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Employers: can you reclaim a loan charge payment?

Employers: can you reclaim a loan charge payment?

HMRC will refund certain voluntary payments made on or after 16 March 2016 concerning loans made in unprotected years.

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Peter Honeywell

Director, Head of Tax Governance for National Markets

KPMG in the UK

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Following Sir Amyas Morse’s review, the loan charge will not apply to loans advanced between 1999 and 2010 and some loans made between December 2010 and April 2016. Employers and other relevant parties can potentially claim a refund of any voluntary payments already made.

What has happened?

The loan charge introduced by the Finance (No 2) Act 2017 attracted widespread criticism because it enabled HMRC to tax employment related third party loans made since April 1999 that remained outstanding as of 5 April 2019 irrespective of whether relevant time limits had expired.

Criticism from Boris Johnson, among others, led to the appointment of Sir Amyas Morse in September 2019 to carry out an independent review of the loan charge. The recommendations from this review were published in December 2019 have prompted HMRC to reconsider the charge. While it has not been abolished altogether, its scope has significantly reduced.

What does this mean?

Finance Act 2020 introduced the Disguised Remuneration Repayment Scheme, which enables taxpayers with loans advanced between 6 April 1999 and 8 December 2010 to reclaim the tax paid voluntarily as part of settlements with HMRC. This entitlement is extended to those who received loans between 9 December 2010 and 6 April 2016 where reasonable disclosure was made in relevant tax returns.

This scheme will run until 30 September 2021.

Broadly the scheme starts with HMRC sending an application form to those parties that it decides are eligible for a repayment/waiver. This should be issued by 30 September 2020. Following on from the submitted application form, HMRC will generate an initial tax repayment calculation and issue a repayment decision. The party receiving the repayment decision then either accepts HMRC’s calculations of the tax refund or requests a review on the basis that the calculation is incorrect, in which case proposed corrections and supporting grounds should be included with the response to HMRC. Given the interaction of different taxes, the calculations could be complex.

How can KPMG help?

Given the recently enacted changes to the Loan Charge rules, it is important to review the impact on any historic settlements to check the opportunity for employers and other relevant parties to claim a refund of any voluntary payments.

KPMG can support with any potential refund claim under the new Disguised Remuneration Repayment Scheme, especially checking any HMRC calculations which may be complex given the interaction of different taxes and assisting with requests for reviews where required.

However, where HMRC have any open enquiries for earlier years, taxpayers may still need to consider settlement of all historic or future liabilities. It is therefore, important to understand, explore and take advice on any outstanding disguised remuneration loan arrangements still in place

KPMG has extensive experience of assisting employers, end users and individuals understand the tax planning arrangements entered into and the options available to them, including negotiating and agreeing settlements with HMRC. 

If you have any queries, please get in touch with your normal contact or e-mail or employersclub@kpmg.co.uk.

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