Government rejects all calls to abandon the DR Loan Charge

Government rejects all calls to abandon the DR Loan Charge

Wed 27 Mar 2019

The Treasury has finally published its response as required by the Section 95 Finance Act 2019 (FA2019). Section 95 FA 2019 was an amendment to FA 2019 which required the Chancellor to review the Disguised Remuneration Loan Charge (“Loan Charge”).

In its report, the Treasury has sought to justify why the Loan Charge is an appropriate response to tax avoidance, in particular;

  • It refers to Disguised Remuneration as the “most contrived avoidance within the tax system” as when someone normally receives a loan, the expectation it will be repaid but which is not the case where Disguised Remuneration Loans are provided in place of ordinary remuneration with no expectation of that they will be ever repaid.
  • The loan arrangement is unfair to more than 99.8% of the individual taxpayers who are not involved in this sort of activity (HMRC estimated 50,000 taxpayers to have used DR arrangements). The Treasury believes it is right to end this form of tax avoidance for good.
  •  In the last 20 years, HMRC has opened tens of thousands of investigations into Disguised Remuneration arrangements. Arrangements have evolved and proliferate despite HMRC and the Treasury’s attempt to tackle them (including by way of legislation).
  •  The legislation is not retrospective as it applies to DR loans that are outstanding as at 5 April 2019.   It does not change the tax position of any previous year, the tax treatment of any historic transaction, or the outcome of any open compliance checks.
  •  HMRC will not force anyone to sell their main home to pay their DR debts and it has offered time to pay arrangements for those taxpayers with income now below £50,000 or £30,000.
  •  HMRC has provided numerous opportunities to settle DR arrangements. Also confirmation that no-one will be disadvantaged from benefiting from the published settlement terms if they contact HMRC with a genuine intention to settle before 5 April 2019 and provide the relevant information, even if settlement cannot be reached until after that date.

The Treasury’s report concludes by stating;

“Overall the government’s view is that the charge on DR loans is the right approach to ensure fairness for the vast majority of UK taxpayers who pay the right amount of tax at the right time and draw a line under this form of tax avoidance. However, the government recognises the difficulties that some people are facing and is working to ensure that all cases are treated sympathetically, with payment terms that reflect the circumstances of each individual case, and appropriate support wherever needed.”

The response is not unexpected as it was unlikely that the Treasury would ever be willing to retract the Loan Charge legislation not least as it would require an amendment to primary legislation which would need to be ratified by Parliament. Also the Treasury would be faced with a massive outcry from those persons who had already settled potentially forcing it to cancel the settlements and repay the money back to these taxpayers at a time when it can ill afford to do so.

There is less than 10 days before the loan charge arises but it is still not too late to settle with HMRC under the Disguised Remuneration Settlement Opportunity. As mentioned in the report there are special circumstances in which a person can settle with HMRC and avoid the Loan Charge however, it is at HMRC discretion to give and it is therefore imperative that genuine  and constructive dialogue is entered into with HMRC as soon as is possible.

To achieve this it will be necessary to collate the relevant information for HMRC and frankly make it easy for HMRC to settle. We are very familiar with HMRC’s expectations and have very good working relationships with the HMRC settlement teams.

If you would like to discuss this matter further then please call us on 0207 063 4639 or 0161 238 9235 to speak to a member of our Tax Investigations team.