The UK government announced on 20 December 2019 that the so-called Loan Charge – introduced in 2010 to combat Disguised Remuneration schemes – would only apply to loans taken out on or after 9 December 2010 rather than from 1999.
The Loan Charge is a tax on loans outstanding in April 2019, and was designed to tackle individuals who paid themselves through loans, often routed via offshore trusts, which never had to be repaid.
The move followed a review, led by former head of the National Audit Office Sir Amyas Morse, which confirmed that the schemes were a form of tax avoidance but made a series of recommendations about the design of the charge and its impact on those in its scope.
All but one of the review recommendations were accepted. The government said it would:
- Make changes so that the Loan Charge would now only apply to loans taken out on or after 9 December 2010;
- Not apply the Loan Charge to users of loan schemes between 9 December 2010 and 5 April 2016 who had fully disclosed their schemes on their tax return but HMRC had failed to take action;
- Allow users to defer filing their returns and paying their Loan Charge liability until September 2020;
- Allow taxpayers to split the loan balance over three tax years to make bills more affordable;
- Invest in a new HMRC team to collect tax from those who used the avoidance schemes pre-2010.
It estimated that the package of measures would reduce bills for more than 30,000 people subject to the Loan Charge, more than 60% of the total number of users. That included an estimated 11,000 who would be taken out of it altogether. HMRC would further – once legislation has been passed – repay parts of some settlements reached with taxpayers where they had voluntarily paid amounts due for earlier years.
The government did not accept a recommendation to introduce a write-off of tax due on the Loan Charge after 10 years for individuals whose time to pay arrangement wa longer than 10 years. That, it said, would allow those who have avoided tax through use of Disguised Remuneration tax avoidance schemes more favourable terms than taxpayers with other debts, including tax credit claimants.
Financial Secretary to the Treasury Jesse Norman said: “There have been important public concerns about this policy, and that is why we commissioned this report and have responded so quickly to it. The changes we are making go to the heart of Sir Amyas’s concerns about the fairness and application of the Loan Charge, which he accepts in principle. We also have plans under way to crack down further on the promoters of these avoidance schemes.”
New guidance will be published to help users of the schemes understand what they have to do – and extra time will be provided so that users of schemes can defer sending their return, and paying the tax for 2018-19, until the end of September 2020.
The new HMRC team looking at pre-2010 use of loan schemes will aim to conclude enquiries and bring in the tax due from people who in the past have used disguised remuneration schemes, and other forms of tax avoidance.