Outstanding loans provided through Disguised Remuneration arrangements became taxable employment income on 5 April 2019. This creates a particular problem for anybody who is currently trying to settle historic liabilities with HMRC that are connected with the planning.
The loan charge legislation includes provisions that require employers to report the loans for PAYE purposes. With the advent of real time reporting for PAYE, the loans should be returned to HMRC by 22 April 2019. This in turn will create a PAYE liability that will become collectable by HMRC’s Debt Management team. It is easy to see how these steps will cause mayhem for some employers looking to settle with HMRC, especially those hoping to agree an instalment arrangement with the historic liabilities being paid over a number of years.
HMRC has confirmed that those employers engaged in negotiations with HMRC are not required to report the loans as part of their PAYE responsibilities. This is good news.
HMRC’s decision is to be welcomed since it will remove an unnecessary complication and additional stress for those looking to settle. It would have been far better had HMRC not waited until 15 April 2019 before publishing its guidance; after the loan charge liability crystallized but thankfully before any PAYE reporting failures occurred.
Who qualifies for this treatment?
The exemption from reporting the loans for PAYE is only available to those who have already engaged with HMRC to reach a settlement. The guidance stipulates that an employer must have;
- contacted HMRC to settle the tax and duties for a disguised remuneration tax avoidance scheme
- has provided HMRC with all the information needed by 5 April 2019
- continues to engage with HMRC, and
- replies to correspondence by any dates set by HMRC
This means that any employer that has previously participated in a disguised remuneration arrangement is now required to report any outstanding loans unless they have already opened negotiations and provided the relevant information to HMRC. The option is not open to ask HMRC to settle historic liabilities now in order to avoid reporting outstanding loans for PAYE and it is not an amnesty from the 2019 loan charge.
Who is affected by the loan charge?
There are many such loans in existence that were created through tax planning that involved Employee Benefit Trusts type arrangements or contractors who were engaged through intermediate companies that provided loans as part of their remuneration arrangements.
Beware false promises
A final note of caution. The 2019 loan charge is applied to loans that have not been repaid. The legislation is very precise on what this means and essentially requires a loan to have been repaid with money. We are aware of planning that was offered to eliminate loans by various steps of devaluing, selling on or writing off loans. It is highly unlikely that these arrangements prevent the 2019 loan charge. Anybody who had a loan that has since ceased to exist but did not repay it with money will have an unresolved tax problem that needs to be addressed.