Disguised remuneration scheme users who had an outstanding loan on 5 April 2019 are now liable to the controversial Loan Charge.
Who does it affect?
The Loan Charge affects individuals and employers who either obtained or provided loans after 6 April 1999, which were still outstanding on 5 April 2019.
Those who have settled with HMRC or repaid the loans are exempt. However, repaying the loan does not resolve other issues such as Inheritance Tax liabilities, Accelerated Payment Notice penalties, on-going trust liabilities and an outstanding loan agreement. Importantly, it does not close any years where HMRC have opened enquiries.
Scheme users, who provided HMRC with the necessary information by 5 April 2019, have until 30 September 2019 to settle or face the Loan Charge.
The 5 April 2019 deadline has now passed and those affected need to take action.
For those impacted by the Loan Charge, the actions required depend on whether they were the employer, employee or self-employed. These are the key dates for everyone affected:
19 April 2019 (post) or 22 April 2019 (online)
The employer must report the outstanding disguised remuneration loans on a Real Time Information (RTI) submission and pay the PAYE liability (including National Insurance contributions). They can opt to do this using HMRC’s Earlier Year Update (EYU) submission, which will become available from 20 April 2019. If payment is not made on time, late payment interest will be due.
4 July 2019
If the employee has not reimbursed the employer for the PAYE liability by this date, the employee will be liable to a s222 charge. A s222 charge is applicable under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) as the payment of the Loan Charge by the employer is treated as a notional payment.
Employee – UK employer still in existence
15 April 2019
The employee must inform their employer (at the time they took the loans from the trust) of the details of the outstanding loan, including the balance. There is no set format in which this needs to be disclosed to the employer.
4 July 2019
If the employer has paid the PAYE liability, the employee must reimburse them by this date or the company will face a s222 charge. If the employer is unable to pay the Loan Charge, HMRC may transfer this liability to the employee using regulation 81 of the PAYE regulations.
Employee – Employer no longer exists or is not based in the UK
In these circumstances, the responsibility to pay the Loan Charge is transferred to the employee.
30 September 2019
This is the deadline for the employee to tell HMRC about any outstanding disguised remuneration loans. This can be done using HMRC’s online service, which can be found here.
5 October 2019
The employee must register for Self-Assessment by this date.
31 January 2020
The Loan Charge needs to be declared on the employee’s 2018/19 Self-Assessment return. The Self-Assessment Return will need to be filed and the liabilities paid by 31 January 2020.
5 October 2019
If the individual does not usually complete a tax return, they will need to register for Self-Assessment by this date.
31 January 2020
The Loan Charge needs to be declared as additional trading profits on their 2018/19 Self-Assessment return. The Self-Assessment Return will need to be filed and the liabilities paid by 31 January 2020.
Can I ignore the Loan Charge?
HMRC have warned that they will take firm action against those who provide inaccurate information about their outstanding loans to HMRC before 1 October 2019. This includes an initial penalty, daily penalties for every day after 1 October 2019 (up to 90 days) and penalties for inaccuracies.
Third party lenders (such as trustees) are also required to notify the employer of the loan amounts outstanding.
In cases of a failure to pay the Loan Charge, HMRC intend to utilise their tools such as penalties, interventions and information powers to enforce compliance.
If an employer cannot make payment of the liability pursuant to the RTI, then it will need to consider its solvency position and consider instructing experts to provide advice on insolvency procedures.
What should I do next?
The Loan Charge and the surrounding tax issues are new and complex. We advise individuals, corporates and intermediaries to clarify the effects and obligations arising from the Loan Charge and other factors such as Double Taxation Relief.
For those still in settlement discussions, we have an experienced team – including an ex-HMRC Disguised Remuneration Theme Lead – who have negotiated with HMRC to obtain the best possible settlement for many clients. Those negotiations have resulted in significant savings for our clients where HMRC have incorrectly calculated the liability.