Contractors, the loan charge refund deadline is almost pressing

When Sir Amyas Morse completed his review of the Loan Charge, one of his recommendations was that the new tax should no longer apply before December 9th 2010. 

But this created a situation where those contractors who had settled on a voluntary basis to avoid the charge, had now done so for no reason. The answer was for HMRC to implement a refund scheme. However the deadline for an application for a refund is almost upon us, and it could be that you will now need to get an application submitted by the deadline of September 30th 2021, if you are eligible to make a claim, writes Tom Wallace, head of tax investigations at WTT Consulting.

Payment must have been voluntary

So, you will have made a voluntary payment to HMRC if they did not have the power to recover the income tax and National Insurance by either having an open enquiry or an assessment to tax had been issued. If HMRC had taken such steps, then any settlement is considered to be to settle the underlying tax issue and not to avoid the loan charge, and therefore was not ‘voluntary restitution.’

There is another scenario where repayment may be appropriate. It is where loans were made between December 9th 2010 and April 5th 2016 and “reasonable disclosure” was made on the return(s). Again, the payment must have been made voluntarily when HMRC could not recover the tax due. 

The high bar is among the HMRC catches

Reasonable disclosure is defined in the legislation as the provision of enough information to identify that a loan was made and to who; to identify the transaction or arrangement that created the loan, and to be sufficient for HMRC to identify that income tax and National Insurance was due on the arrangement. That is a relatively high bar for HMRC to set, and experience shows that very few tax returns contain that level of detail to meet the requirement.

Another potential catch by HMRC which is causing difficulty is that the tax authority will only accept an application for repayment from the person or entity that was party to the original settlement.

This means that where the settlement was executed by a company that no longer exists, it will first need to be restored to the Companies House register, which may involve getting a court order at some considerable expense. There is an exemption where the person has died or now lacks mental capacity, in which case the personal representative or deputy is able to apply. If more than one person was party to the settlement agreement then any application must be made jointly between all those who originally signed the settlement contract or deed. Or if your company is currently in liquidation, then the application will need to be made by the Insolvency Practitioner on behalf of the company. Contractor-directors in this situation should liaise with the IP to ensure they are aware of the need to make the application.

Practical considerations (include this being the last chance refund saloon)

Once you have made the application, HMRC will write to you to advise if it has been accepted or rejected. And it will specify the refund value its officials have calculated. If you disagree with this decision, then you can ask for a review. But contractors should be aware, there is no right of appeal against the outcome of that review.

Finally consider that once the Thursday September 30th deadline passes, you will no longer be able to make an application for repayment. Therefore now is a good time – and close to being the only time actually, that you’ll get to gather your documentation together and review your situation. In cases of doubt you should seek specialist advice to review the position but with only seven working days reaming in play, don’t delay.

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Written by Thomas Wallace

Tom is a former HMRC Senior Inspector of Taxes who has worked in and led teams in all taxpayer segments dealing with large multinationals to small businesses.  Tom was appointed Director of Tax Investigations at WTT Consulting in 2020, where he is currently responsible for developing strategies for dealing with HMRC enquiries and client litigation.
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