The Low Incomes Tax Reform Group (LITRG) is urging low paid workers affected by the 2019 loan charge to consider contacting HMRC about the option to settle – before they lose the chance.
This intervention by LITRG coincides with the release of a Q&A article by the group that provides urgently needed clarity around HMRC’s settlement process.
With time running out for workers to settle with HMRC before the loan charge applies on 5 April 2019, LITRG is concerned that low paid workers who received payments in the form of loans, while working for ‘umbrella’ companies, are being put off contacting HMRC to start the settlement process.
Those who want to try to understand their options need more than the very generic guidance or information about the settlement process that has been published by HMRC, says LITRG. LITRG is also concerned people may be reading content on social media that may discourage or stop them contacting HMRC.
To help deal with these problems, LITRG has released the latest in a series of articles designed to help low-paid workers affected by the loan charge understand what is happening and outline their options. This one looks specifically at the settlement process,1 in a bid to separate fact from fiction.
Head of the LITRG Team Victoria Todd said:
“The loan charge is causing a great deal of debate online and in Parliament. Naturally, strong feelings about the loan charge are voiced by some of those affected and we may well see some legal challenges against the loan charge in the future. Although a legal challenge to the loan charge will not stop HMRC from seeking to settle any avoidance disputes, this is likely to leave those affected confused as to what they should do next.
‘We would encourage all workers potentially affected to read our latest news piece and, if they are considering settling, to contact HMRC without delay. There are a number of options open to HMRC in coming to a settlement sum and in arranging repayment of any money due. However, any settlement contract will only be binding once signed by the person. They can walk away from discussions at any point before then, meaning they are not really disadvantaged by at least talking to HMRC.
‘Some people may be tempted to just face the loan charge in April, but we suggest that they do so only after careful research and with a full understanding of their other options. As the loan charge income will be classed as employment income for the 2018/19 tax year, this research not only needs to be about their tax position but also about their benefits position. Our understanding is that it should not impact tax credits and Universal Credit but it could trigger things like the high income child benefit charge and stop access to Tax-Free Childcare. It could also trigger higher rates of tax, student loan repayments or cause loss of the personal allowance.”
LITRG has become aware that some loan providers appear to be offering workers the chance to repay the loans to avoid the loan charge or to pay a ‘release fee’ to cancel the loan. This is adding another layer of confusion for those involved; either of these may have adverse tax consequences, warns LITRG.
Victoria Todd said:
“Repaying the loan means workers will need to find the funds to pay the full amount back, although we understand that there may then be some kind of redistribution made to the worker. We are also aware of people receiving offers to have the loan cancelled for a ‘release fee’, which could be a fixed amount plus a percentage of the loan.
"It is not clear to us that either of these options leave workers any better off. We would also urge workers to be extremely cautious about doing either of these things without fully understanding whether there are any further tax consequences and what it might mean with regards to the loan charge."
Notes for editors
1. The LITRG article can be found at https://www.litrg.org.uk/latest-news/news/181220-loan-charge-settlement-%E2%80%93-separating-fact-fiction
2. 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 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
Out of hours contact: George Crozier, 07740 477 374)