Policy paper

Statement of Practice 1 (2020)

Updated 6 August 2021

1. HM Revenue and Customs (HMRC) have powers under paragraph 1A(7)(b) of schedule 11 and paragraph 1(3B)(b) of schedule 12 to Finance (No.2) Act 2017. This allows taxpayers, subject to the loan charge, to make a late election to spread their outstanding disguised remuneration loan balance evenly across 3 tax years (2018 to 2019, 2019 to 2020 and 2020 to 2021).

In this statement, references to making an election should be read accordingly so that:

  • it only applies to making an election to spread outstanding disguised remuneration loan balances over 3 consecutive tax years
  • once an election has been made it cannot be revoked

The statement explains the time limit rules, sets out HMRC’s general approach to elections made after 30 September 2020 and gives details of the procedures to be followed.

The normal rules

Election to spread the outstanding disguised remuneration loan balance over 3 tax years

2. Individuals were required to make an election by using the loan charge reporting form on or before 30 September 2020.

3. Once an election is made, it cannot be revoked.

4. Where a person is under a duty imposed by paragraph 35C of schedule 11 or paragraph 22 of schedule 12 of Finance (No.2) Act 2017, they may not make an election until this duty is complied with. To give effect to an election, an individual is required to complete the loan charge reporting form and provide details of their outstanding disguised remuneration loans.

HMRC’s approach to accepting late elections to spread the outstanding disguised remuneration loan balance over 3 tax years

5. Individuals had to report their outstanding disguised remuneration loans using the loan charge reporting form on or before 30 September 2020. This form allowed individuals to make an election to spread their outstanding disguised remuneration loan balance over 3 tax years.

HMRC will automatically accept late elections made by an individual, or an agent on their behalf, on or before 31 December 2020. This will enable individuals to include a third of their outstanding disguised remuneration loan balance on their 2018 to 2019 Self Assessment tax return.

6. HMRC will continue to consider applications for a late election after 31 December 2020. However, this will require the individual, or their agent, to provide HMRC with more information before a late election will be accepted.

Where an individual applies for a late election after 31 December 2020, until an officer has confirmed it is accepted, the individual is liable to pay the loan charge (based on the full outstanding disguised remuneration loan balance) on their 2018 to 2019 Self Assessment tax return.

HMRC considers the time allowed for making an election and the automatic acceptance of any late election (made on or before 31 December 2020) to be generally adequate.

7. HMRC will not make routine use of their powers to accept late elections after 31 December 2020. But, HMRC recognise there may be exceptional reasons why an election was not made within the time specified.

In general, HMRC’s approach will be to allow late elections which could not have been made within the statutory time limits for reasons beyond the individual’s control. Reasons beyond the individual’s control include circumstances where all of the following 4 features were present:

  • the individual was ill or otherwise absent for a good reason
  • the absence or illness arose at a critical time and prevented the individual from making an election on or before 30 September 2020, or a late election on or before 31 December 2020
  • there was good reason why the election was not made before the time of the absence or illness
  • there was no other person who could have made the election on behalf of the individual one or before 30 September 2020, or the late election on or before 31 December 2020

8. HMRC would not regard the following as reasons beyond the individual’s control:

  • oversight or negligence on the part of the individual or their agent
  • illness or absence of an agent or adviser to the company

9. There may be cases falling outside the general approach, where it would be unreasonable, given the overall circumstances of the case, for HMRC to refuse a late election. It is likely that such cases will involve a combination of factors, but the following criteria may be relevant:

  • where the reason for the late election does not warrant admission of the election under the general approach, it will still be taken into account by HMRC in assessing the circumstances as a whole
  • the extent to which the election is late
  • the consequences for the individual if the election is refused
  • any particularly unusual features

Procedures

Late elections made on or before 31 December 2020

10. Individuals who would like to make a late election to spread their outstanding disguised remuneration loan balance over 3 tax years are required to complete the loan charge reporting form. They should select the option to spread their outstanding disguised remuneration loan balance over 3 tax years on the election page of the form.

If the form is completed correctly and submitted on or before 31 December 2020, HMRC will automatically accept the submission as having made a valid election, without the requirement to provide further information or the reason for the late election. This will allow individuals to include a third of their outstanding disguised remuneration loan balance on their 2018 to 2019 Self Assessment tax return.

Anyone who did not make an election on or before 30 September 2020, who then makes a late election on or before 31 December 2020, can choose to include a third of their outstanding disguised remuneration loan balance as income - this must be marked as provisional.

A valid election creates a statutory obligation for an individual to report a third of their outstanding disguised remuneration loan balance in each of their Self Assessment tax return for 2018 to 2019, 2019 to 2020 and 2020 to 2021, and to pay the income tax arising.

In accordance with paragraph 1A(9) of schedule 11 and paragraph 1(3D) of schedule 12 to Finance(No.2)Act 2017, if a late election is submitted on or before 31 December 2020, it cannot be revoked. The individual will be liable to report and pay a third of their outstanding disguised remuneration loan balance in the tax years 2018 to 2019, 2019 to 2020 and 2020 to 2021.

Late elections made after 31 December 2020

11. Individuals who would like to make a late election after 31 December 2020 should complete a paper version of the loan charge reporting form, making an election, and providing the following information:

  • the date they submitted their 2018 to 2019 Self Assessment tax return
  • the reason for the late election

Email the completed form to: ca.loancharge@hmrc.gov.uk. You should include “late loan charge election” in the subject line of the email.

HMRC will then consider whether or not your election can be accepted and reply to you with the outcome.

Until an officer of HMRC has provided confirmation that the late election has been accepted, the individual will be liable to report and pay the full outstanding disguised remuneration loan balance in their 2018 to 2019 Self Assessment tax return.

Anyone considering making a late election should consider the accuracy of their tax return, the latest date by which they can amend their 2018 to 2019 Self Assessment tax return and the penalties chargeable for filing an inaccurate return.

For more information on late elections, read the guidance or call the loan charge helpline on Telephone: 03000 599110