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Stand and Deliver

Contractor loan scheme users told to pay up or else

Around 16,000 freelancers, all users of contractor loan schemes, are being given the opportunity to pay the tax HMRC believe they owe or risk facing heftier tax bills and massive legal costs.

HMRC have calculated that, on average, each contractor owes £11,000 a year in tax and they will have up until 9th January 2015 to take up this settlement opportunity. Those that choose this route will pay the tax and interest due on the sums they received as loans under the scheme.

The settlement opportunity only applies to schemes used before the Disguised Remuneration rules were introduced in April 2011. However, personal circumstances will also dictate whether or not a person can use this amnesty. For example, an individual is prevented from doing so if they are:

  • Subject to HMRC criminal investigation policy.
  • Subject to civil investigation of fraud procedures.
  • A UK employer who used an Employee Benefit Trust (EBT) and should be using the EBT settlement opportunity.

The mechanics of a contractor loan scheme

Contractor loan schemes involve complex arrangements whereby an individual signs a contract of employment with an offshore employer. Although the individual works on contracts in the UK they receive their remuneration through an offshore company or trust in the form of, what are claimed to be, non-taxable loans, rather than as salary.

HMRC say that that these aggressive schemes are used by the 1% of contractors who “really do not want to pay their fair share.” Rather a sweeping and general statement to make as the freelancers I have come into contact with who have used such schemes, did so in the belief that they were entering into a legitimate tax saving arrangement. Having then later discovered the truth about these schemes they then regret ever getting involved with them and this settlement opportunity is therefore ripe for them.

Where the arrangements involved loans from a trust there may be Inheritance Tax due.

Those individuals who still believe they have done no wrong can continue to challenge the Revenue through the courts but this will come at a cost and could even leave them in a worse financial position.

Those affected contractors may have already received a letter explaining this opportunity but for those who haven’t and wish to take advantage of it, then they should contact HMRC via any of the following options:

Contractors can ask for an upfront calculation of their tax and interest liabilities by downloading and completing Form D03 and then sending this to HMRC.

For those that want to use the settlement opportunity but cannot pay the full amount now, then it may be possible to agree an instalment arrangement with HMRC, although interest will continue to be charged until the tax is finally paid.

By Andy Vessey


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