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Loan Charges

Loan Charges

The following is an extract taken from a letter received by a client and which will relate to many contractors who were involved in what is commonly called “Loan Charges”. There are no details which can identify our client and the client is happy for us to reproduce this information.

 

Changes to the loan charge following the independent review – what this means to you

The Government commissioned an independent review of the disguised remuneration loan charges on 11 September 2019. The review reported to the Government on 13 December 2019. You can read the review report in full and how the changes affect you, by searching for “Independent loan charge review” on www.gov.uk

After considering the review, the Government has accepted most of the recommendations made to mitigate concerns about the impact of some aspects of the loan charge and will introduce legislation to make the changes needed.

 

The Government’s response to the review

The Government has accepted the recommendation that the loan charge should only apply to loans made on or after 9 December 2010 and were outstanding on 5 April 2019.

In addition, the loan charge will not apply to any outstanding loans made before 6 April 2016, if the avoidance scheme used was fully disclosed to us and we did not take action as a result (for example, by opening an enquiry).

A scheme is fully disclosed where a taxpayer provided all necessary information on their relevant tax return or, where appropriate, associated documents. The information provided must have been sufficient for us to identify the nature of the arrangement(s) and to conclude that an income tax liability arose in relation to the loan.

Further guidance on the definition of full disclosure will be published alongside draft legislation in early 2020.

 

What will happen next

As you settled with us before the changes to the loan charge were announced, you may receive a refund of some or all the amount you paid when settling.

We will refund voluntary payments (Known as “voluntary restitution”) already made in order to prevent the loan charge from 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 was fully disclosed to us and we did not take action (for example opening an enquiry)

We will not be able to process any refunds until changes to the loan charge legislation have been enacted by Parliament. We expect this to be in Summer 2020. We will be in touch with anyone who is due a refund after the legislation has been enacted.

You can check if you are due a refund by looking through your settlement paperwork. If you made voluntary restitution payments, these will usually be identified on the settlement agreement as amounts where no interest has been charged.

Further details of relevant voluntary restitution payments made in disguised remuneration settlements and how they interact with other taxes included in the settlement, will be published in early 2020.