Autumn Statement 2015 announced that the UK Government would ensure those who have used disguised remuneration (DR) tax avoidance schemes pay their fair share of tax and National Insurance contributions.
Budget 2016 announced the introduction of the Loan Charge, targeted at such schemes which a HMRC policy paper from June 2019 described as ‘tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions (NICs) by paying scheme users their income in the form of loans’. The Loan Charge applies to loans made since 6 April 1999 if they were still outstanding on 5 April 2019 and the recipient has not settled the tax due.
On 11 September 2019, Chancellor of the Exchequer, Sajid Javid, commissioned an independent review of the DR Loan Charge led by Sir Amyas Morse. On 20 December 2019, the report was published together with the UK Government Response and updated guidance.
As well as the UK Government welcoming the report and acknowledging that the report raised concerns, the following are the key headline announcements – however, we would recommend reading the Response in full and the HMRC and HM Treasury updated guidance:
- The DR Loan Charge will only apply to loans taken out on or after 09 December 2010. Refunds of tax that has already been paid will be refunded through ‘Voluntary Restitution’
- Where the DR Loans was taken out between 09 December 2010 and 05 April 2016, the Charge will not apply if the individual fully disclosed their use of the schemes to HMRC, and HMRC failed to take action (for example, by opening an enquiry)
- Loans taken out after 05 April 2016 and outstanding as of 05 April 2019 remain within the scope of the Loan Charge
- Loans taken out after 5 April 2019 are taxable when they are received under legislation introduced in Finance Act 2011
- For DR loans taken out on or after the 09 December 2010, the Charge remains in force and taxpayers who have not settled their DR tax affairs by 31 January 2020 are still required to submit a Self-Assessment return for the 2018-19 tax year including the outstanding loan balance. But this filing deadline can be extended to 30 September 2020 as long as the reason for the late filing relates to the Loan Charge
- Taxpayers will be entitled to opt to spread their outstanding Loan Charge over three years (18/19, 19/20 and 20/21). This may result in less tax being paid at the higher rates of tax
Where taxpayers may have queries, HMRC have published contact routes:
- Contact HMRC on 03000 534226 or E-Mail firstname.lastname@example.org
- For taxpayers needing additional support because of health or personal circumstances, contact HMRC on 03000 599110 or E-Mail email@example.com