Following the release of the report on the review of the loan charge in December, HMRC have now issued draft legislation to implement the proposed changes to the charge and updated guidance notes.
The independent review of the disguised remuneration loan charge at the end of 2019 proposed changes to the scope of the charge. This included a mechanism to spread loans over several tax years and time to pay for those with lower incomes. These changes have all been incorporated into the draft legislation. This means that once this is passed into law:
- All loans taken before 9 December 2010, plus those taken before 6 April 2016 which were “reasonably disclosed” to HMRC where HMRC did not take action, all fall out of scope.
- An election can be made to spread loans over 3 tax years, starting with 2018/19.
- Anyone with income below £50,000 and no assets to sell can have 5 years to pay. Those below the £30,000 income level are being given 7 years to pay.
The HMRC guidance gives further details about what “reasonably disclosed” means.
- They will consider a scheme as disclosed if you provided sufficient information in your return or accompanying documents to allow them to identify the scheme, the person to whom the loan was made and the loan arrangement.
- The disclosure must contain sufficient information to make it apparent the loan arrangement may result in a tax liability.
- This might be including a DOTAS number on your return if there is one, or referring to your loan arrangement elsewhere on your return.
- If this would require looking at more than one year then HMRC will consider all relevant returns together to determine if a reasonable disclosure has been made.
The spreading election must be made on the online additional information form which was issued to allow initial reporting of the charge. This was originally due by 1 October 2019, but has now been extended to 30 September 2020. The form requires amendment and will not be ready to use until April 2020.
- Taxpayers have until 30 September 2020 to make the election.
- Anyone wishing to file their self-assessment return before April is advised to complete it on the basis of a valid election. Keep in mind that if they fail to do so they will have filed an incorrect SA return which may result in penalties.
HMRC have advised that anyone who had loans in the 2010/11 tax year who is unable to identify pre and post 9 December 2010 loans having checked bank statements, loan agreements and contracts, may apportion their outstanding loan balance on a just and reasonable basis.
They have also advised, for those in employment related schemes where the loan charge was processed as required through the April 2019 payroll that:
- Employees will need to speak to their employer in order to manage their payments of tax through their employer.
- The employer will need to make manual changes to the individuals’ tax payments through the PAYE process.
- It is possible that some employees might have a large amount of tax recovered from their last month’s pay each year for 3 years.
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