HMRC loan charge

What is  the HMRC Loan charge?

The Loan Charge is a measure introduced by the UK government to tackle what is referred to as “disguised remuneration” schemes. These schemes involve individuals receiving the bulk of their income in the form of loan, usually from offshore trusts, commonly often known as Employee Benefit Trusts (EBTs).

In the UK loans are not taxable therefore individuals used such schemes to avoid income tax and National Insurance contributions on the majority of their income.
These arrangements were successfully challenged in the courts by HMRC, with the Supreme Court ultimately ruling that such arrangements were ‘disguised remuneration‘.

https://www.supremecourt.uk/cases/uksc-2016-0073.html

• The Loan Charge was introduced in the Finance (No. 2) Act 2017 and became effective from 5 April 2019. It applies to loans made on or after 6 April 1999 that were still outstanding on 5 April 2019, and for loans made before 6 April 1999 if they were still being used in a similar manner on 5 April 2019.
• The charge is designed to treat these loans as income, thus subjecting them to income tax and National Insurance contributions. It applies to both individuals who used these schemes and businesses that used them to remunerate their employees, including self-employed individuals who also used such arrangements.
• The impact of the Loan Charge can be significant for taxpayers who have used such arrangements and those affected can face substantial tax liabilities, as the Loan Charge requires the taxpayer to calculate the income that should have been subject to tax and pay the subsequent liability with interest. This can result in significant financial stress for individuals, and businesses.
• The implementation of the Charge has created a great deal of controversy and debate, with critics arguing that it unfairly targets individuals who may have been advised by professionals unaware of the potential tax implications of these arrangements. This controversy has resulted parliamentary inquiries and public consultations, resulting in some and concessions to the taxpayer.

If you or your business are potentially affected by the Loan Charge, our expert team at FWJ can help you understand the implications of the loan charge and help you navigate a way through it. Phone us today.

What is an HMRC Loan Charge Settlement?

The legislation governing the HMRC Loan Charge in England and Wales is primarily contained in the Finance (No. 2) Act 2017(‘the Act’). This act introduced the Loan Charge provisions and sets out the legal framework for addressing disguised remuneration schemes.

• The Act received royal assent on 16 November 2017 and came into effect on 5 April 2019. It applies to loans made on or after 6 April 1999 that were still outstanding on 5 April 2019. Additionally, loans made before 6 April 1999 may also fall within the scope of the Loan Charge if they were still being used in a similar manner on 5 April 2019.
• This legislation enables HMRC to treat these loans as disguised renumeration and therefore taxable. It also includes provisions for calculating the loan charge amount, determining the relevant tax years, and specifying the interest charges that may apply.
• A HMRC Loan Charge settlement is the process whereby taxpayers affected by the charge can reach an agreement with HM Revenue & Customs (HMRC) to settle their tax liabilities in relation to their participation in disguised remuneration schemes. More recently, HMRC has recognised the potential financial impact and concerns raised by taxpayers and is offering more favourable settlement options than previously offered.

The specifics of the settlement process, including eligibility criteria, deadlines, and available options, will depend on individual circumstances, together with any updates or concessions made by the HMRC. Our expert team at FWJ, are dealing with such issues on a daily basis on behalf of our clients and use their experience in this regard to their great benefit.

What is a regulation 80 determination in the context of an HMRC Loan Charge? 

A Regulation 80 determination, in the context of the HMRC Loan Charge, refers to a specific provision under the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682). This provision grants HM Revenue & Customs (HMRC) the authority to issue determinations to recover unpaid income tax and National Insurance contributions (NICs) from employers or third parties.

In the context of the Loan Charge, if an individual participated in a disguised remuneration scheme and their employer or a third party provided them with a loan, HMRC may issue a Regulation 80 determination to recover the income tax and National Insurance Contributions NICs that should have been deducted from the individual’s earnings.

Regulation 80 determinations are typically used when HMRC believes that an employer or third party failed to operate the correct PAYE (Pay As You Earn) procedures or withheld taxes and NICs on behalf of employees. It allows HMRC to assess and recover the unpaid amounts directly from the employer or third party, rather than pursuing the individuals involved.

Under the Loan Charge legislation, if an individual’s tax liability is not settled, HMRC can issue Regulation 80 determinations to the employers or third parties involved in the scheme. This shifts the responsibility for paying the unpaid taxes and NICs to the party that provided the loan or was responsible for the remuneration arrangements.

Can I appeal a regulation 80 determination for an HMRC Loan Charge? 

