge will apply.

If you decide to enter into new arrangements which claim to get around the loan charge, HMRC’s firm view of those that they have seen is that none of them work, and they have warned people in the past about the financial consequences of using these types of avoidance schemes. Those using such schemes will have to pay the loan charge.

There may be further liabilities arising as a result of the tax and commercial consequences of any new arrangements put in place.

14. What is HMRC’s objective with the 2019 LC and with EBTs as a whole, and what does it hope to achieve for the affected HMRC customers?

The loan charge was introduced by the government as part of a package of changes to tackle the use of disguised remuneration tax avoidance schemes, with the objective of bringing this type of avoidance to an end.

The changes have been effective as, since the loan charge was announced at Budget '16, over 5,000 users have settled, raising more than £0.5bn for the Exchequer. A further 24,000 scheme users have registered their interest in settling their tax avoidance use with HMRC to pay what they owe.

HMRC wants to help those who have used disguised remuneration schemes settle their avoidance use ahead of the loan charge and get out of avoidance for good. We can do this by agreeing manageable payment plans with you.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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