Loan Charge Support – A Guide for Accountants

Loan Charge Support – A Guide for Accountants

A £365 million loan charge deal has been unveiled as part of the Autumn Budget to support loan charge victims. With over 32,000 individuals in dispute with HMRC, the highly controversial loan charge, for which the total liabilities are in the region of £1.7 billion, sat high on the agenda for the Chancellor.

A loan charge settlement scheme is due to be introduced, following recommendations put forward by an independent review. The scheme will provide new and improved settlement terms to individuals with outstanding loan charge liabilities.

Loan Charge – A quick background

The loan charge was enacted in 2017 to tackle disguised remuneration schemes used by individuals – mostly freelancers and self-employed professionals – whereby salary payments were made through loans to avoid Income Tax and National Insurance.

The loan charge was introduced to penalise users of disguised remuneration schemes and applied to tax outstanding on 5 April 2019. HMRC continues to seek retrospective loan charge payments, for which the average debt is £12,000 for most. The average loan charge debt is £80,000 for over 5,000 individuals and £753,000 for around 300 individuals.

Loan Charge Review – An update for accountants and clients

New settlement terms for the loan charge are due to come into force, based on recommendations from an independent review conducted by former HMRC assistant director Ray McCann. The scheme aims to halve outstanding loan charge liabilities for most, while around 30% may be able to settle without paying anything.

The key features of the loan charge settlement scheme include:

• the tax rates that apply to the loan charge will be based on the tax they would have paid in the years that loans were made, rather than 2019
• historic promoter fees will be deducted, up to a maximum discount of £10,000 per year that a taxpayer used a loan scheme
• tax liabilities will be reduced by £5,000
• no late payment interest will be charged any inheritance tax already due because of the use of loan schemes covered by the settlement will be written off
• HMRC will grant payment arrangements for those unable to pay the new amount in full immediately; the new liability can be paid over five years, without having to discuss affordability with HMRC — forward interest will apply for payments made in instalments
• the maximum reduction for any one person will be no greater than £70,000 on top of the amount the person already owed because of the loan charge
• promoters of tax avoidance schemes will be exempt from the scheme

In response to the recommendations from the review, HMRC will provide a new settlement opportunity to those with outstanding liabilities.

The loan charge has fuelled much controversy and campaigning over the years, including legal challenges and settlements sought by individuals caught by the loan charge due to non-compliant umbrella companies and rogue operators.

Weighing up the settlement options – what’s next for clients?

As the review marks a turning point for those with outstanding loan charge liabilities, there’s no doubt that clients will be considering its recommendations very carefully. Clearly, the Government hopes the proposed scheme will result in a significant number of settlements.

Many of the outstanding cases are in respect of relatively smaller tax liabilities, however, we regularly advise on complex insolvency cases where loan charge provisions have been triggered, resulting in large tax liabilities. If you have clients with insolvency concerns due to substantial loan charge debts, we can provide strategic support to individuals and businesses.

For professional client support, please contact Nick Reed or Jason Ainge.