HMRC reveal loan charge settlements average £166k

0
266

HMRC has revealed loan charge settlements average of about £166k

The average loan charge settlement to date is £166,666, according to figures disclosed last week by HMRC at a meeting of the Commons Treasury Committee.

The figure has surprised commentators and affected taxpayers alike, given that HMRC claimed the “typical” settlement is expected to be £13,000, although they caveated that by saying that the average is “skewed by some very large settlements”, some of which may have come from employers with multiple claims, rather than individual taxpayers.

In the meeting with the Treasury Committee last Wednesday, Mary Aiston, director of HMRC’s counter-avoidance team, confirmed that, to date, HMRC had “settled about 6,000 cases, bringing in about £1 billion worth of tax” – an average settlement of circa £166k.

Aiston also announced a new policy: that taxpayers with incomes of less than £30,000 would now receive seven years to repay any settled loan charge debts, no questions asked.  HMRC had previously said only that taxpayers with incomes of less than £50,000 would be offered five years to repay.

Another development was the announcement that HMRC will not force taxpayers to sell their homes to pay disguised remuneration tax bills – a commitment clearly intended to quash fears of coming forward to engage with HMRC’s settlement opportunity, but a promise that has caused confusion as it has little basis in law.  Nevertheless, HMRC have said it is “confirmed policy” in a Commons Committee meeting.  Nicky Morgan, Conservative MP for Loughborough and Chair of the Treasury Committee, said: “You are putting that on the record here. There are lots of people watching this session for that reason”.

Ms Aiston further clarified the policy by saying that taxpayers who have equity in their homes may be required to remortgage in order to pay HMRC.

This announcement seems to have come to late for some however.  On Monday, @tax_gone_mad tweeted: “Bad day today.  Have had to put a deposit down on rented accommodation and for the first time in nearly thirty years, I won’t own my own home.  Thanks @MelJStride @PhilipHammondUK for your woeful handling of taxation!  @GillianKeegan I implore you to help #StoptheLoanCharge”.

There also seems to be some discrepancies with the figures provided to the Treasury Committee, compared with previous HMRC figures.  Last month, HMRC released a factsheet on the Loan Charge to the general public, which stated the average tax avoided by disguised remuneration scheme users was £20,000.  In November 2018, in a written reply to the House of Lords Finance Sub-Committee, Ruth Stanier, director general of HMRC’s customer strategy and tax design, stated that the average settlement amount for individuals had been £23,000.

Many affected taxpayers believe that the “expected” liability of £13,000 quoted to the Treasury Committee last week is suspiciously low, especially given that HMRC are still having trouble getting people to come forward for settlement.  The less people think they are going to have to pay, the more likely they will be to come forward, at which point they may find out they owe more than the “expected” amount.  That said, the settlement opportunity is the only way for affected taxpayers to split the liability over a more manageable period of time – anyone who does not settle will be liable for the entire amount in the 2019-20 tax year.

In a Twitter thread discussing the £13,000 figure, @nobigfish replied: “So Mary Aiston from @HMRCgovuk says the average bill [sic] those affected by #2019LoanCharge will be facing is £13k. Sounds like a lie mine is £120k how about everyone else?”.  They then performed their own calculations on 24 responses, which gave an average of £172,000, or £2,867 per month over 5 years (figure does not fully account for HMRC interest).  Our own analysis of the responses showed an average of £191,250 across 22 individuals.

@Tax_Hammer_2019 said: “there must be a lot of 1-pound-loans out there if that average was to be true”, and @kaznenzo said “£13,000? That’s approximately half the interest HMRC are charging me!”

The £13,000 figure does seem low, given that Ms Aiston told the Treasury Committee that only 6,000 cases have been settled out of approximately 50,000, netting £1 billion from the anticipated £3.2 billion.  If all of the remaining 44,000 settled for £13,000, that would only net £572 million, however HMRC estimate that £2.2 billion more is outstanding.

Of course, it’s very hard to confirm these figures without more clarity from HMRC, which they seem unwilling to provide.  The could easily provide a median and standard deviation figure for Loan Charge liabilities given the amount of data available to them, but they have chosen not to.  One has to ask themselves why.

5th February 2019.

Sources:

http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/tax-enquiries-and-resolution-of-tax-disputes/oral/96049.html

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/771149/Loan_Charge_Infographic.pdf

https://www.contractoruk.com/news/0013966loan_charge_contractors_win_seven_year_hmrc_payment_concession.html

https://twitter.com/nobigfish/status/1090715789710278664

https://twitter.com/nobigfish/status/1092483517362171904

https://www.parliament.uk/documents/lords-committees/economic-affairs-finance-bill/draft-finance-bill-2018/Letter%20from%20Ruth%20Stanier%20to%20the%20Chairman%20051118.PDF