In this article Richard Coombs, Tax partner at Bates Weston looks at the HMRC Loan Charge Review and the arrangements for repayment of settlement amounts.
“Following HMRC’s recent amendments to the loan charge legislation in response to Sir Amyas Morse’s independent review, they have now published the details of how amounts already paid to HMRC or still due to be paid to HMRC, under certain settlement agreements, are to be repaid or cancelled. For most clients, this will only be relevant where the loans which were the subject of the settlement agreement were made prior to 10 December 2010 and where HMRC did not have an open enquiry (a so called “unprotected” year). Such settlements will have been made on a “voluntary restitution” basis, meaning that in the absence of the original loan charge legislation, HMRC had no power to assess the tax.
HMRC have now published the draft legislation that will be included in the 2020 Finance Bill, which confirms that any monies already paid under such a settlement will be repaid on submission of an application and approval of that application by HMRC. Likewise, any monies yet to be paid under such a settlement agreement will be cancelled.
This is pretty much as we expected, but we are also pleased to see that HMRC have acknowledged the concerns raised to them about the knock on effects of repaying the settlement sums. Specifically, many clients who settled with HMRC then agreed with their trustees to write the loans off. The write off of such loans was not taxable as a result of a tax credit associated with the HMRC settlement, and therefore there was a concern that if the settlement was cancelled then the credit would be removed meaning that the loan write off would become taxable. We are pleased to see that the draft legislation anticipates this and specifically retains the tax credit, even though the settlement monies are repaid or cancelled.
There is no action required at present. The draft legislation needs to pass through Parliament before becoming law and so it will be summer before Royal Assent is received. During that time, we expect HMRC to publish a simple application form for clients to use to apply for a refund. As soon as the legislation becomes law we will be writing to all of our own clients who may be due a refund to assist them in claiming it. If you think you might also be due a refund please do not hesitate to get in touch and we would be delighted to assist you.
