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Disguised remuneration and the Loan Charge Review: updates to the guidance

08 June 2020

In April 2019, the Government introduced the Loan Charge in an attempt to tackle disguised remuneration schemes. The schemes paid workers by way of a loan instead of employment income – meaning that the amounts received were not subject to income tax or national insurance contributions.

HMRC determined that any loans that remained unpaid should be subject to tax and the Loan Charge was introduced to tax loans dating as far back as April 1999. This controversial change to the rules left many people owing HMRC enormous sums of money.

Prompted by public pressure to review these reforms, the Loan Charge Review was published in December 2019.

Since then, the updated new guidance implements more changes that were suggested within the independent Loan Charge Review:

  1. Creating an election enabling taxpayers to split any liability over a three-year period rather than having to pay a single sum; and
  2. Provides relief from interest and penalties for those who are affected by the Loan Charge but did not have sufficient time to fully consider proposed changes to the Loan Charge by the statutory deadline for filing their returns.

How can we help?

Many of the recommendations made within the report have been accepted by the Government and offer fresh opportunities for taxpayers to assess the amount of tax due to HMRC.

The Harbottle & Lewis tax team is made up of lawyers, accountants, chartered tax advisers and ex-HMRC inspectors and can assist with the following:

  • Settlement: negotiating with HMRC to reduce the amount of tax collected on any loans brought into charge where there are sufficient mitigating circumstances.
  • Review of loans made between 10 December 2010 and 6 April 2016: the Loan Charge will not apply to loans made years before 6 April 2016 where a reasonable disclosure of the use of a disguised remuneration scheme was made within the relevant tax return, and HMRC did not ‘take steps’ to recover the tax (such as by opening an enquiry).
  • Facilitating refunds of voluntary payments: based on changes to time period and/or reasonable disclosure.
  • Re-opening old settlement positions: HMRC took the view that disguised remuneration schemes were careless and used extended time limits to make tax assessments and to justify charging penalties. The Loan Charge review makes clear that it was not careless to use disguised remuneration schemes. For those who feel they had no option to settle because of the upcoming Loan charge, it may be appropriate to re-examine the facts of their case to determine whether HMRC’s approach was reasonable and if not, to explore whether cases can be re-opened.
  • Review of contractual/settlement terms: advice to employers/employees in respect of their liabilities.
  • Mis-selling/professional negligence claims: where taxpayers were not properly advised of the risks by promoters.
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