The Low Incomes Tax Reform Group (LITRG) is concerned to learn of several issues, including some originating from HMRC, that meant people who were trying to agree loan charge settlements were unable to meet the recent deadline. It has led the tax campaign group to urge HMRC to use their powers to help people who tried to agree settlements but fell at the final hurdle.
People affected by the contentious loan charge had to either agree a settlement with HMRC or report the loan charge on their tax return by 30 September 2020. Those reporting the loan charge also had to pay any tax due or arrange a payment plan by that date.
Issues leading up to the deadline, which meant some people were unable to meet it, included delays by HMRC in sending out settlement offers which left some people very little time to agree them or seek advice, unexpected final figures from HMRC and misunderstandings about the administrative formalities required in agreeing a settlement. Some of the people involved have been affected by issues relating to their paid adviser.1
Victoria Todd, Head of LITRG, said:
“HMRC are using their discretion to extend the 30 September settlement deadline if someone was unable to reach a settlement agreement due to exceptional reasons beyond their control,2 but we believe HMRC’s approach to what constitutes such exceptional reasons is too narrow.
“We are concerned that, because the cut-off date for everything was 30 September, those who failed to agree a settlement with HMRC will most likely have also missed the deadline for reporting and paying the loan charge. Not only do they face paying more under the loan charge, but they now face penalties and interest for late filing and payment on top.
“Unless HMRC use their powers3 to accept elections after the 30 September, the people affected will also be unable to make an election to spread the loan charge over three years. This is the worst of all worlds. The impact of a small stumbling block or an issue outside of someone’s control, right at the end of a lengthy and difficult process, could lead to a totally disproportionate impact on them.”
Victoria Todd added:
“We urge HMRC to take a sensible and pragmatic approach where someone has tried to engage with HMRC, either directly or via a paid adviser, but were unable to meet the deadline.
“For many people, this will mean HMRC taking a wide view of what constitutes exceptional reasons and allowing those settlements that were in progress to now be finalised. For others, it may mean allowing people to make a spread election, file a late 2018/19 tax return containing the loan charge and make a payment arrangement without consequence.
“There may be cases where people have not engaged with HMRC and those people have lost the opportunity to settle or may be subject to penalties and interest for failing to declare the loan charge. But where someone has tried to engage and comply with their obligations, they should not be penalised by HMRC.
“HMRC have a responsibility to the taxpayers involved and to taxpayers more widely, to use their powers appropriately, fairly and consistently.”
Notes for editors
1. An adviser who was assisting people with loan charge issues, is widely reported as having 'vanished' just before the deadline – leaving his clients unable to meet the deadline. The adviser was not, to the best of our knowledge, a member of a professional body, which means the avenues to recourse are limited. As set out in our response to the recent call for evidence on 'Raising standards in the tax advice market', we understand the large majority of behavioural issues are from agents who are not members of professional bodies, which is why we broadly favoured Option E (maximising the regulatory role of professional bodies). More here.
4. The loan charge is a tax charge on all outstanding disguised remuneration loans (arrangements that paid loans instead of ordinary income to avoid income tax and National Insurance contributions), made on or after 9 December 2010, and outstanding on 5 April 2019. There is an exception to this for loans made on or after 9 December 2010 and before 6 April 2016, if the avoidance scheme use was disclosed to HMRC and, as at 5 April 2019, HMRC had not taken action to protect their assessing position – for example, by opening an enquiry or issuing a tax assessment. Additionally, the loan charge does not apply to those who agree a settlement with HMRC by 30 September 2020.
5. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk / Out of hours contact: George Crozier, 07740 477 374More Articles by Chartered Institute of Taxation (CIOT) ...