The loan charge will not apply to any disguised remuneration loans before 9 December 2010.
On 20 December 2019, the government announced changes to the loan charge following the independent review led by Sir Amyas Morse.
HMRC has already published details of the key changes and what they mean for different customers, which has now been updated with more information.
This additional guidance provides more information on key areas.
Loans made on or after 9 December 2010
The loan charge will apply only to loans made on or after 9 December 2010 that were outstanding on 5 April 2019 subject to whether the loan was made in an unprotected year.
If you were employed when you received a loan, the loan charge applies to outstanding loans made between 9 December 2010 and 5 April 2019.
If you were self-employed when you received a loan, the loan charge applies to outstanding loans from 9 December 2010 to 5 April 2017. Any loans received after this date are still chargeable as income from self-employment and should have been included in your Self Assessment tax return for the relevant year.
You should check bank statements, loan agreements and copies of contracts to find out whether you were employed or self-employed and to check when your loans were made.
If you are still not sure what type of loan you received, or if you are unsure if loan charge applies to your loans, phone the loan charge helpline on 03000 599110.
Loans received in 2010 to 2011
You will need to check any loans received in the tax year 2010 to 2011 as loans taken out before 9 December 2010 are no longer in scope of the loan charge.
You should check bank statements, loan agreements and copies of contracts to find out when your loans were made. If you still do not know, you can apportion your total outstanding loan balance on a just and reasonable basis. For example, it may be just and reasonable to apportion two-thirds of your total 2010 to 2011 loan balance to pre 9 December 2010 (April to December) and one-third post 9 December 2010, if you received equal payments throughout the tax year.
If you have already sent your return for the tax year 2018 to 2019 you may need to amend it to reflect any change to your outstanding loan balance.
Unprotected years and reasonable disclosure
An unprotected year, for the purposes of the loan charge, refers to a year where at 5 April 2019 HMRC had not taken action to protect its assessing position, for example by opening an enquiry or issuing an assessment or determination.
The change takes unprotected years prior to 5 April 2016, where the customer made a reasonable disclosure of their disguised remuneration tax avoidance scheme in their relevant returns, out of scope of the loan charge.
This means that loans you received between 9 December 2010 and 5 April 2016 (inclusive) should be included in your outstanding loan balance on 5 April 2019, unless you made a reasonable disclosure of the disguised remuneration tax avoidance scheme on your return and HMRC did not take action.
For the purposes of the loan charge, HMRC will consider that a reasonable disclosure of a disguised remuneration tax avoidance scheme was made if you provided sufficient information in your return or accompanying documents to enable HMRC to identify the loan scheme and specifically the person to whom the loan was made and the loan arrangement. For example, if the avoidance scheme promoter had provided the scheme user with a disclosure of tax avoidance scheme (DOTAS) number, it is reasonable for you to have enclosed this number on your return. Alternatively, where the loan scheme was not disclosed to HMRC (and there was no DOTAS number) it would be reasonable for you to refer to your loan arrangement elsewhere on your return.
The disclosure must have contained sufficient information so that it was apparent that a tax liability may have arisen as a result of the loan arrangement. Where the nature of the loan arrangement was such that only by considering its implications over more than one year could it have become apparent that a tax liability arose, the disclosure will be considered reasonable if sufficient information was provided when considering all relevant returns together.
If you are not sure if you disclosed the scheme you should check your copy of your return.
If you sent a return for the last 4 years, you will be able to access it through your Self Assessment account.
If you do not have a copy of the relevant return phone the loan charge helpline on 03000 599110.
Any loans made after 5 April 2016 will be subject to the loan charge, whether or not HMRC has opened an enquiry or raised an assessment.
How to report a disguised remuneration loan
You need to complete an online form to report your disguised remuneration loan, if you are liable to the loan charge after the changes following the review.
The deadline to provide this information to HMRC has been extended to 30 September 2020. The online form is currently being updated and will be available in April 2020.
You can request a paper version of the form to report your disguised remuneration loan by phoning the loan charge helpline on 03000 599110. The paper version will not be available until April 2020.
