Loan Charge contractors, it’s time to keep close to HMRC’s advice
Events, dear boy, events! So answered a prime minister when asked what he was afraid of most, writes Graham Webber, director of tax at WTT Consulting.
You’ll have to cast your mind back, but first we had the loan charge; then a General Election which saw the charge removed. Then, we had a new government which saw the charge replaced; only for parliament to decide (both Houses) that the loan charge was entirely unwelcome and pernicious. Then, and getting closer to the present day, a review of the charge was announced; only now for another general election to – again -- put the charge into limbo. You don’t have to occupy the esteemed office of No 10 to see why events can seem like a scourge.
An announced delay to the loan charge review (Sir Amyas Morse’s recommendations have been postponed by the Treasury until after the general election), and the lack of anybody for Sir Amyas to report to, means that the loan reporting deadline of January 31st 2020 may fall uncomfortably close to, or even precede the reporting of the review’s outcome; good or bad.
So what might this mean if you’re a loan charge contractor? Well, HMRC has made plain that in the event that a tax return is to be submitted, then disclosure of the loans must be made. The Revenue claims that any subsequent adjustment to the loan charge will permit you to amend your tax return. The legislation here may well permit that (if you squint at it-- in a bad light).
The assumption here is that HMRC will raise a charge, albeit one that can later be amended. That is probably not permitted under present law as the loan charge starts from a relevant event being created and that permits only a limited number of reliefs. Certainly current law does not include what HMRC says.
It should be remembered that HMRC’s view, even if incorrect, will carry weight in any dispute that reaches the tribunal, however. Therefore any course that varies from what HMRC has suggested will be seen as a challenge and, importantly, we have seen HMRC take on such contests -- even where it produces a nonsensical result or consequences.
We would therefore suggest that the best course of action for affected taxpayers would be to do as HMRC ask. If that grates, then make a disclosure of loans via the white space in the return.
Other advisers have made their views known. These vary from something close to the above, to long missives conflating the loan charge with a number of other matters such as IR35 reform and promises of yet more legal action against APNs and FNs.
It may be that those pieces of advice are informed by particular schemes or are the result of motives of which we are unaware. In our view, though, it would be inappropriate to think that HMRC or more importantly the government will see any connection between the loan charge and the wider actions being taken against the contracting sector.
The only possible connection is perhaps with those involved in the settlement process. While there is no obvious or legal connection between HMRC unilaterally suspending the settlement work while the loan charge review remains unreported, it is a complication that permits, perhaps creates, an obscure picture that further increases the uncertainty and pressure on contractors to agree to an HMRC settlement basis that (in our view), has very little to support it.
In essence, in a situation in which there is little light, just a murky twilight and shifting sands, our advice is to stay as close as possible to the HMRC advice, tempering that just with enough to make sure that you do not face a huge demand – which Debt Management will do their best to collect – even if that money is later very reluctantly returned to you, perhaps after a long fight.