Government responds to official loan charge review by former head of National Audit Office
HMRC has published the government’s response to Sir Amyas Morse’s independent loan charge review.
Individuals affected by the loan charge will be pleased to see that HMRC has adopted most of the report’s recommendations and restricted the charge to loans made on or after 9 December 2010. Furthermore, refunds will be paid to individuals who had previously settled unprotected years (where no enquiry had been opened or a discovery assessment raised).
The response also offers some relief to participants who require time to pay or have lower income, which should be welcomed.
The loan charge will still have a significant impact on taxpayers even after the imminent new safeguards are taken into consideration. While people will not lose their homes or need to touch their pensions, they will still face paying up to half their disposable income to HMRC.
Importantly, the government has adopted the following twelve recommendations outlined in the report:
1. Provided further time to file the 2018/19 tax return and will not charge late filing penalties or interest, as long as the return is filed by 30 September 2020 and paid the tax due by this date. If time to pay is required, the arrangement should be agreed before this date.
2. HMRC is to run a further settlement opportunity for people who have received loans but are not caught by the loan charge.
3. Only loans taken after 9 December 2010 will be caught by the loan charge. This effectively halves the period caught by the loan charge. HMRC will still pursue the tax liabilities for loans received before this date where protective steps were taken to assess the liability.
4. Loans taken after 9 December 2010 and before 5 April 2016 where reasonable disclosure was made on the tax return will not be caught by the loan charge.
5. Loans taken in the 2016/17, 2017/18 and 2018/19 years will be caught by the loan charge.
6. Where individuals voluntarily settled tax liabilities for unprotected years (where HMRC had not formally raised a discovery assessment or opened an enquiry) HMRC will refund that element of the settlement where paid.
7. Rather than pay tax on the loan charge amount in one year, the liability can be split over a period of up to three years, minimising the tax liability to some degree.
8. HMRC is to review the interest charged on tax paid late and report on its findings by 31 July 2020.
9. Individuals needing time to pay will not have to pay over more than half their income, have to sell their home or access their pensions to meet the liability.
10. For individuals earning less than £30,000 a year, any balance owed after ten years will be written off.
11. Individuals earning between £30,000 and £50,000 a year will automatically be allowed up to five years to settle the liability.
12. HMRC is to fund an external body to advise lower income taxpayers on time to pay and their options to pay back the tax owed, including individual voluntary arrangements.
HMRC must also communicate more regularly and effectively with taxpayers under enquiry. Taxpayers are to be updated at least annually on the progress made. If HMRC does not keep in contact, this can be used as grounds for the closure of the enquiry.
Furthermore, HMRC will review and consider how to target the promoters of tax avoidance schemes and react more quickly when they identify that mass market schemes are being promoted.