After the announcement that the loan charge review report is not expected until after the general election, HMRC have issued more guidance on how taxpayers in the process of reaching a settlement should deal with it in their 2018/19 tax returns.
The ‘loan charge’ applies to all outstanding third party disguised remuneration loans made since 1999 which, if they had been made on 5 April 2019, would have fallen within the disguised remuneration rules
- It must be declared on the 2018/19 self-assessment return and, unless tax has already been paid under PAYE (which applies to employment related schemes only) the tax and NIC must be paid by 31 January 2020.
HMRC have said that, whilst they recognise that those in the settlement process may wish to wait for the loan charge review outcome before they conclude their settlements, if their settlements are not complete by 31 January 2020 they must still disclose the charge on their 2018/19 tax returns due by that same date.
In the event that taxpayers do go on to settle, their returns will require amendment accordingly. In addition, any scheme users who have been organised and have already filed their 2018/19 returns will now need to go back and amend them to include the loan charge.
The HMRC guidance does not address is the issue of penalties and interest if the debt created by including the charge on the self-assessment return remains outstanding whilst the settlement process is completed. This is worrying; we have seen settlement cases which have taken over 12 months to complete meaning that these debts may remain outstanding for several months whilst settlements are concluded. In addition some taxpayers who do not normally have to file tax returns and expected to reach a settlement in time to avoid needing to complete one for 2018/19, will now need complete their returns in a relatively short space of time leading to errors and penalties for incorrect returns.
For now, then, the advice to clients who are in the settlement process has to be to include the loan charge on their 2018/19 return. Waiting for the outcome of the review is not an option, by the time it is available it will simply be too late to conclude their settlement before the 31 January tax return deadline.
Links to our guides:
Disguised remuneration loan charge (subscriber guide)
FAQs for Disguised Remuneration Settlements (subscriber version)
Penalties: Errors in Returns and Documents (subscriber version)
External link:
