Q&A: loan charge reporting for EFRBS

Croner Taxwise tax adviser Amaira Bada unpicks the tax and reporting liabilities for a client reporting under the loan charge requirements for an employer financed retirement benefit scheme (EFRBS)

Q: My client has arranged for their company to process the loan charge in relation to all of their outstanding loans from an employer financed retirement benefit scheme (EFRBS), as well as paid the company the tax and employee national insurance contributions(to avoid the benefit in kind. Does this mean everything is resolved now concerning the tax and reporting liabilities for the EFRBS?

A: The client still has a number of obligations remaining. These are outlined below, alongside the potential penalties.

1.      Reporting outstanding disguised remuneration loans to HMRC

Details of all the outstanding loans must be reported to HMRC before 1 October 2019 using its online service. This applies irrespective of how the loan charge has/has not been processed.

You can access the form via the guidance

Failure to report to HMRC by this deadline will result in the following penalties:

  • an initial penalty of £300
  • further daily penalties of up to £60 a day for as long as the information remains outstanding, up to a maximum of 90 days
  • a penalty not exceeding £3,000 for each inaccuracy deliberately or carelessly included within the information provided, or discovered after the information has been submitted and you do not tell HMRC

2.      Including details of outstanding disguised remuneration loans within self-assessment tax returns (SATR)

The client also needs to include the details within their 2018/2019 SATR. This is subject to the usual deadline of 31 October 2019 for paper returns, or 31 January 2020 for electronic returns.

As the company has processed the loans through payroll, the client will receive details of this within their P60, which should be included in the employment pages. A new box has been added in the 2019 employment pages (SA102) which must be completed.

For other scenarios, please see the guidance

If your client is not within self-assessment, they will need to register to do so by 5 October.

The penalties for not registering or not including the information will follow the normal penalty regime for SATRs. These include the penalties for:

3.      Ongoing enquiries & tax compliance

The loan charge is a current year charge for 2018/2019. This does not close or settle any outstanding enquiries or assessments raised for the original EFRBS planning.

As such, HMRC is still allowed to pursue any tax, penalties or interest that it feels is due, as part of its open enquiries. There is a double tax provision written into Part 7A of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), but this deals with the substantive tax. Other liabilities can still be pursued.

We do not currently know HMRC’s position on how they will be tackling these ongoing enquiries.

If the client undertakes any steps to get the loans written off, or the underlying structure closed, this could result in further tax being due. Again, the double tax provision for the income tax will apply if a relevant step is undertaken but the application will depend on the precise steps taken.

HMRC will also pursue inheritance tax charges if loans are released, distributions are made, the trust reaches a 10-year anniversary or the trust closes down.

This is a complex area with many variations, and while we can help with general advice via the Croner-i tax advice line on 0844 892 2470, we strongly recommend bespoke tax advice is sought before any steps are taken.

About the author

Amaira Bada is a tax adviser at Croner Taxwise, tel: 0844 892 2470. This article first appeared in Croner Taxwise Community


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