Earlier this summer, The Times reported that almost 21,000 contractors had told HMRC that they’d allowed their finances to be managed by ‘offshore-based, disguised remuneration schemes’. Trusts and third parties collected wages on their behalf before paying them in ‘non-repayable loans’, which concealed things like National Insurance contributions (NICs) and Income Tax liabilities.
The self-employed workers who have so far admitted taking part in such schemes are believed to owe an average of £50,000 each in unpaid or underpaid taxes. This amounts to a collective repayment of around £1 billion.
Serious stuff then, but what exactly are disguised remuneration (D.R.) schemes?
Well, HMRC classifies D.R. schemes as ‘tax avoidance arrangements’, which ‘seek to avoid Income Tax and NICs by paying scheme users their income in the form of loans, instead of ordinary remuneration’. The loans are also provided on terms which mean they’re highly unlikely to ever get repaid.
The 2019 Loan Charge is effectively a levy on D.R. loans. It applies to all loans made after April 6th 1999, so long as they’re still outstanding on April 5th next year. Those affected will face retrospective action and will be obliged to pay back the tax and NICs they’ve incurred.
Now, under existing UK law, the charge won’t arise on unresolved loans if the individual has agreed a settlement with HMRC before next spring’s deadline. However, all the information required to settle must be registered with HMRC by the end of this month – September 30th 2018 – which, as eagle-eyed readers will recognise, is THIS SUNDAY.
Whilst there are campaigns ongoing to stop the implementation of the loan charge, including an online petition, movement on the legislation is unlikely to occur any time soon.
Settling For Less
So, just this once, it might be a good idea to ‘settle for less’; a sentiment which Julia Kermode, Chief Executive of the FCSA, concurs with. In an article on the Contractor UK website, she wrote: “We’re of the belief that the only way to safeguard against the loan charge is to settle with HMRC (or ‘repay the loan’ according to the Revenue, although that seems to have practical issues if the lender has disappeared).”
Ms Kermode also urged the Government to do more to make people aware of the loan charge, particularly in regards to this week’s impending deadline.
“There’s bound to be a large number of people who will be affected by the loan charge who, as yet, are completely unaware, and may miss the opportunity to register an interest in settling with HMRC. Contractors are therefore at risk of a very significant tax bill unless they take steps to register to signal settling with HMRC by September 30th,” she warned.
For those of you reading this after the September 30th deadline, don’t panic. You’ll still be able to contact HMRC to settle, but there’ll be no guarantees that it will get done in time for next April.
Word of Warning … If you’re still using a disguised remuneration scheme, you should seek independent, professional advice as to whether HMRC would consider your arrangement as ‘tax avoidance’.
So, if you’re a contractor with an outstanding loan, benefit or other, similar arrangement, which you intend to settle (thereby minimising what could become a larger, more substantial tax bill), you’ll need to have sent HMRC all the required info by the end of this week (Sunday 30th September 2018).