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Disguised remuneration: postponing the loan charge

Disguised remuneration: postponing the loan charge

HMRC has published guidance on how to postpone the loan charge for disguised remuneration loans due to arise on 5 April 2019. The loan charge will apply to anyone with a loan received through a disguised remuneration tax avoidance scheme that is still outstanding on 5 April 2019. HMRC will agree to postpone the charge in certain limited circumstances but an application must be made by 31 December 2018.

Whilst this may appear to be good news, the opportunity to postpone is unlikely to be available to many people with outstanding loans.

A postponement will be agreed only if you either:

  • get approval from HMRC that the loan in question is classed as a qualifying fixed term loan, or
  • paid an Accelerated Payment Notice in respect of the income on which the loan charge is based that is equal to or more than the outstanding loan balance

The criteria will not be achievable for many who have loans outstanding. The value of APNs paid against any avoidance scheme will be based on the tax HMRC believes to be in dispute and not the contributions that passed through the planning. Consequently, APNs paid by an individual are only likely to be sufficient to postpone the loan charge if the outstanding loan balance is less than 45% of the amount contributed to their sub-fund or sub-trust for highest rate taxpayers, 40% for higher rate taxpayers or 20% for basic rate taxpayers.  In many cases, a large proportion of the contributions have been taken as loans and there will be no scope to postpone the loan charge without at least a partial repayment being made in addition to the APN tax that has been paid.

HMRC has also laid down strict terms for what will be recognised as a qualifying fixed term loan. There will be relatively few loan arrangements that will meet HMRC’s criteria. It applies to loans:

  • made before 9 December 2010
  • with a term of 10 years or less, and
  • which are not excluded loans – the loan cannot have been replaced with another loan, or its terms have been altered to meet the 10 year term or change the date on which it must be fully repaid

Qualifying fixed term loans must also be commercial in nature. In practice this means that:

  • the loan repayments are ‘qualifying payments’ – you must have made regular repayments at intervals of no more than 53 weeks and be able to send HMRC evidence of this, and
  • the loan will be a ‘commercial loan’ if it was made by a lending business or it was on terms that are comparable to loans that were available to members of the public

An application to postpone must be made direct to HMRC, which will then give a decision. At least there will time to resolve any uncertainty on the loans that may potentially qualify.

Further information and links to the relevant forms can be found here.