HMRC must address barriers that are stopping people from meeting their loan charge obligations, the Low Incomes Tax Reform Group (LITRG) has warned.

The LITRG initially welcomed HMRC’s decision to allow late loan charge spreading elections, but said HMRC needs to address these barriers to “break the impasse”.

HMRC recently published a Statement of Practice that set out how it will use discretionary powers to accept late elections by taxpayers to spread their outstanding loan charge balance over three tax years. The original deadline for making a spreading election was 30 September 2020.

However, the LITRG highlighted that this deadline – which was also the revised loan charge tax return filing and payment deadline extended from 31 January 2020 – has been missed by “a number of people”.

To ensure that taxpayers who wish to make an election can do so, HMRC has now said that any late election made up to 31 December 2020 will be automatically accepted. Any elections made on or after 1 January 2021 will not be accepted, except in “limited circumstances”.

Head of LITRG, Victoria Todd, said the tax group welcomes the introduction of the easement.

“The alternative would have seen some people lose out on making an election that could have benefited them,” Todd commented. “But we are not convinced that this act alone will be enough to get people moving towards complying with the loan charge.”

Todd suggested the reasons for people missing the 30 September deadline are “varied and complex”, and added it is “commonly accepted” that some taxpayers were put into loan arrangements that were operated behind the scenes to save the engager money, without the taxpayer's full knowledge or understanding.

“It is not surprising that HMRC’s attempts to contact these people to tell them about the loan charge and what they need to do under it, including making a spreading election if appropriate, may have failed to elicit a response,” Todd said. “It is hard to see how this latest announcement will change this.

“While we welcome this announcement by HMRC, it does not address the fact that there are still some people out there who need to deal with the loan charge but who do not have enough insight or information to be able to fulfil their obligations.

“We urge HMRC to write to people who missed the 30 September deadline, setting out the specific information that HMRC hold about the ‘umbrella’ companies that they were in where loan arrangements are suspected. This could help act as a trigger or prompt for taxpayers to investigate and take the first step to bringing their tax affairs up to date.”

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