The Committee’s findings included: HMRC has made progress in improving the way it manages the loan charge, but there are far too many shortcomings in the way its response to the Morse Review is being implemented; in its actions, HMRC should follow the spirit, as well as the letter, of its Charter and the recommendations of the Morse Review; and HMRC appears finally to recognise that lower-income taxpayers got caught up in disguised remuneration schemes without being aware of the risks, but HMRC must do more to take account of their specific circumstances.
Victoria Todd, Head of LITRG, said:
“We welcome the Committee’s findings. HMRC must do more to take account of lower-income taxpayers caught up in the loan charge, such as those put into such payment schemes by the ‘umbrella’ companies they were working through, without their full knowledge or understanding. It is likely there are some individuals who still do not recognise themselves as being affected by the loan charge, let alone be able to fulfil their tax filing and payment obligations.”
The date of 30 September 2020 was the deadline by which those affected by the loan charge had to either agree a settlement with HMRC or report the loan charge on their tax return and pay the tax due (or arrange a payment plan). HMRC recently issued figures that show only 6,300 taxpayers submitted 2018/19 tax returns containing the loan charge. LITRG understands that 12,000 people who were expected to file 2018/19 tax returns have not done so and that a further number of people did file tax returns, as requested by HMRC, but without the loan charge.3
There are a variety of reasons why people have not met their obligations, and it is incumbent on HMRC to fully understand these and tailor their response accordingly, says LITRG.
LITRG understands that HMRC will look closely at 2018/19 returns, to check compliance with the loan charge where they think there has been non-compliance or partial compliance. LITRG suggests this will probably be via the issuance of formal enquiry4 letters.
Victoria Todd said:
“Low-income workers who have filed a 2018/19 loan charge tax return,5 without including the loan charge, now face the prospect of having to deal with an enquiry. A formal HMRC enquiry is not something most taxpayers should deal with alone, without professional advice and assistance, as the subject matter is often complex. But such taxpayers are the ones least able to afford this help and although HMRC have an extra support service that can provide support assistance, this does not provide the independent advice needed in these cases.6
“HMRC should refrain from issuing formal enquires while there are so many outstanding issues, including those highlighted by the Committee, with the loan charge. Instead, HMRC should undertake some analysis as to why so many people appear to have overlooked the loan charge on their tax returns.
“HMRC should write, informally, to people who missed the loan charge off their 2018/19 tax return, setting out the specific information that they hold about their use of loan schemes. This could help act as a trigger or prompt for taxpayers to investigate and take the first step to bring their tax affairs up to date. Combined with information about what help is available to support people, both within HMRC and externally, this approach would help address the concerns from the Lords Committee and would dovetail with their specific recommendation that HMRC should extend the time available for taxpayers to elect to spread the loan charge.”7
3. Per HMRC’s loan charge implementation review (Independent Loan Charge review: HMRC report on implementation (https://www.gov.uk/
1.15 We have so far been able to match data for over 54,000 of the taxpayers we wrote to in January 2020. The taxpayers we wrote to included individuals who did not need to file a 2018 to 2019 tax return because they were removed from the scope of the Loan Charge by the changes following the Review, and taxpayers who subsequently concluded settlement before 30 September 2020. Our data matching shows
- more than 42,000 filed their 2018 to 2019 income tax self-assessment return by 30 September 2020 or called HMRC and told us they did not need to file a 2018 to 2019 tax return
- around 12,000 did not file their 2018 to 2019 income tax self-assessment by 30 September 2020
4. An enquiry is the process by which HMRC check in detail that the information on a tax return is correct and complete. You can find our guidance on dealing with enquiries here:
5. HMRC sent out ‘notices to file’ 2018/19 tax returns to people who they believed may have to report and pay the loan charge.
6. Although TaxAid can assist with certain loan charge issues, it is unable to help with enquiries: https://taxaid.org.uk/guides/
7. The view being that given all the complexities, the 31 December 2020 was not adequate.
8. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.