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Loan charge reporting guidance

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HMRC has published new guidance for individuals and employers on reporting details of disguised remuneration loans outstanding at 5 April 2019 and accounting for loan charge liabilities. While the loan charge only applies to balances outstanding in the tax year 2018/19, it can include disguised remuneration loans received since 5 April 1999.  

The guidance sets out the main types of loan schemes and the particular reporting requirements for each type of scheme. These are:

  • employed schemes, where the individual has an employment contract and the employer funds loan payments through a trust;
  • employed contractor schemes, where the individual provides services through an intermediary who funds loan payments through a trust, and with whom the individual usually has an employment contract; and
  • trade-based schemes, where the individual works in a self-employed capacity under a contract for services, with loan payments routed through an offshore trust.

For employed and contractor schemes, it is the responsibility of employers to account for and pay the loan charge on behalf of individual scheme users through PAYE. The individual is responsible for reporting details of outstanding disguised remuneration loans to HMRC, as well as giving these details to the relevant employers by 15 April 2019. Third parties who make loan payments, such as trustees, must also provide this information to the employers.

Employers should report details of outstanding loan balances through RTI, using an earlier year update (EYU) submission, available from 20 April 2019.

If the relevant employer no longer exists, or is not based in the UK, responsibility transfers to the individual, who must provide HMRC with details by 1 October 2019 and pay the loan charge through their self-assessment return.

For trade-based schemes, individuals must include details of outstanding disguised remuneration loans on their self-assessment returns, showing them as ‘disguised remuneration additions to profits’. If the trade for which the loans were received ended before 6 April 2018, the loan amounts should be treated as trade profits earned in the tax year in which the trade ceased.

The guidance lists certain types of repayments that will be disregarded for the purposes of reducing loan balances. In the case of employed schemes, disregarded payments will include those:

  • not in money and made on or after 5 December 2016;
  • linked to an avoidance scheme and made on or after 17 March 2016; or
  • made on or after 17 March 2016 where the money or asset used in the repayment is the subject of a subsequent ‘relevant step’, which means that the amount repaid is routed back to the individual in some form.

For trade-based schemes, disregarded repayments will include those:

  • not in money and made on or after 5 December 2016; or
  • linked to a tax avoidance scheme.

Repayments made in a depreciating currency will only count up to the sterling value of that repayment.

See Report and account for your disguised remuneration loan charge,

Issue: 1433
Categories: News