Yes, it is possible to appeal, and the process typically involves the following steps:

• Notice of Appeal. The taxpayer must submit a written notice of appeal to HMRC within 30 days from the date of the Regulation 80 determination. The notice should specify the grounds for the appeal and provide supporting evidence or arguments.
• Review by HMRC. HMRC will review the appeal and consider the grounds and evidence presented. They may also conduct further investigations or request additional information from the appellant.
• Decision by HMRC. HMRC will notify the appellant in writing of their review, this may confirm, amend, or even result in the withdrawal of the Regulation 80 determination. Also, the taxpayer can ask for a further review by an officer not involved in the original decision, should the determination be upheld.
• Tribunal Appeal. If the appellant is dissatisfied with HMRC’s decision, they can appeal to the First-tier Tribunal (Tax Chamber). The appeal must be made within 30 days from the date of HMRC‘s decision or the latest review letter, whichever is the later.
• Tribunal Hearing. The case will be heard by the First-tier Tribunal, where both the appellant and HMRC will present their arguments and evidence. The tribunal will then make an independent decision based on the facts presented and applicable law.
• Further Appeals. If either party is dissatisfied with the First-tier Tribunal’s decision, they can seek permission to appeal to the Upper Tribunal (Tax and Chancery Chamber) and, in some cases, onward to the Court of Appeal and the Supreme Court.

Our team at FWJ are highly experienced in appealing HMRC decisions in most regimes that HMRC regulate, this includes Reg 80 determination, and appeals to the FTT and higher courts.

What are a director’s liabilities in respect of an HMRC Loan Charge Demand?

Directors may have certain liabilities in respect of an HMRC Loan Charge Demand, particularly if they were involved in the decision-making or implementation of a disguised remuneration scheme.

Here are some key aspects to consider regarding director’s liabilities:

• Personal liability. Directors can potentially be personally liable for any outstanding tax liabilities related to the Loan Charge. This typically involves income tax and National Insurance contributions that should have been deducted and remitted on behalf of employees.
• Company liabilities. If the company is unable to meet its tax obligations, HMRC can hold directors personally responsible for the unpaid amounts in certain circumstances. If they believe there are grounds to do so, they will issue a Personal liability Notice against the director.
• Disqualification proceedings. In severe cases of non-compliance or failure to address tax liabilities, and following insolvency, HMRC may request disqualification proceedings be taken against directors under the Company Directors Disqualification Act 1986, which can result in a director being disqualified from acting as a director for a specified period.
• Duty of care and skill. Directors have a legal duty to act with care, skill, and diligence when managing the affairs of the company. Failing to fulfil these duties, particularly in relation to tax compliance, may increase the risk of personal liability.
• Fraudulent or negligent conduct. If a director knowingly participated in a fraudulent scheme or engaged in negligent conduct that led to the non-payment of taxes, they could potentially face legal consequences under various legislation, such as the Taxes Management Act 1970 or the Fraud Act 2006.
• HMRC powers. HMRC has extensive powers to recover tax debts, including the ability to issue demands, issue assessments, enforce payment through legal means, and pursue directors personally for unpaid tax liabilities.

Our team at FWJ are hugely experienced in all issues facing directors including HMRC and Insolvency service proceedings. If you are facing such issues, phone us today, for a consultation.

Are my personal assets at risk if HMRC issue a Loan Charge against me?

If you have a Loan Charge claim and fail to settle it, HMRC has certain powers to enforce and collect the debt. These powers are outlined in several pieces of legislation, including the Taxes Management Act 1970 and the Insolvency Act 1986.

While HMRC’s primary focus is recovering the tax owed rather than seizing personal assets, they do have the ability to take further enforcement actions if necessary. Some of the enforcement measures that HMRC can employ include:

County Court Judgments (CCJs). HMRC can obtain a CCJ against an individual for the outstanding tax debt. A CCJ is a legal order issued by the court that states the amount owed and requires payment.

Charging Orders. If HMRC obtains a CCJ, they can apply for a Charging Order against an individual’s property. A Charging Order places a legal charge on the property, which means that if the property is sold, the debt owed to HMRC will be paid from the proceeds.

Order for Sale. In certain circumstances, HMRC can seek an Order for Sale to force the sale of an individual’s property to recover the outstanding debt. This is a more extreme measure and is typically considered as a last resort.

The extent to which personal assets are at risk will depend on various factors, including the amount of the debt, the individual’s financial circumstances, and the specific enforcement actions taken by HMRC. However, at all points of any enforcement by HMRC, there are opportunities to settle, these can include time to pay agreements or even IVA’s (Individual Voluntary arrangements).

If you are concerned about your personal liability, then get in touch with our team today, we can quickly explain your exposure and expertly advise on ways to mitigate it.