If you’ve done some remuneration planning over the last ten years, then you’ll know all about the 2019 loan charge, if you don’t, then lucky you.
Having got fed up with intricate tax planning, HMRC decided to change the rules retrospectively, and a lot of ordinary people are in the firing line. Simply put, the remuneration that legally avoided tax must be declared on your 2019 tax return and the tax paid by 31 January 2020.
Many people, myself included, believe that this approach is unconstitutional and goes against natural law, the Magna Carta, and the Human Rights Act. There are challenges in progress, and we will see where we end up.
But that is really background, my message today is about the settlement offer that HMRC is making for those people who want to settle up and put it all behind them. If you’ve had enough of the constant letters and calls from HMRC you can reach a settlement with them.
But is it a good idea?
Let’s look at the differences between settling and paying under the standard rules.
The perks for settling are
- Instead of putting the whole loan charge into the 2019 tax year, you can allocate it against the years in which you had the remuneration.
- Any open enquiries in relation to the planning will be dropped.
- You will be given five years to pay off the tax due.
But you have to send HMRC the information by 30 September 2018 and reach an agreement before 5 April 2019.
When deciding what to do the main thing is, ‘do I take the settlement opportunity now and lose the chance to fight the legislation or see what happens in terms of those trying to overturn the legislation?’
So you need to know what you’re risking by not settling. Well for the clients we’ve looked at there’s not much in it. Because they were already higher rate taxpayers in the years they did the planning [which is why they did the planning] it makes not a lot of difference. Everyone will be different and we don’t have any contractors, so doing your own calculations is the best thing to do.
But our conclusions have been that settling doesn’t give a reduced total tax liability in higher-paid client cases. If you settle now, and the 2019 loan charge gets withdrawn, or the date it applies to is brought closer, you won’t get your money back. As a settlement with HMRC, it cannot be undone.
So hadn’t you might as well wait and see for now, rather than jumping in? If there’s no downside to waiting, what is there to lose?
There are the other perks, but is there really any value in them?
If you pay the standard loan charge then really HMRC would need to close the open enquiries as you can’t pay tax on the same income twice and we’re sure that a time to pay arrangement would be available when the alternative is bankrupting thousands of taxpayers.
Our clients are sophisticated business owners, and they understand risk and reward, and deal-making. If HMRC wants them to be persuaded to settle, they are going to need a more significant incentive.
I reckon that if HMRC came up with a deal that said that they would settle for something like 5%-10% of the income sheltered and it all goes away, there would be many who would bite their hand off and they’d recover far more and save everyone a lot of time.
The alternative of dragging everyone kicking and screaming to pay will cost a fortune and recover very little because the amounts are simply not affordable.
Come on HMRC let’s talk about a sensible deal.
