HMRC use information received under the Common Reporting Standard to identify those ignoring the Loan Charge

HMRC are writing to taxpayers that have outstanding loans from their EBTs, EFRBs and other offshore structures.  HMRC use information received under the Common Reporting Standard to identify those ignoring the Loan Charge.  The origins of some of these arrangements go back to the 1990’s and have been “forgotten” – that is until now.

Surely HMRC know about all loans?

Yes, and no.

Yes, in as much that HMRC continues to receive high volumes of data from around the world under the Common Reporting Standard on all “financial accounts” which include such loans.

No, in as much that these transactions may not have been correctly identified as a loan in the first place.

Added to which, there are other reasons why these loans have been overlooked:

  • There has been a lot of consolidation in trust companies in recent years.
  • Accounting systems change over time and data may get lost in the process.
But if the loans cannot be identified, what happens next?

HMRC has the power of its CONNECT software that it uses to cross reference all the data it has received.  CONNECT doesn’t forget.  CONNECT has been used on HMRC’s own files going back in time and is able to identify what may be called unfinished business.  In other words, HMRC has the start of the trail that leads up to the  loan but then the trail has gone cold.  That is until now.

Passing on the problem

Whilst this is old news, nevertheless HMRC is on the start of a trail identifying a loan.  Maybe the loan is unsecured.  Maybe everyone assumes the loan was written off.  Maybe the scheme promoter never called these transactions loans (even though everything points to them being loans).  Maybe the scheme promoter stated that these transactions do not fall under DOTAS.  Maybe nobody has ever chased the payment of any interest.  Maybe nobody has ever chased the repayment of these loans.

Lots of maybes.  That doesn’t mean that HMRC will just walk on by.

If a loan does get written off, there may be both a reporting requirement and a tax liability at the date of the loan was written off.

So what should be done about these outstanding loans?

Don’t ignore them, seek advice.

Many of these very old tax avoidance schemes were sold by the original scheme provider on the premise that they were tax free and the loan would never need to be repaid (nudge, nudge, wink wink).

If the Trustees have changed and the scheme provider is long since gone, perhaps that is why these outstanding loans have been overlooked or forgotten about.

Some of these loans have been sold on to debt collection companies at a discounted price whose sole purpose is to collect the outstanding loan.

What should you do?

It is vital that taxpayers understand what has happened to such loans.  Almost certainly HMRC will use this information received under the Common Reporting Standard as a trigger for one of their “nudge letters”.

Be prepared.  Get it sorted.  Give me a call.

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