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Loan charge: HMRC tells contractors not to ‘hold out hope’ of revised down settlements emerging

With the 30 September 2020 loan charge policy settlement date fast approaching, HM Revenue & Customs tells those in its scope to abandon hope of revised down settlements being offered at this stage

HM Revenue & Customs (HMRC) has warned those in scope of its controversial loan charge policy to abandon hope of revised payment terms being offered ahead of the policy’s settlement deadline.

Individuals caught by HMRC’s disguised remuneration policy are being reminded that they need to provide details about their outstanding loan charge balances, and have arrangements in place to settle them, by 30 September 2020.

Details of outstanding loan balances must be reported on their 2018-19 self-assessment tax returns, which are due on the same date after the government granted those in scope of the policy an extra seven months to file them.

This deferral followed the publication of an independent review of the loan charge policy in December 2019, which saw a number of tweaks made to how it works in the wake of fierce criticism from cross-party MPs and campaign groups about its retrospective nature.

Under the policy’s original terms, HMRC sought to recoup unpaid taxes that it claimed individuals who took part in loan remuneration schemes between 6 April 1999 and 5 April 2019 avoided paying by opting to receive payment for work they had done in the form of non-taxable loans.

In HMRC’s view, these loans were never intended to be repaid and should be reclassified as income and taxed accordingly, resulting in tens of thousands of people – including a sizeable number of IT contractors – receiving life-changing tax bills after the policy was introduced in November 2017.

However, the publication of the policy’s independent review saw the period of time it covers effectively cut in half, resulting in an estimated 11,000 people falling out of its scope, while about 30,000 others had their settlement figures revised down.

In response, it was decided that those in scope of the policy would be allowed to defer declaring their settlement figures, and filing their January 2020 self-assessment tax returns, until the end of next month.

In the interim, there have been numerous calls from campaigners and MPs for all retrospective elements of the policy to be removed, so that it applies only to individuals who were participating in schemes at the time it came into force.

As recently reported by Computer Weekly, there have been further calls for HMRC to consider offering revised settlements that would see individuals asked to pay a percentage of the tax they owe, in acknowledgment that many caught within its scope have no financial means of paying.

Read more about the loan charge policy

HMRC has published a raft of materials outlining how the loan charge will work, now that the amendments to the policy outlined in the review have passed into law, including details of the debt management processes it has introduced for those fearful of how they would make the repayments.

“Some customers need to act now to conclude settlement of tax due on disguised remuneration schemes so that they don’t have to pay the loan charge,” the statement reads.

“Customers who are not settling, and therefore become liable to pay the loan charge, will need to pay the charge that is due on 30 September or agree a time to pay arrangement with HMRC before then.”

It goes on to warn people not to delay their settlements in the hope that HMRC will adopt the abovementioned revised settlement idea.

“Customers should not hold out in the hope that HMRC will offer some special terms for calculating or paying the loan charge,” says the statement.  

“Following an independent review, the government agreed to changes to the loan charge, such as the ability to spread it over three years, and these are reflected in the amended law that Parliament passed in July.

“HMRC can only settle for an amount that is consistent with the law. HMRC cannot apply a different rate to that provided in legislation and has to be fair to all taxpayers, including those who have already settled their use of disguised remuneration tax avoidance schemes and those who have never used tax avoidance schemes.”

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