Disguised remuneration and the Loan Charge
What are “Disguised Remuneration Schemes”?
Disguised remuneration schemes are tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions (NICs) by paying scheme users their income in the form of loans. HMRC would argue that the loans were never intended to be repaid, so they are no different to normal income and are subject to PAYE tax and NICs.
What is the “Loan charge”?
The charge on outstanding disguised remuneration loans – known as the ‘loan charge’ – was introduced to tackle the use of disguised remuneration schemes and came into effect on 5 April 2019. The charge applies to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019 and the recipient has not settled the tax due.
Payment of the loan charge does not necessarily settle any earlier liabilities.
When does the loan charge apply?
If you received a disguised remuneration loan or credit on or after 6 April 1999 and it is still outstanding on 5 April 2019 it will be liable to a tax charge, unless you or your employer have previously accounted for any tax due on the loan.
The loan charge only applies to the tax year 2018 to 2019. If a taxpayer has received disguised remuneration income in the form of loans after 5 April 2019, taxpayers will have to pay Income Tax and National Insurance contributions on it.
How do I reach a Settlement with HMRC?
If you provided HMRC with all the required information by 5 April 2019, you can still settle your tax affairs under the settlement terms put out by HMRC on 7 November 2017, even if settlement is agreed after 5 April 2019.
If you failed to provide the required information by 5 April 2019, or do not settle by the date HMRC have given in the Letter of Offer, these Settlement terms will not be available. Although it will still be possible to reach a Settlement outside the November 2017 terms, the reporting and payment requirements of the loan charge must be met.
The November 2017 terms are not available to anyone who comes forward to settle after 5 April 2019.
The basis on which a taxpayer can expect to settle depends on the type of scheme they used and whether they’re classed by HMRC for the purposes of the settlement terms, as a:
• or employee
Is the Loan charge under review?
Yes, but while the review is under way, the Loan Charge remains in force. HM Revenue and Customs will set out in more detail how the review will affect individuals involved. The Treasury has asked Sir Amyas Morse to report back by mid-November 2019, giving taxpayers certainty ahead of the January 2020 Self-Assessment deadline.
Is there anything that can be done in the meantime?
Taxpayers can still seek to exit the tax avoidance scheme that gives rise to the Loan Charge.
Professional advice should be sought to identify what terms are available before deciding whether you should exit or not.
In the meantime, the Loan Charge is still due.
This area of tax can be extremely complex. You should always seek professional advice when considering a claim.
Read more about tax avoidance here.
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