Posted by James Pearson on 23 Apr 2020

April 19 Loan Charge Repayment

The April 2019 loan charge was introduced to tackle tax avoidance using employer-funded third parties, but following an independent review, this measure has been significantly rolled back.

As originally announced, the April 19 loan charge treated loans from employer-funded third parties, that were outstanding as at 5 April 2019, as taxable earnings. HMRC’s intention was to avoid complicated and often unsuccessful investigation into these structures, by changing legislation to apply a tax charge even if the structure was not taxable under the law in force at the time of original implementation.

The loan charge was immediately controversial; the Chartered Institute of Taxation described it as a blunt instrument that may be hard to justify in some cases, and stories of undue hardship circulated in the press. On 11 September 2019, after the loan charge had already come into force, an independent review was announced, leading to retrospective changes to the loan charge, announced on 20 January 2020.

  • The loan charge will now only apply to loans made on or after 9 December 2010 (and still outstanding at 5 April 2019)
  • The loan charge will now not apply to loans outstanding as at 5 April 2019 that were made prior to 6 April 2016 if a reasonable disclosure of the use of the tax avoidance scheme was made to HMRC and no action was taken.
  • People can elect to spread the loan charge evenly across 3 tax years.
  • HMRC will refund voluntary payments that were made as part of a settlement agreement in order to prevent the loan charge applying where the loan charge no longer applies.

It is worth noting that the above changes will not assist anyone who took action to avoid the April 19 loan charge, such as closing a scheme, repaying a loan or distributing assets, as the related tax charges were not paid under the loan scheme rules.

HMRC have recently provided guidance as to how the loan charge can be reclaimed where payment was made through the PAYE system rather than under a settlement agreement. This guidance makes clear that the relevant PAYE real-time information submission should be corrected to reflect the new position.

The situation is complicated as there are many possible routes through which the April 19 charge could have been paid, but we will be able to guide you through the rules and help you make any reclaim that is due.

 

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com

 

See also…

Staggered Start to the Introduction of Real Time Information Penalties

Tax Avoidance Schemes: Too Good To Be True?

Disguised Remuneration Update – Loan Charge Enacted