Finance (No 2) Act 2017 introduced measures that permit HMRC to tax any outstanding EBT loans made since 6 April 1999 on the basis that a non-repayable loan it not a loan, but is disguised pay.
A Loan Charge will apply to outstanding Disguised Remuneration loans.
Typically these loans were made via Employee Benefit trusts (EBTs) or via employment intermediaries as part of a contrator's pay package.
The loan charge does not apply to normal employee loans that are repaid, e.g. a season ticket loan.
The Loan charge applies to a loan (or loan transfer arrangement) where:
- If it had been made on 5 April 2019 it would have fallen within the disguised remuneration rules (including the Finance Bill 2016 and 2017 changes);
- It was made on or after 9 December 2010 (prior to 20 December 2019 this date was 6 April 1999); and the loan, or part of it, is still outstanding at 5 April 2019.
The charge will not apply if by 5 April 2019:
- The loan is repaid in full;
- The loan is from an amount on which income tax has been accounted for in full (including under settlement with HMRC); or
- The loan has been taxed in full under the disguised remuneration rules, or
- If any exclusions apply.
The Loan Charge is introduced by Schedule 11 Finance (No. 2) Act 2017.
What to do now?
HMRC has announced a new Settlement Opportunity for these loans. If that is not taken up and a loan is still outstanding at 5 April 2019, the taxpayer will have to pay the loan charge by 30 September 2020 (previously 31 January 2020).
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