Were you sold a disguised remuneration tax avoidance scheme?
Promoters of disguised remuneration tax avoidance schemes claimed that the schemes successfully avoided income tax and national insurance contributions. They were sold to employers and individuals (those used by contractors, are known as contractor loans).
These schemes usually involved a ‘loan’ or other payment from a third party which, in reality, would never be repaid.
A specific tax charge on disguised remuneration schemes, called the Loan Charge, was introduced on 5 April 2019 to defeat the schemes once and for all.
If an employee or employer has accounted for all tax and national insurance contributions due on the income received as a loan by 5 April 2019, they are exempt from the Loan Charge.
The Loan Charge also does not apply to loans made before 9 December 2010 and to loans made from 9 December 2010 to 5 April 2016 if those loan arrangements were reasonably disclosed to HMRC for that tax year, and HMRC had not taken any other action (for example, by opening an enquiry).
Are you liable?
A loan is classed as outstanding if the total sums loaned are more than the total repayments made.
All disguised remuneration loans that are not exempt as above and were outstanding on 5 April 2019, are treated as employment income received on that date, or as trade profits arising in the tax year 2018 to 2019, depending on the type of scheme used.
This means that loans outstanding on 5 April 2019 have incurred an income tax and national insurance contributions charge as if the amount of the loans were earnings or profits received in the tax year 2018 to 2019.
Contact Patrick Cannon today for further assistance and help with the disguised remuneration calculation.
Patrick Cannon can also advise on:
Frequently Asked Questions
If you need to report an outstanding disguised remuneration loan in the 2018 to 2019 tax year, and you have not done so already, you now have until 30 September 2020 to file your self assessment tax return
HMRC will first ask the employer who provided the disguised remuneration loan to collect the loan charge. If the employer does not pay the loan charge, HMRC may collect this from the employee in the future by issuing what is called a regulation 80 determination for the unpaid tax to the employer and once this determination has been unpaid for 30 days HMRC will use regulation 81 to direct the liability on to the employee. The unpaid tax will then be collected from the employee directly.
If you do not report details of your outstanding disguised remuneration loans to HMRC by 30 September 2020, or the information is not complete and correct, you may be liable to:
- an initial penalty of £300
- further daily penalties of up to £60 a day for as long as the information remains outstanding, up to a maximum of 90 days
- a penalty not exceeding £3,000 for each inaccuracy deliberately or carelessly included within the information provided, or discovered after the information has been submitted and you do not tell HMRC
HMRC have said that they will not force anyone to sell their main home to pay the loan charge. However, they also say that insolvency or bankruptcy is not off the table, and so it is difficult to see how the sale of the only or main home can be completely eliminated as a possibility.
If you are concerned that you may have been involved in a disguised remuneration loan scheme and may be liable for the loan charge, the important next step is to confirm whether or not this is the case.
Patrick Cannon can explore your history with the scheme in question, then discuss your options going forward and whether there is a settlement opportunity for you. If it is found that you will be affected by the 2019 Loan Charge, it is important to contact HMRC regarding your previous activity in connection with the relevant scheme.