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Lords criticism of 2019 loans charge: will it make a difference?

Lords criticism of 2019 loans charge: will it make a difference?

Does the government, or more importantly, HMRC, take any notice of what the House of Lords has to say?

Thousands of employers and individuals who used disguised remuneration schemes and are facing a new tax charge on 5 April 2019 will be hoping so. The Economic Affairs Committee of the Lords has delivered a hard-hitting critique of HMRC’s conduct in relation to disguised remuneration schemes, amongst several other topics.

As many have previously commented, the Lords found the retrospective effect of deeming loans made up to 20 years ago as employment income on 5 April 2019 to be unacceptable. The committee noted that the effect of the new charge is effectively to walk around the statutory time limits that HMRC have failed to meet in many cases. It seems clear that the intention of HMRC was to ensure that it had a second bite at the cherry where it had failed to open enquiries or make protective assessments within the specified time limits.

In advance of the DR loans charge, we have also seen examples of HMRC making Regulation 80 PAYE Determinations in disguised remuneration cases very close to the end of the 6 year time limit which applies where there has been a loss of tax due to careless behaviour. However, when the issues are properly evaluated it appears that in some cases HMRC are seeking to make generic assumptions about the conduct of taxpayers and/or their professional advisers without sufficient evidence to support such a view.

The Lords also considered that HMRC sometimes aggressive pursuit of taxpayers was not proportionate and diverged substantially from the principles on which it should operate according to the Powers Review. The evidence given by HMRC was that only 5,000 of an expected 50,000 cases had already reached settlement. The average employer settlement was £525,000 whilst the average individual settled for £23,000.

One positive to take from this is that if HMRC can be persuaded to take a more proportionate approach, there are many taxpayers who could still benefit from this.

In particular, the Lords were “disturbed to hear accounts of HMRC threatening individuals with arrangements that could result in bankruptcy, where individuals clearly have no assets to settle liabilities. Whether these threats were explicit or perceived, they have caused considerable anguish for a number of individuals.”

The Lords made a number of very specific recommendations, including

– that the loan charge legislation is amended to exclude from the charge loans made in years where taxpayers disclosed their participation in these schemes to HMRC or which would otherwise have been “closed”

– that HMRC urgently reviews all loan charge cases where the only remaining consideration is the individual’s ability to pay

– that HMRC establishes a dedicated helpline to give those affected by the loan charge advice and support. Such action should take place well in advance of the loan charge coming into effect in April 2019.

Although the conclusions and recommendations of the Lords will be welcomed, whether they will have any practical effect is a question that will be answered by the approach of HMRC in the coming months. However, it is only right that these points are made to HMRC in the course of correspondence and discussions with HMRC when negotiating settlements and time to pay in disguised remuneration cases.

If you would like to discuss a disguised remuneration case please contact us.