Morse refunding legislation passed. Loans before 9 December 2010 now fall outside the loan charge. Where loans attract the loan charge the taxpayer can spread equally over three tax years.
It’s now clear, isn’t it? Some aspects may appear clear but the overall picture is not.
If information was provided to HMRC by 5 April 2019, a taxpayer can settle with HMRC under the August 2020 settlement terms. These are basically rehashed November 2017 settlement terms.
This includes Voluntary Restitution (VR) if HMRC has not protected its position. VR is refundable to those who did manage to settle, but is now sought from those who didn’t.
The deadline for finalising these settlements is 30 September 2020. Very little time considering HMRC is resource compromised.
HMRC is unclear regarding taxpayers who did not provide information to HMRC by 5 April 2019.
If those taxpayers have loans that predate 9 December 2010, loan charge cannot apply, but the updated Guidance does not reflect how they can settle with HMRC if they want to.
Loan Charge All-Party Parliamentary Group (LCAPPG)
The picture has been further added to by the cross party LCAPPG writing to the Chancellor on 18 August 2020 proposing an interesting and alternative approach to resolve matters.
One of LCAPPG’s immediate practical proposals is to delay the onset of loan charge reporting from 30 September 2020 to 31 January 2021 to allow a reasonable time for settlements to be agreed.
It also recognises the resource constraints of HMRC and that 30 September 2020 is, in its view, unrealistic to achieve settlements for those that want them.
The more interesting feature of the proposal, however, is:
“… all users of what HMRC terms “disguised remuneration” loan schemes (are given) the opportunity to agree a settlement on the basis of paying an Income Tax rate of 10% that is applicable to:
a. All loans received via a contractor loan arrangement from 6th April 1999 to 8th December 2010 (inclusive), where HMRC has protected the tax year in question, and;
b. All loans received via a contractor loan arrangement on or after 9th December 2010 to the effective date of settlement, for both protected and unprotected years. “
A flat rate of 10% would undoubtedly make settlement more appealing to many more individuals. The proposal includes other aspects, some bad (inclusion of interest), some good (removal of IHT costs and a minimum of 5 years settlement to apply to all taxpayers).
Clear as mud
The HMRC August 2020 settlement terms and the LCAPPG proposal are fundamentally different. For taxpayers weighing up their options there is still an absence of consensus and clarity regarding the choices they face.
We are endeavouring to keep on top of the shifting sands and to provide timely comment when possible.
If you are in the dark and the path may not be clear; take advice a solution may be achievable.