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Disguised remuneration loan charge in place after tomorrow

Thursday, 4 April, 2019

Tomorrow (5 April) is the last day for former users of contractor loan schemes to either repay their loans or notify their liability to HMRC. Otherwise, they will have to pay the disguised remuneration loan charge introduced to penalise historical employment-related loans still outstanding on 5 April, even for those arrangements made long ago as 1999.

According to HMRC, paying the loan charge after it arises will usually cost more than settling beforehand, because it imposes the whole tax liability in a single year. Many individuals have come forward voluntarily to settle their outstanding cases, and HMRC says those affected can still benefit from its published settlement terms if they contact HMRC with a genuine intent to settle and provide the relevant information before 5 April, even if settlement cannot be reached until after that date.

'HMRC wants to do all that it can to help people get out of avoidance for good', it said. 'We are appealing to those who haven’t come forward to settle their disguised remuneration debts to do so now and send us the required information by no later than 5 April. We have a range of flexible payment options to consider, and no option will require you to sell your main home to pay off your debt.'

Payments can be spread over a number of years for taxpayers earning less than GBP50,000 a year. However, a large number of those affected are now retired, with incomes far too low to repay the sums involved without selling assets at some point. Those who do not settle must submit an information return to HMRC, setting out their loan balance by 30 September 2019. They will have to pay the loan charge by 31 January 2020.

Some might have the option of repaying the loans to the employers that provided them, and HMRC can also pursue these companies to pay the tax they consider is owed. But many such companies no longer exist, or are not UK-resident. Employers who do still exist will need to calculate the tax liability and pay HMRC by 22 April 2019.

HMRC is expanding its Needs Extra Support service to provide help to individuals who cannot pay the loan charge. It has set up a dedicated helpline and redeployed staff to support scheme users.

The charge is expected to affect about 50,000 ex-contractors, thousands of whom are backing a judicial review challenge to the policy on the grounds of a breach of human rights to their property, and its retrospective nature.

HMRC says that many trustees of both UK and non-UK trusts are likely to be affected by this legislation as they will be considered to be third parties for the purposes of the loan charge.