If you have already provided HMRC with full and accurate information regarding your outstanding loan balance you do not need to resend this information, even if your loan charge liability has changed.
If you have already completed the online form to report your disguised remuneration loan, but are no longer within scope of the loan charge as a result of these changes, you are not required to complete another online form.
The original online form to report your disguised remuneration loan, along with the paper version, will continue to be available until April 2020 if you would like to report you disguised remuneration loan, but do not want to make an election.
Spreading your outstanding loan balance
You can choose either to:
- include all of your outstanding loan balance in your 2018 to 2019 return
- spread it evenly over 3 tax years (2018 to 2019, 2019 to 2020 and 2020 to 2021) which will give greater flexibility on when the outstanding loan balance is subject to tax and may mean that the loan balance is not subject to higher rates of tax
If you want to spread your loan balance over 3 tax years you will need to complete the amended version of the online form to report your disguised remuneration loan and make a valid election as part of this form on or before 30 September 2020.
If you have already sent an online form to report your disguised remuneration loan and provided full and accurate information about your outstanding loans to HMRC, you can still make an election using the amended online form. You will not need to provide information on any outstanding loans again.
You will need to make sure that the online form to report your disguised remuneration loan has been sent at least once with the correct information. We cannot accept an election to spread the loan balance without fully completed information about your disguised remuneration loans.
The amended online form to report your disguised remuneration loan will not be available until April 2020. If you want to send your Self Assessment tax return before then you should complete your return as if a valid election had been made. You will then need to send the online form to report your disguised remuneration loan, to make a valid election on or before 30 September 2020. If you do not do this then your return will be treated as incorrect and HMRC may open an enquiry and may charge a penalty.
You can request a paper version of the form to report your disguised remuneration loan by phoning the loan charge helpline on 03000 599110. However the paper version, which includes the election, will not be available until April 2020.
In some cases it may not be beneficial for you to elect to spread your loan balance over 3 years. You should consider your options and seek professional advice as the election cannot be changed.
If you have only registered for Self Assessment to report the loan charge you may be automatically removed from the list of people required to send a return for the tax year 2019 to 2020 . If that happens you will receive an automated letter from HMRC to say you no longer need to complete a return. You will then need to re-register for Self Assessment for tax year 2019 to 2020 to report the remaining years.
If you cannot pay your tax bill on time
If you earned less than £50,000 in the tax year 2017 to 2018 and have no other source of wealth, HMRC will agree a payment plan spread over a minimum of 5 years. If you earned less than £30,000 then we’ll agree a payment plan of at least 7 years.
HMRC will arrange a spread of payments for longer than 5 to 7 years if this is needed, based on individual circumstances. We want payment plans to be sustainable, so tell us if you need more than these minimum lengths. There is no maximum time limit for these payment plan arrangements.
If you qualify for the minimum 5 or 7 years time to pay we will need some basic income and expenditure information from you. This is so we can check that you do not need more than the minimum period and that we’re not asking for more than 50% of your disposable income.
The 5 or 7 years time to pay period starts when we agree the payment agreement and ends 5 or 7 years after. If you elect to spread your loan charge liability over 3 years we will review the time to pay arrangement when your subsequent Self Assessment tax returns are submitted.
You can also choose to pay your liability more quickly than this, if you are able to. Interest will be charged from 1 October 2020 so it will be best for you to pay as quickly as you can.
If you earned more than £50,000 in the tax year 2017 to 2018 or have other sources of wealth, but cannot afford to pay in full, then you will still be able to agree a payment plan but HMRC may need more information from you. The payment plan would be for the length of time needed based on your individual circumstances. There is still no maximum length to these payment arrangements
HMRC will not ask you to pay more than 50% of your disposable income in your payment plan. The amount you pay into a plan will be based on your individual circumstances.
If you are unable to pay in full and need a payment plan, phone the loan charge helpline on 03000 599110.
Find out about setting up a payment plan to pay in instalments