Background

The impending application of the Loan Charge 2019 is causing taxpayers to assess their position and identify what they should be doing before the 5 April 2019 deadline.

The background to the Loan Charge 2019 has been addressed in our previous articles:

Recent communications & the House of Lords

Currently we are receiving a number of enquiries from individuals and corporates who have participated in one, or more tax schemes and are unclear as to the next steps they should be taking.  This includes schemes that were promoted by Clavis Solutions, OneE, Root2, Qubic, AML and others.  Various promoters of tax schemes have contacted their participants discussing the Loan Charge 2019 and their view on what participants should do, with many referring to the recent involvement of the House of Lords.  Within the House of Lords’ report on “The Powers of HMRC: Treating Taxpayers Fairly” (the Report), a section is dedicated to the Loan Charge 2019.  The Report is essentially critical of the Loan Charge 2019, specifically in its application against individuals and its perceived retrospective nature in creating a new tax charge for amounts going back to 6 April 1999.

Whilst there are a number of recommendations in the Report, it is far from clear whether any will be acted upon in any meaningful fashion for taxpayers.  As matters stand, the Loan Charge 2019 will crystallise on 5 April 2019 and taxpayers with outstanding loans caught by the legislation will have to make payment in due course of the tax due.

Steps prior to April 2019

HMRC has been encouraging taxpayers to engage with the most recent settlement opportunity prior to 5 April 2019.  This is, however, not a quick or straightforward process and for those that have taken no action at all, decisions will need to be made quickly as to whether (non-exhaustively):

  1. Settlement discussions are opened with HMRC;
  2. Any outstanding relevant loans are to be repaid;
  3. The tax charge relating to the Loan Charge 2019 is accepted (which may not be the end of the tax payable due to IHT and accruing interest on the outstanding loan); or
  4. An insolvency process is to be implemented.

We are aware of a number of alternative schemes that have been promoted to resolve outstanding loans and/or write off outstanding loans in an effort to avoid the Loan Charge 2019.  Taxpayers should take advice on the efficacy of any such suggestions.  HMRC has made their position clear in this regard e.g. Spotlight 36, Disguised remuneration: schemes claiming to avoid the new loan charge.

Conclusion

More people are starting to identify the significance of the Loan Charge 2019 and are finding themselves in a difficult position.  Suitable advice as to how to resolve the issue has not been provided on a number of occasions, and given the short period before its implementation, relying on the House of Lords to fundamentally alter the position appears a significant risk.

As a checklist, we believe that between now and April 2019, taxpayers should:

  • obtain advice as to the their position and which of points 1 – 4 above is most appropriate for their circumstances;
  • if their current advisor has not (i) given advice about the Loan Charge 2019 to date, or (ii) was the advisor who recommend the tax scheme in the first place, independent advice should be sought; and
  • consider any professional negligence claim against those who involved the taxpayer in the scheme, if the risk associated with the scheme was misrepresented and/or the scheme was mis-sold.

The Loan Charge 2019 is going to have a significant impact on employers, employees, contractors and beneficiaries.  If you are unsure what this all means for you or how best to progress your position - either with regard to settlement with HMRC or against your previous advisers – please contact a member of our team.

About the author

Nathan Talbott Partner

Nathan is a member of our Tax and Financial Services Litigation team dealing with disputes relating to investments, tax schemes, pensions and HMRC enquiries and negotiations. He has acted on “both sides” in this regard, advising corporates and individuals as well as financial institutions.