As the loan charge deadline of 30 September 2020 (‘the deadline’) is fast approaching, many clients who have not already settled their participation in disguised remuneration (DR) tax planning should consider settling with HMRC now before it is too late to take advantage of the favourable November 2017 settlement terms. For those who have registered an interest in settlement but have not yet settled, the loan charge will not apply where settlement is reached with HMRC before the deadline. We are aware that HMRC is extremely busy and is only guaranteeing to deal with the settlements by the deadline if contact is made by 7 September 2020.
HMRC’s new guidance indicates that there will be no special terms for settlements made after this date.
The November 2017 settlement terms can be much more favourable than those that will apply after the deadline with the following key differences:
Under the new terms all statutory interest must be paid;
For voluntary settlements, there will be an additional income tax and NICs charge where an employee does not ‘make good’ the settlement liability paid on their behalf by their employer; and
Further restrictions will apply to any corporation tax relief that may be available.
File, pay and report the loan charge to HMRC
The loan charge affects individuals or employers who used DR schemes and the individual or employee did not repay their loans or provide HMRC with all of the necessary information for settlement by 5 April 2019. The loan charge is in respect of loans made on, or after, 9 December 2010 that remained outstanding on 5 April 2019 and is an income tax and NICs charge on the outstanding loans as if they were earnings in the 2018/19 tax year. There are exemptions from the loan charge for loans made between 9 December 2010 and 5 April 2016, where ‘reasonable disclosure’ was made and HMRC failed to take protective action.
Following the review by Sir Amyas Morse, HMRC extended the deadline for reporting and payment of tax and NICs arising from the loan charge to 30 September 2020. If the information below is not reported to HMRC by the deadline, or the information is not complete or correct, penalties can be charged.
Filing requirement
If the employer still exists and is based in the UK, it must account for and pay the loan charge on behalf of its employee using PAYE by the deadline. If the employer no longer exists or is not based in the UK, the individual must file and pay the loan charge through their 2018/19 self-assessment tax return by the deadline.
Individuals must file their 2018/19 tax returns and report all relevant loan income by the deadline. The returns must include the balance of the outstanding loans subject to the loan charge and any arrangements they need to pay the charge due.
HMRC has confirmed that no penalties or late payment interest will apply if the tax return is filed accurately by the deadline.
Payment of loan charge
The loan charge must also be paid by the deadline or the individual must agree a time to pay arrangement with HMRC before then. Alternatively, the individual can make an election prior to 30 September 2019 to spread the loan charge over the three tax years from 2018/19 to 2020/21.
Reporting requirement
If information has not previously been provided to HMRC, individuals also need to report all outstanding loans subject to the loan charge to HMRC by the deadline by using the loan charge reporting form. This can be done online (via the government Gateway) or a paper form can be requested. The form is also used for taxpayers to elect to spread the loan balance across three years.
As part of the reporting requirement, individuals will need to provide detailed information in respect of the DR loan arrangements used in each tax year. This includes the specific scheme details as well as the total amount of loans in each tax year as well as any amounts repaid or written off.
The decision whether to settle and what to report is a complex one and specialist advice should be sought.
Home >Articles > The DR loan charge countdown to 30 September
The DR loan charge countdown to 30 September
As the loan charge deadline of 30 September 2020 (‘the deadline’) is fast approaching, many clients who have not already settled their participation in disguised remuneration (DR) tax planning should consider settling with HMRC now before it is too late to take advantage of the favourable November 2017 settlement terms. For those who have registered an interest in settlement but have not yet settled, the loan charge will not apply where settlement is reached with HMRC before the deadline. We are aware that HMRC is extremely busy and is only guaranteeing to deal with the settlements by the deadline if contact is made by 7 September 2020.
HMRC’s new guidance indicates that there will be no special terms for settlements made after this date.
The November 2017 settlement terms can be much more favourable than those that will apply after the deadline with the following key differences:
Under the new terms all statutory interest must be paid;
For voluntary settlements, there will be an additional income tax and NICs charge where an employee does not ‘make good’ the settlement liability paid on their behalf by their employer; and
Further restrictions will apply to any corporation tax relief that may be available.
File, pay and report the loan charge to HMRC
The loan charge affects individuals or employers who used DR schemes and the individual or employee did not repay their loans or provide HMRC with all of the necessary information for settlement by 5 April 2019. The loan charge is in respect of loans made on, or after, 9 December 2010 that remained outstanding on 5 April 2019 and is an income tax and NICs charge on the outstanding loans as if they were earnings in the 2018/19 tax year. There are exemptions from the loan charge for loans made between 9 December 2010 and 5 April 2016, where ‘reasonable disclosure’ was made and HMRC failed to take protective action.
Following the review by Sir Amyas Morse, HMRC extended the deadline for reporting and payment of tax and NICs arising from the loan charge to 30 September 2020. If the information below is not reported to HMRC by the deadline, or the information is not complete or correct, penalties can be charged.
Filing requirement
If the employer still exists and is based in the UK, it must account for and pay the loan charge on behalf of its employee using PAYE by the deadline. If the employer no longer exists or is not based in the UK, the individual must file and pay the loan charge through their 2018/19 self-assessment tax return by the deadline.
Individuals must file their 2018/19 tax returns and report all relevant loan income by the deadline. The returns must include the balance of the outstanding loans subject to the loan charge and any arrangements they need to pay the charge due.
HMRC has confirmed that no penalties or late payment interest will apply if the tax return is filed accurately by the deadline.
Payment of loan charge
The loan charge must also be paid by the deadline or the individual must agree a time to pay arrangement with HMRC before then. Alternatively, the individual can make an election prior to 30 September 2019 to spread the loan charge over the three tax years from 2018/19 to 2020/21.
Reporting requirement
If information has not previously been provided to HMRC, individuals also need to report all outstanding loans subject to the loan charge to HMRC by the deadline by using the loan charge reporting form. This can be done online (via the government Gateway) or a paper form can be requested. The form is also used for taxpayers to elect to spread the loan balance across three years.
As part of the reporting requirement, individuals will need to provide detailed information in respect of the DR loan arrangements used in each tax year. This includes the specific scheme details as well as the total amount of loans in each tax year as well as any amounts repaid or written off.
The decision whether to settle and what to report is a complex one and specialist advice should be sought.
.tmb-editorspic.jpg?sfvrsn=df04ab27_1)
