We have discussed the so-called loan charge several times in this bulletin. Essentially the charge treats certain employment related loans from third parties (such as employee benefit trusts) which are outstanding on 5 April 2019 as employment income.
The charge has been highly controversial because it applies to all such outstanding loans, whenever they were taken out (subject to a cut-off at 5 April 1999), and therefore seems to have retrospective effect.
I say 'seems' because ministers and HMRC are at pains to say that there is no retrospection. In their view, all the charge does is collect a liability which actually arose at the time that the loan was originally made. Many people who will be subject to the charge fundamentally disagree – particularly in cases where HMRC has not previously challenged the arrangements.
Campaigners who were lobbying for the loan charge to be overturned had hoped that the Government would give into pressure. This has not happened, but a modest concession was agreed. A late amendment to the Finance Bill will require HMRC to report on the loan charge by 30 March 2019 – just before it is due to come into effect.
The wording of the amendment is opaque but essentially it is asking HMRC to justify the 20-year time limit for the loan charge (ie from 1999), which is the normal limit for deliberate evasion of tax given that the extended time limit for reporting non-fraudulent offshore tax irregularities has only been extended to 12 years.
While we will have to wait and see what HMRC comes up with, it would be a major surprise if the loan charge itself was scrapped. Many people have settled their tax affairs in anticipation of the charge being introduced and it is likely that those who did not use remuneration arrangements involving loans might well complain that people who used these arrangements were being let off paying tax which they should have paid years ago.
Time is in any case running out. By 30 March (the last date for the HMRC report) many companies will already have set up their payroll runs to account for the PAYE on the loan charge, which has to be paid by 19 April. Individuals and employers caught by the loan charge have no option but to continue to assume that the charge will be payable.