In the 2016 Budget, the government announced changes would be made to clamp down on disguised remuneration schemes to ensure that individuals pay their fair share of Income Tax and National Insurance contributions.
As part of their strategy, HMRC is introducing a new charge that will come into effect on 5th April 2019 on outstanding disguised remuneration loans made since 6th April 1999, to tackle the use of schemes to date.
Disguised remuneration schemes have been attractive to contractors as they promise a higher take-home pay and minimal tax. The way the schemes work is that a loan is taken which is unlikely to be repaid.
However, in the eyes of HMRC, this is tax avoidance.
You may have heard about new schemes promising to ‘beat’ the Loan Charge, but here is why you should take precaution.
Schemes claiming to avoid the Loan Charge
Since the announcement of the Loan Charge, there have been promoters claiming to have invented schemes where contractors are able to get out of paying back the loan thus avoiding the Loan Charge, in return for a fee.
Some promoters are suggesting that individuals should enter into a bet with a trust and then use the winnings to repay the loan. This method is flawed because the loan repayment is connected to a new tax avoidance arrangement.
Others offering the opportunity to flip loans that were originally deemed not genuine by HMRC, into genuine loans, does not solve the issue either.
Why you should avoid these schemes
We are of the opinion that arrangements like this do not work and in reality, these schemes will not stop HMRC investigating the legacy loan to see if it was genuine or disguised remuneration.
You can be sure HMRC will investigate any attempts to avoid the new Loan Charge and it would appear that the only winner in these types of scenarios is the promoter offering the alleged solution.
Will the Loan Charge affect me?
If you have used a disguised remuneration scheme in the past, which involved the receipt of loans since 6th April 1999; then yes, the Loan Charge will affect you. This charge will arise on 5th April 2019 i.e. the 18/19 tax year and you will be required to pay amounts due in respect of these loans.
The only way to move forward is to make a genuine repayment of the loan balance or settle the tax liability with HMRC.
Although it is tempting to bury your head in the sand and hope you avoid the fine, the best thing you can do is to start communicating with HMRC. Approaching them with a willingness to work things out may mean that:
- HMRC will agree to a more favourable repayment plan
- You do not have to pay the 2019 Loan Charge
- The amounts payable to HMRC will be lower
- You will not face any extra costs if the scheme moves to litigation
Unfortunately, the amounts due to HMRC in respect of these loans are non-negotiable but coming to a settlement will mitigate any possible penalties as well as minimise any potential interest charge.
We urge you to contact HMRC to settle your tax affairs before the new Loan Charge comes into play, to keep your costs and consequences to a minimum.
If you have used any kind of disguised remuneration scheme in the past, contact Associate Services today on 0333 123 9995 or at firstname.lastname@example.org; to ensure your tax affairs are in order with current legislation and governmental requirements.