Christmas has come early for some of those with 2018/19 loan charge!
Following the review of the loan charge, the Treasury has issued the government’s response. But how are the rules changing?
Summary
The loan charge applies where a taxpayer has previously been paid for services with a loan that is unlikely to be repaid. Individuals who did not repay the loan or arrange a settlement with HMRC by 5 April 2019 were required to pay income tax and NI on the outstanding balance. The outstanding loan was treated as income received on 5 April 2019 and was therefore taxable in 2018/19. The charge has been highly criticised because it applied to outstanding loans dating back to 1999.
What’s changing?
The government has reacted to an independent review and confirmed that it will:
- make changes so that the loan charge will now only apply to loans taken out on or after 9 December 2010. The review found that legislation announced in 2010 removed any doubt that tax was due
- not apply the loan charge to users of loan schemes between 9 December 2010 and 5 April 2016 who fully disclosed their schemes on their tax return and where HMRC failed to take action
- allow users to defer filing their returns and paying their loan charge liability until September 2020
- allow taxpayers to split the loan balance over three tax years to make bills more affordable
- invest in a new HMRC team to collect tax from those who used the avoidance schemes pre-2010.
As a result of this announcement, some people who previously paid the loan charge will be due a refund. You will need to identify any affected clients and reassess their 2018/19 tax liability. New guidance will be published in advance of the September deadline to help you navigate the latest changes.
