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Treasury report reaffirms extended time limits and loan charge

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HM Treasury has published its report on the FA 2019 provisions extending the time limits for HMRC to make assessments involving offshore tax matters, including a comparison with the disguised remuneration loan charge. Annex B to the report contains the Treasury’s review of the effects of the relevant provisions, as required by FA 2019 s 95. Overall, the report presents a thorough re-statement of the government’s position on both measures.

Finance Act 2019 s 95 required the chancellor to review the effects of provisions in sections 80 and 81 of that Act, which introduced a new 12-year assessment time limit for lost tax that involves an offshore matter or an offshore transfer. The purpose of the review was to compare the effects of these sections with other statutory provisions governing time limits for assessment by HMRC, including a comparison with the disguised remuneration (DR) loan charge introduced by Finance (No 2) Act 2017 Sch 11 and 12.

The review takes account of reports from the House of Commons Treasury select committee and the Lords economic affairs committee, as well as discussions with the Loan Charge All Party Parliamentary Group (APPG) and other correspondence from MPs, lobby groups and individuals.

The government’s view remains that the new 12-year time limit ‘is not retrospective legislation and does not reopen any closed tax years’. The report says that these provisions, in effect, ‘increase the number of tax years potentially subject to assessment prospectively, one year at a time, until the period that HMRC can assess reaches 12 years’. The new limit applies for tax years 2013/14 onwards for careless behaviour and from 2015/16 for errors despite reasonable care.

On the loan charge, the report reiterates the government’s view that the loan charge ‘is the right approach to ensure fairness for the vast majority of UK taxpayers who pay the right amount of tax at the right time and draw a line under this form of tax avoidance’, At the same time, the government ‘recognises the difficulties that some people are facing’, which is reflected in the settlement terms and announcements about special payment terms for certain groups of taxpayers at different income levels.

The report states: ‘The government is clear that the legislation is not retrospective. It applies a tax charge to outstanding DR loan balances at 5 April 2019. It does not change the tax position of any previous year, the tax treatment of any historic transaction, or the outcome of any open compliance checks’.

Dismissing calls to delay introduction of the loan charge, the report says that any delay ‘would add to the uncertainty for those who need to come forward’, adding that ‘the government believes that the best option for those individuals who are worried about the introduction of the charge on DR loans is to come forward and speak to HMRC as soon as possible’.

The report stresses that taxpayers affected by the loan charge who have not come forward to settle by 5 April 2019 will not need to pay the charge on that date, but must notify HMRC of their loan balance by 30 September 2019, file a self-assessment return for 2018/19 and pay the charge by 31 January 2020.

The report also refers to 70 submissions made to HMRC from individuals affected by the loan charge, which the APPG had brought to the Treasury’s attention in the expectation that the taxpayers concerned would give their consent for HMRC to respond to the particular personal tax issues raised. In the event, none of the submissions were provided on that basis and the government has not provided responses to the detail of those cases in this report.

Nevertheless, the report notes that ‘where it has been possible to check the submissions against HMRC’s records, HMRC does not accept the claims that are made in a number of the cases’, although HMRC ‘recognises there will be difficult cases and is committed to supporting people affected by the loan charge’. See

In the press release accompanying the report, financial secretary to the Treasury, Mel Stride, said: ‘99.8% of people in the UK go nowhere near these sorts of schemes, and we know that many contractors looked at these arrangements, were appalled and ran a mile’.

Mr Stride added that the report, ‘crucially also sets out the work we are doing to support vulnerable customers, including those who face the loan charge but also the many others that HMRC deals with in its everyday work’.

HMRC has added a further scheme aimed at avoiding the loan charge to its ‘spotlight’ list of tax avoidance schemes being investigated. Spotlight 50 concerns a scheme involving contractors and their personal service companies (PSCs) becoming partners of limited liability partnerships (LLPs) based offshore. The bulk of payments made to the PSC are transferred to the LLP. Shares in the PSC are then sold to an overseas holding company, set at a value which matches the amount of the contractor’s drawings from the LLP’s capital account. HMRC regards the overdrawn capital accounts as loans for the purposes of the loan charge and says these arrangements will not reduce or eliminate the outstanding loan balance, as they involve transfers of assets rather than genuine repayments of the loan. See