Loan charge - What to do if you receive a determination

What to do if you get a determination

⚠️Do not ignore the determination. If you take no action in response to the determination, you can expect HMRC to start proceedings to collect the tax debt that is now on your Self Assessment record, even if it is excessive. You can read more about what HMRC debt collection action might involve on the TaxAid website.

If you get a determination, you should take steps to file your tax return for 2018/19, including the loan charge, as soon as possible and in any event by the required date (more on this below). You should also pay the tax due or contact HMRC to set up a time to pay arrangement.

If you do this, then the determination will be replaced. The tax return late filing penalties will stop accruing (and you can then think about appealing them) and you may qualify for the residual tax concession. This concession means that HMRC will settle any underlying open enquiries or assessments and accept the tax you have paid by way of the loan charge as final. If you need help to file your tax return containing the loan charge, you can read about your options below.

If you pay the determination amount but do not file your tax return or file your tax return but do not include the loan charge, then HMRC will continue with their compliance activity, for example levying late filing penalties or proceeding with any enquiry work relating to loans. Paying the determination but not dealing with the underlying issue, is therefore not a complete solution. 

Why have I been sent a determination?

The 30 September 2020 was the deadline by which most people affected by the loan charge had to report the loan charge on their 2018/19 tax return and pay the tax due (or arrange a payment plan).

Due to the amount of time that has passed since September 2020, if you have still not filed your 2018/19 tax return, HMRC may now send you a ‘determination’ of the tax they think you owe.  This is in addition to them levying late filing/payment penalties and charging interest.

Although a determination is an estimate, it must be made ‘to the best … information and belief’ of the HMRC officer making it. Sometimes it will be an overestimate as HMRC may not be aware of your individual circumstances and the reliefs etc. available to you. However, the idea is to try and prompt you to deal with your outstanding obligations and bring your tax affairs up to date.

More about determinations

A determination is treated as a Self Assessment. By issuing a determination to you, HMRC create a charge on your record together with an enforceable tax debt. You cannot appeal against a determination but you can replace it by completing and filing an actual Self Assessment tax return for the tax year.

You need to file a tax return within the required time limit to replace the determination. The required time limit is usually:

• Three years from the ordinary filing date of the Self Assessment tax return, or

• If later, 12 months from the date of the determination.

This means that if HMRC issue you with a determination on 1 April 2022, you have until 31 March 2023 to file a tax return to replace it.

If you miss the time limit for submitting your tax return after receiving the determination, then the determination stands unless HMRC agree a claim for ‘special relief’ – this is explained in detail on the TaxAid website.

You can find more information about determinations in HMRC’s guidance.

Where to get help with filing a loan charge tax return

We know that there are a lot of people who have not yet filed their 2018/19 tax return containing the loan charge. There are lots of reasons why that might be the case.

If you have received a notice to file a 2018/19 tax return and/or other communications about that tax return, it could be because HMRC have data that suggests you received loan income and need to deal with the loan charge. As set out in an earlier article, you should seek to clarify the position as soon as possible and then seek help with the other steps required, as appropriate, as set out below.

If there is any other reason why you haven't filed your return and included the loan charge, a professional tax adviser will be able to help you. You can find one by using the Chartered Institute of Taxation’s Find a CTA tool or if you are on a low income, by getting in touch with the tax charity TaxAid.

Tax Aid can provide free advice and assistance with loan charge issues to individuals on incomes of around £20,000 a year or less. This can include:

• Talking to HMRC on your behalf
• Helping you to: ​
  • Work out whether there is an argument that your employer should remain liable for the PAYE that should have been accounted for

  • Quantify the amount of loan income that you received (even if this is on an estimated basis)

  • Complete the loan charge reporting form and advising on whether it is possible (or beneficial) to make a late election to spread the loan charge over three years (per another of the recommendations coming out of the Morse review).

  • Complete your 2018/19 tax return (and 2019/20 and 2020/21 tax returns if a spreading election is made and accepted)

  • Appeal any late filing and penalties if you had a reasonable excuse for not having met your obligations. Note HMRC have previously stated in their guidance that they will consider waiving late filing and payment penalties on a case-by-case basis for any 2018/19 tax returns filed after 30 September 2020. You can read our guidance on reasonable excuse here. It can include where you did not understand the system and needed help from, for example, TaxAid or from HMRC. In this case, you are usually expected to have taken reasonable steps to get help with your tax affairs. Of relevance will be how difficult your tax affairs are and why, in your particular circumstances, you have found them too difficult to deal with

  • Negotiate payment arrangements/deal with the tax debt arising from the loan charge, which can include a bespoke payment arrangement taking account of your individual health and financial circumstances.