HMRC are issuing Loan Charge discovery letters to a number of taxpayers still directly affected by the Loan Charge and who received remuneration by way of loans. If you or your clients receive one of these letters, read on to find out more and how you should deal with them.
Who is caught?
HMRC estimates that there are over 50,000 taxpayers still directly affected by the Loan Charge, based on actual cases identified. I would suggest far, far more.
Those caught are those taxpayers who received all or part of their remuneration by way “loans”. Specifically, these loans were received on or after 6 April 2016 and they were not repaid by 5 April 2019. As a result, these taxpayers were required to declare the Loan Charge on their 2018/19 tax return. HMRC gave taxpayers an extended period to do this until 30 September 2020.
Were the loans repaid?
Some taxpayers “repaid” their loans by using another tax scheme and are finding to their cost that this second tax avoidance scheme didn’t work either. HMRC have issued a plethora of Notices under Schedule 36 FA 2008 have sought to tackle this separate point.
Demands for tax and NIC have been issued
Where no tax return was submitted for 2018/19, HMRC has issued Determinations to those companies employing these taxpayers under Regulation 80 for tax and Section 8 Decisions for NIC.
Discovery Assessments are on the way
Where the 2018/19 tax return was submitted, but it did not include the Loan Charge, or HMRC believe that an inadequate amount of loan charge was included, HMRC is now raising discovery assessments under s 29(1) TMA 1970.
HMRC use the discovery route where the normal enquiry window for a tax return has closed, which it has done for the 2018/19 tax returns, even for those submitted up to the extended deadline of 30 September 2020.
Can HMRC do his?
Yes.
Discovery powers allow HMRC to open a tax return for enquiry for up to four years after the submission deadline, or six years if the tax loss is due to careless behaviour by or on behalf of the taxpayer, or 20 years where there is a deliberate error.
What should taxpayers do now?
What taxpayers should never do is ignore HMRC.
The discovery assessment may not be accurate or valid, in which case it should be appealed alongside a request to postpone all the tax due.
But until a Settlement is reached with HMRC, these taxpayers will continue to be pursued by HMRC.
Contact me to explore all your options regarding reaching a Settlement with HMRC.