By bindingdigital on 29th May 2018

What is the 2019 loan charge and could it impact you?

HMRC are dogged in their efforts to recoup unpaid tax through schemes that they view as tax avoidance. The Finance Act (No.2) 2017, outlined how HMRC are actively investigating schemes that promoted so-called disguised remuneration and are also targeting the individuals who opted to use them.

If you have previously used such an arrangement, also known as a contractor loan scheme, beware that it could come back to haunt you.

The 2019 loan charge will impact anyone who, since 1999, may have entered into a loan agreement which is caught by the disguised remuneration rules.

Here is an overview of the schemes involved and what to do if you believe you have used one in the past to get paid.

What are disguised remuneration schemes?

Disguised remuneration schemes claim to get around paying Income Tax and National Insurance contributions. They usually involve a loan or other payment from a third party, which is unlikely to ever be repaid.

When they are targeted at and used by contractors, they are known as contractor loan schemes. In very simple terms, they claim to work by paying a very low salary with a high proportion of the income paid out as a loan (less a percentage taken as their fee).

While HMRC have already pulled the plug on many contractor loan schemes, more spring up overnight like weeds, luring contractors with attractive offers, such as taking home up to 90% of their income.

What is the 2019 loan charge?

The 2019 loan charge has been introduced by HMRC to recover unpaid taxes by people who have used a disguised remuneration scheme since 6th April 1999.

If you have used such a tax arrangement since that date, you will be required to pay back what HMRC deems you to owe by 31st January 2020.

“I have been involved with a loan scheme in the past – what should I do?”

If you have engaged with contractor loan schemes in the past and have not yet reconciled your tax affairs, you basically have 2 options:

1. Talk to HMRC
By contacting HMRC at the earliest opportunity, you can agree with them what you owe and in all likelihood, agree on a payment plan.
Approaching HMRC of your own accord with the intention to settle may also mean that you:

  • Won’t have to pay the 2019 loan charge
  • Will pay a lower rate of tax on your contractor loans – the loan charge will add them all together and tax them in one year
  • Avoid facing extra costs if the scheme moves to litigation

2. Wait and do nothing
This is not a sensible option. HMRC is casting its net ever wider to catch tax avoiders and claiming ignorance of a contractor loan scheme is not a defence in their eyes. It is far better to communicate with HMRC before they make formal contact with you. The longer you wait, the more likely you are to be hit with the 2019 loan charge.

Editor’s note 07/06/18:
The deadline to register to use the settlement opportunity was 31st May 2018, but HMRC has confirmed this has been extended, effectively until 30th September 2018. The guidance states that: “To start settling your tax affairs, you should  register your interest with HMRC as soon as possible and provide all of the required information by 30th September 2018.”

Don’t be fooled again

Finally, be aware of arrangements that claim to circumvent the 2019 loan charge. HMRC is aware of these and strongly advises against signing up to them:

“Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent…At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that may be due.”

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bindingdigital Written by bindingdigital

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