The government is making these changes in response to Sir Amyas Morse’s review of the loan charge policy and its implementation.
The key changes are:
- the loan charge will apply only to outstanding loans made on, or after the 9th December 2010
- the loan charge will not apply to outstanding loans made in any tax years before 6th April 2016 where the avoidance scheme use was fully disclosed to HMRC and HMRC did not take action (for example, opening an enquiry)
- people can elect to spread the amount of their outstanding loan balance (as at 5 April 2019, recalculated in line with the above changes) evenly across 3 tax years: 2018 to 2019, 2019 to 2020 and 2020 to 2021. Giving greater flexibility on when the outstanding loan balance is subject to tax and may mean that the loan balance is not subject to higher rates of tax.
- HMRC will refund voluntary payments (known as ‘voluntary restitution’) already made in order to prevent the loan charge arising and included in a settlement agreement reached since March 2016 (when the loan charge was announced) for any tax years where:
- the loan charge no longer applies (loans made before 9 December 2010)
- loans were made before 6 April 2016, the avoidance scheme use was fully disclosed to HMRC and the department did not take action (for example, opening an enquiry)
The package also includes a number of changes that will give additional flexibility over the way to pay:
- if you do not have disposable assets and earn less than £50,000, HMRC will agree Time to Pay arrangements with a minimum of 5 years. If you earn less than £30,000, they will agree a minimum term of 7 years. If you need longer to pay, you will need to provide HMRC with detailed financial information. There is no maximum time limit for a Time to Pay arrangement
- in line with existing practice, if you need Time to Pay, you will pay no more than 50% of your disposable income (unless you have a very high level of disposable income).
Draft legislation and more detailed guidance will be published in early 2020, alongside a timetable for implementing the changes. HMRC will not be able to process refunds until these changes have become law, expected in summer 2020.
Where HMRC knows a customer has used a disguised remuneration avoidance scheme and either settled the tax due, or has not settled and could be liable to pay the loan charge, they will write to them to explain what these changes mean for them.
Paying the loan charge does not resolve the underlying tax dispute with HMRC for the years in which loans were made. Tax years that are subject to an open enquiry or assessment will still need to be resolved, either by way of settlement with HMRC or through litigation.