In 2018/19 the law was introduced to tax any unrepaid loans from DR/LC structures as income. Taxpayers could elect to spread out the ‘income’ over three years, starting with that year. The affected taxpayers were allowed an extension in the time limit for submission of these returns from 31 January 2020 to 30 September 2020.
Many taxpayers have submitted their return and either paid the tax or agreed time to pay. Those who have submitted, but not entered into payment arrangements should contact HMRC as soon as possible. Where there are open enquiries covering affected years, provisions are in place to prevent double taxation.
Taxpayers who have made returns which HMRC considers incorrect will face further enquiries and possible penalties.
Those who have not filed can expect to be contacted by HMRC, who will still be willing to accept reasons for delay such as illness, but it would be best to open communications before they take further action in such circumstances.
Unfortunately, if people appeal to tribunals and the courts regarding their treatment, this may lead to considerable delay and legal costs, as well as the continuing tension caused by uncertainty.
This is undoubtedly a very stressful time for those involved in this situation. They should bear in mind the following:
- those with income of less than £50,000 in 2017/18 can agree time to pay without having to provide detailed information to HMRC;
- if they have disposable assets and income of less than £50,000 they can spread payments over five years;
- if they have disposable assets and income of less than £30,000 they can spread payments over seven years;
- if longer periods are needed these will have to be negotiated with HMRC;
- HMRC state that they will not enforce the sale of a main home;
- HMRC state that bankruptcy would be a last resort to be used on those who could pay, but refuse to do so; and
- pension lump sums would be considered as income for these purposes, but sums remaining inside pension funds would not.
The key point is to keep communicating with HMRC. Silence is the reaction most likely to cause long term problems. As many affected taxpayers run small businesses, they are likely to have been heavily damaged by Covid-19 lockdowns. They need to negotiate with HMRC, as this tax bill will not go away.