The changes will be a relief for many clients who were caught by the disguised remuneration rules and did not have the means to pay the loan charge. Following the changes, HMRC estimate that 11,000 individuals will now not be subject to the loan charge and a further 21,000 will now have a lower tax liability.
The effective start date for the loan charge has been amended from 6 April 1999 to 9 December 2010 and the loan charge will now apply on the outstanding balance of loans for the period 9 December 2010 to 5 April 2019.
The loan charge can be split equally over three tax years 2018/19, 2019/20 and 2020/21 by making an election, thereby reducing the hardship of having to pay the tax in one particular tax year.
The loan charge will not apply to tax years prior to 2016/17 provided there was a reasonable disclosure of the use of a disguised remuneration tax avoidance scheme.
No late payment interest will be charged for the period 1 February 2020 to 30 September 2020 where the 2018/19 tax return is filed and any tax paid by 30 September 2020.
What should you do?
Some individuals will have already settled any loan charge with HMRC and there will be voluntary restitution for them to ensure that they are not disadvantaged by settling earlier. They will need to make this claim before 1 October 2021.
If clients are within the loan charge they should review their tax return filing position and any voluntary payments made to date and seek to take advantage of the concessions now being provided by HMRC.
Read more on the Budget here.