The boundaries of the review are wider than were expected
and take into consideration both the mechanics of the loan charge and the
effect it has on individuals. It will concern:
Clearly, it is the level of examination that should have
been adopted before the legislation reached royal assent.
It is important that the review includes both the effect of
the legislation on individuals and the practicality of the mechanism as a
method of collecting tax. This is because the punitive nature of the
calculation method (taxing multiple year income in one year) makes it unlikely
that the majority of taxpayers will be able to afford it, potentially resulting
in bankruptcies and a reduced recovery of tax. If the review is to offer
sufficient scrutiny it must explore whether the ends justify the means.
The independent nature of the review is also welcomed with
Sir Amyas Morse appointed as chair. Concerns have been raised that Sir Morse
will be ‘supported by a team of officials, drawn from HM Treasury and [HMRC]’,
which suggests that there may be elements of civil servants marking their own
homework. A team unbeholden to their paymasters would have been preferable, but
we trust that the matter will be reviewed with the expected level of
impartiality. We have been invited by Sir Morse to meet and give evidence, so
we are satisfied that this will be the case.
It was expected that the review would result in a temporary
suspension of the loan charge legislation reporting requirements which could
have been achieved by virtue of F(No. 2)A 2017 Sch 11 para 35E. Instead, the
formal position is: ‘While the review is under way the loan charge remains in
force’.
Taxpayers must, therefore, continue to meet their
obligations:
Details of what should be disclosed can be found on HMRC’s
website, but the employer name, loans outstanding and any details of tax paid
to date will be required along with DOTAS numbers where applicable. It is
imperative that taxpayers observe the correct reporting facility in making the
disclosure. In a recent case, Corrado v HMRC [2019] UKFTT 275 (TC), a penalty
was applied because the taxpayer did not complete a disclosure for a follower
notice in the manner prescribed by HMRC. Whilst the FTT subsequently decided in
the taxpayer’s favour, it shows that HMRC is prepared to defend its position on
penalties. Particular care should, therefore, be taken to ensure the disclosure
is accurate and in line with HMRC’s direction.
This disclosure, itself, cannot be the basis of an
assessment to tax. This comes through the second step, reporting on the tax
return. Any applicable loans reportable in line with the legislation should be
included as employment income in the 2018/19 assessment. It is strongly
suggested that taxpayers seek advice from a suitably qualified, independent,
adviser before taking this step. The result will see the loan value added to
the 2018/19 earnings and taxed at the appropriate bands.
In summary, despite the review being an important event, it appears to be very much business as usual at HMRC.
On this basis, and to avoid penalties for non-disclosure, it is recommended that taxpayers continue to observe their reporting requirements, but where possible, hold off on filing a return until after the review has concluded (November), on the basis that a self-assessment charge cannot be appealed.
Whilst it is expected that if the
legislation is repealed any self-assessment liability will be reversed, this
cannot be guaranteed and will not be a simple process. In the current climate,
taxpayers should do all they can to protect their interests accordingly.
Rhys Thomas, WTT Consulting
(rhys.thomas@wttconsulting.co.uk)
The boundaries of the review are wider than were expected
and take into consideration both the mechanics of the loan charge and the
effect it has on individuals. It will concern:
Clearly, it is the level of examination that should have
been adopted before the legislation reached royal assent.
It is important that the review includes both the effect of
the legislation on individuals and the practicality of the mechanism as a
method of collecting tax. This is because the punitive nature of the
calculation method (taxing multiple year income in one year) makes it unlikely
that the majority of taxpayers will be able to afford it, potentially resulting
in bankruptcies and a reduced recovery of tax. If the review is to offer
sufficient scrutiny it must explore whether the ends justify the means.
The independent nature of the review is also welcomed with
Sir Amyas Morse appointed as chair. Concerns have been raised that Sir Morse
will be ‘supported by a team of officials, drawn from HM Treasury and [HMRC]’,
which suggests that there may be elements of civil servants marking their own
homework. A team unbeholden to their paymasters would have been preferable, but
we trust that the matter will be reviewed with the expected level of
impartiality. We have been invited by Sir Morse to meet and give evidence, so
we are satisfied that this will be the case.
It was expected that the review would result in a temporary
suspension of the loan charge legislation reporting requirements which could
have been achieved by virtue of F(No. 2)A 2017 Sch 11 para 35E. Instead, the
formal position is: ‘While the review is under way the loan charge remains in
force’.
Taxpayers must, therefore, continue to meet their
obligations:
Details of what should be disclosed can be found on HMRC’s
website, but the employer name, loans outstanding and any details of tax paid
to date will be required along with DOTAS numbers where applicable. It is
imperative that taxpayers observe the correct reporting facility in making the
disclosure. In a recent case, Corrado v HMRC [2019] UKFTT 275 (TC), a penalty
was applied because the taxpayer did not complete a disclosure for a follower
notice in the manner prescribed by HMRC. Whilst the FTT subsequently decided in
the taxpayer’s favour, it shows that HMRC is prepared to defend its position on
penalties. Particular care should, therefore, be taken to ensure the disclosure
is accurate and in line with HMRC’s direction.
This disclosure, itself, cannot be the basis of an
assessment to tax. This comes through the second step, reporting on the tax
return. Any applicable loans reportable in line with the legislation should be
included as employment income in the 2018/19 assessment. It is strongly
suggested that taxpayers seek advice from a suitably qualified, independent,
adviser before taking this step. The result will see the loan value added to
the 2018/19 earnings and taxed at the appropriate bands.
In summary, despite the review being an important event, it appears to be very much business as usual at HMRC.
On this basis, and to avoid penalties for non-disclosure, it is recommended that taxpayers continue to observe their reporting requirements, but where possible, hold off on filing a return until after the review has concluded (November), on the basis that a self-assessment charge cannot be appealed.
Whilst it is expected that if the
legislation is repealed any self-assessment liability will be reversed, this
cannot be guaranteed and will not be a simple process. In the current climate,
taxpayers should do all they can to protect their interests accordingly.
Rhys Thomas, WTT Consulting
(rhys.thomas@wttconsulting.co.uk)
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