Loan Charge Review could mean relief for some companies
Specifically even if they’d stopped the practice before 2010 they could still be pursued by HMRC for outstanding PAYE and/or NIC contributions.
In the excitement of a new decade and returning to work, there’s been some big changes to the scheme and how HMRC will approach dealing with transgressors following the conclusion of an independent review by Sir Amyas Morse that have gone relatively unreported but are important – especially if you’ve been approached by HMRC for repayment.
The main changes the review recommended are:-
- The charge will now only apply to outstanding loans made on or after December 9 2010.
- The charge won’t apply to outstanding loans made before April 6 2016 if the scheme was disclosed to HMRC and no action, such as an enquiry, has been taken.
- Payment of any outstanding loan balances can now be spread over three consecutive tax years instead of a single payment.
- HMRC will refund any voluntary payments or restitutions already made to prevent the loan charge arising and include them in any settlement agreement after March 2016 depending on certain conditions.
- If the repaying customer earns less than £50,000 and doesn’t have any disposable assets then HMRC will agree a Time to Pay arrangement for a minimum of five years. If they earn less than £30,000 then this will be extended to seven years.
- Anyone entering a Time to Pay arrangement will pay no more than 50% of their disposable income (unless they have a very high level of disposable income).
The government plans to introduce legislation to implement these changes in early 2020. This means that anybody entitled to a refund will have to wait until the plans pass into law before expecting a payment.
None of this absolves anybody if they’ve taken part in a disguised loan charge and tax that should have been paid on any amount will still need to be accounted for and repaid.
Insolvency practitioners may have an interest in the loan charge as the loan charge would have been made as part of an Employee Benefit Trust (EBT).
EBT’s were used by some companies to pay their staff gross remuneration rather than monthly or weekly, thus avoiding paying income tax or NICs. This is deemed as being a disguised remuneration scheme and classed as tax avoidance rather than tax saving.
The loan charge is the mechanism HMRC uses to recoup any due taxes that would otherwise have been paid.
An insolvency practitioner would have an interest in any scheme only if a director had acted in breach of their duty and caused a loss to the company as a consequence of transferring company money into an EBT or if the EBT amounted to an undervalued transaction or a transaction that defrauded creditors.
To avoid any doubt, we have a statutory duty to notify HMRC of any EBT schemes we know about or become aware of.
If we do then the employer who set it up or has an interest in the scheme is legally obliged to contact the HMRC and let them know.
The loan charge is another example of unforeseen circumstances potentially blowing a hole in the finances of any otherwise profitable and well-ran business.
If you’ve been contacted by HMRC or are facing any other urgent business emergencies then get in touch with us as soon as you can.
We’ll arrange a convenient, free initial consultation with one of our experienced advisors to discern what issues your company is facing and what options you have to act.
The only guarantee we can make is that if you do nothing then things will get worse – problems only magically disappear in fairy tales.