Your next deadline loan charge contractors is clear, despite ambiguity from HMRC

The next few months contain some crucial deadlines for contractors who are affected by the Loan Charge provisions, as well as an important cut-off a week today -- Friday August 31st, writes Graham Webber of WTT Consulting.

The formal deadlines are:

  • Before October 1st 2019, the online form detailing loans subject to the loan charge needs to be completed and filed.
  • Before January 31st 2020, the 2018/19 SATR (Self-Assessment Tax Return) needs to be completed.
  • After April 6th 2020, IR35 reform applies to all payments, regardless of whether the contract producing them finished before that date.(N.B. This means that payments made by end-clients/agencies to contractors after April 6th 2020, and where the contractor is deemed to be inside IR35, will be subject to the new rules, irrespective of whether the contract producing the earnings was finished before that date. This is because the new rules work on payment dates and not contract dates.)

For many, in an effort to rid themselves of the punitive Loan Charge, settlement will be underway. If this article was written in August 2018, we would say that you had to register by April 5th 2019 and complete the process by August 31st 2019.

More questions than answers

Writing it in August 2019, means that you can perhaps still register. HMRC appears to be inviting applications for settlement even though they have a backlog of a reported 19,000 cases. It is also understood that in a good week, HMRC can reportedly clear 300 cases. Does this imply that registering now and joining the back of that queue becomes a viable strategy?

What happens though, if you are registered, but do not finish the settlement process by the end of August 2019?

HMRC published – quietly and buried deep in an ‘Agent Update’ – the news that the August 31st deadline (which we warned about last month) is no longer fixed. Now, so long as you complete the steps on settlement by the dates HMRC advise you of “in a letter”, settlement remains open.

Where those dates are after the end of September, you may (or may not) be able to alleviate yourself of the online filing of loan data for the Loan Charge. Is it possible that HMRC will be able to identify those who are working through the settlement and who don’t disclose, claiming that no penalty for non-disclosure can apply? Or is it better to take a safe path, disclose for loan charge purposes, but eventually settle and be able to dismiss any attempt from HMRC to raise a loan charge?

Not knowing the correct answer, definitively, puts advisers in a quandary. Do we tell clients in the settlement process not to disclose and rely on HMRC to identify them? Or do we tell clients to be safe, disclose and that any subsequent action on loan charge can be easily nipped in the bud, because of settlement?

'Disclose by statute, ignore by concession'

Either way, the adviser is going to be spending time joining different parts of HMRC together, because almost all of us have no confidence that HMRC can deal with this “disclose by statute, ignore by concession” approach that they themselves have instigated.

(For the sake of the record, we have advised our clients in this situation to make the loan charge filing rather than rely on HMRC not to charge a penalty by computer).

Look at the arithmetic. Even if HMRC is able to raise the settlement rate to 1,000 a week, (bearing in mind that the error rate remains shockingly high), chances are a significant number of those seeking settlement will remain in limbo by January 31st 2020. What happens then?

Will those seeking settlement be able to ignore the statutory obligation to report loans in their SATR?

What we've got Vs what we need

Depending on how you read the Agent Update #73 the answer is “yes” or “no” or “perhaps” – this ambiguity is just not good enough.

We – advisers and taxpayers alike – all need clear, unequivocal and preferably statutory, deadlines that make sense and are practical. We will not get these in a ‘Agent Update,’ which is essentially an HMRC blog post. Can you imagine going to a tribunal on a non-filing penalty and arguing that the statute can be overridden by the words of a HMRC Press Officer!? Would any responsible adviser be risking a penalty on that basis?

We are responsible, so we will not.

What we do know is that HMRC has underestimated its capacity to execute a simple exercise on settlement. There are many reasons for this.

  1. It does not understand the majority of the schemes being settled.
  2. It has imposed a policy on front line officers that seeks to maximise revenue often at the expense of the facts.
  3. HMRC has failed to staff the settlement teams with sufficient quantity or quality.
  4. It has failed to put in place a process by which challenges could be dealt with, instead insisting on ‘our way or no way.’

In light of these four failings, is it any surprise that the whole exercise has descended into such chaos?

Final dates, considerations

Let’s now return to the dates you need to know.

If you are settling, try to do so before August 31st 2019 – a week today, or as soon as possible after that, by chasing HMRC every day if needed.

If this is after September 30th 2019, it is suggested that the loan charge disclosure form should be observed.

If you are uncomfortable with the above, consider carefully whether you are prepared to risk a penalty for failing to file or filing incompletely or inaccurately.

Similar to our previous article for ContractorUK readers on Loan Charge deadlines, we will continue to outline to you changes to the above, in advance of the October and January cut-offs, especially on the state of play for filing the return. This is one game where, despite the sudden emergence of extra time, there are other moments you just cannot afford to miss.

Profile picture for user Graham Webber

Written by Graham Webber

Following nearly 4 decades working in various tax disciplines, Graham co-founded WTT to offer his deep experience and understanding of complex tax structures to those embroiled in tax enquiries. More recently Graham was awarded best forum adviser and best forum personality in the ContractorUK Awards.
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