HMRC’s 'pause' on compliance activity now appears to have ceased. One of the consequence of this is that a number of my clients have received letters offering settlement terms in respect of EBT’s and EFRBS. Discussions had previously been paused until the consequences of the Morse review and subsequent legislation and guidance for those clients was clarified. Unfortunately, it appears that HMRC now seem fixed on a 30th September deadline for settlement of these issues.
Personally, I thought that deadline was tight before the pandemic given the number of cases which needed to be resolved and the complexity of some of the issues. Now I think it’s absolutely unrealistic.
The 30 September deadline is contained in Finance Bill 2020. Clause 17 requires that Self Assessment returns which were not filed at the normal filing date are submitted before 30 September 2020 and that the return is ‘complete and accurate’ in order to prevent interest arising on 2018/19 liabilities and the following year’s payment on account. The clear implication is that, for individuals, any uncertainties in respect of disguised remuneration loans will need to be addressed before 30 September in order that a complete and accurate return can be made. Assuming these particular provisions are passed without amendment, clients are therefore going to be under considerable pressure to determine whether or not the April 2019 loan charge applies and/or settle any liabilities in respect of disguised remuneration loans. The guidance for employers on reporting the loan charge, which was published on 1 May (lhttps://www.gov.uk/guidance/report-and-account-for-your-disguised-remuneration-loan-charge#employers) also makes clear that the intention is for settlement to be agreed by 30 September.
The guidance published on 6 March 2020 (https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance#employer-wait), which is the most detailed available in respect of the interaction between Finance Bill 2020 and the settlement process, provides some very high level information for those who are in the process of settlement discussions. This guidance does not address a number of key questions and leaves taxpayers facing continuing uncertainty. I would hope that further, more detailed guidance, will be available soon. However, even if such guidance is published now, I am concerned that advisers and their clients are going to be left in a pretty unsatisfactory position if some flexibility around the 30 September deadline is not introduced.
The risk facing advisers and their clients is that some really tricky points will need to be dealt with at break-neck speed in order to meet an unnecessarily tight deadline.
The picture which I fear is evolving is that clients facing uncertainty around the application of the disguised remuneration provisions will be come under pressure to settle on November 2017 terms before 30 September but subsequently realise that they should not have done so. It seems likely that settlement terms will also be available after 30 September but, on past form, efforts will be made to ensure that those terms contain some ‘downside’ when compared to the November 2017 terms. With all of that in mind, it would certainly assist everyone involved if HMRC could provide some more clarity about the position they will take in the event that clients are willing but unable to settle before 30 September.
Although the guidance indicates that 30 September is a ‘hard’ deadline, it does not appear to me that the Clause 17 itself prevents settlement discussions continuing beyond that date where necessary. The practical consequence of failing to meet the conditions of Clause 17 will be that relief from interest will not be available. Perhaps that is a price worth paying to ensure that the issues are properly explored before a settlement agreement is reached and, in any event, the impact could be mitigated by making an appropriate payment on account.
Given the position taken in the guidance, it is important that clients who will be affected by these issues are proactive in assessing the risks and making contact with HMRC to discuss their specific circumstances. Given the impact of Covid-19, that is clearly going to be extremely challenging for some businesses and individuals. Extraordinarily, HMRC’s guidance indicates that affected employers and individuals should contact HMRC if they have not heard from them by 31 August. Anyone working to those timescales (other than those with really straight-forward circumstances) will be putting themselves under massive pressure to conclude a settlement before 30 September.
