The 30 September 2018 deadline has passed, so what happens in terms of reaching a Disguised Remuneration Settlement with HMRC?
In the very short term nothing much is likely to change. Published Guidance is unchanged. The door remains open.
In the medium term the hard deadline is 5 April 2019. The Loan Charge looms.
What HMRC Say
The only way to make sure the Loan Charge will not apply is to:
- settle before the Loan Charge takes effect; and
- repaying all loans in full
HMRC will now agree instalment plans of up to 5 years if a taxpayer wishes to settle a Disguised Remuneration scheme before the Loan Charge arises.
The limited requirements are:
- expected current year income is less than £50,000; and
- a promise not to use tax avoidance schemes again
An arrangement will still be considered even if income is £50,000 or higher, or a longer period to pay is required. More information will be required in these circumstances.
Schemes Affected by the Loan Charge
Most disguised remuneration schemes will be affected by the Loan Charge in 2019.
Legislation is not limited to loans, it also includes other forms of credit.
Self Employed individuals will be liable to the April 2019 Loan Charge.
HMRC’s view is that a scheme to “fix” a scheme does not work.
What Happens if no Settlement
What happens if Loan Charge arises before settlement?
All outstanding loans will be treated as income and taxed on 5 April 2019.
The deemed income will be taxable at the taxpayer’s marginal rate of tax. This could elevate their tax rate beyond 40% and into the additional rate, 45%.
This may impact some income dependent charges or benefits including:
- entitlement to tax free childcare
- the high income child benefit charge
- entitlement to some tax credits
If there is no settlement before 5 April 2019 and a taxpayer fails to return/pay the Loan Charge the taxpayer is likely to face:
- continued HMRC scrutiny
- higher tax bills
- possible penalties
The HMRC message is clear; the longer a taxpayer takes to settle, the more they are likely to pay.
Anyone seeking to exit any form of tax avoidance can contact me at email@example.com, or Paul at firstname.lastname@example.org, to explore their options, while options exist.