The Low Income Tax Reform Group (LITRG) has welcomed the decision to extend the late loan charge spreading elections up to 31st December 2020. The original deadline was 30th September 2020, but was missed by a number of people.
A Statement of Practice has been published by HMRC that outlines how they will accept late elections by taxpayers to spread any outstanding loan charges over three tax years.
To ensure that taxpayers, who wish to make an election can do so, HMRC have stated that they will automatically accept any elections made, up to 31st December 2020. Any elections made after this date will not be accepted unless there are exceptional circumstances for failing to make an election within the time frame.
The LITRG are expressing concerns over penalties incurred for missing the extended 30th September 2020 deadline. The charges are made as if the original deadline, 31st January 2020 was missed, meaning taxpayers are nine months late with their payment. For example, someone who needs to declare £1,000 loan income on their 2018/19 tax return will have a tax liability of £200 (if they are a basic rate taxpayer). However, their interests and penalties could be around £425, which is more than double the original amount for the loan charge.
Due to the disproportionate impact from late fillings, interest and penalties, people may be put off taking the final steps, regardless of the extended late loan charge spreading election. There have been calls for HMRC to automatically accept a reasonable excuse to the late filings and penalties for tax returns submitted by the extended date, 31st December 2020. This will hopefully encourage people to meet their loan charge obligations.