Don’t worry if you missed 30th September, there’s still time
Those contractors, previously involved with tax avoidance loan schemes that missed the 30th September deadline to register their interest in settling their affairs with HMRC, can still do so.
HMRC have recently published an updated guidance, ‘Tax avoidance loan schemes and the loan charge’, which urges anyone who wants to settle, but has yet to do so, to contact HMRC immediately. This will then provide the best possible chance of reaching a settlement before the Disguised Remuneration (DR) loan charge kicks in on 5th April 2019.
To date, over 24,000 people have registered an interest to settle their tax affairs and HMRC has set up dedicated e-mail and phone lines to help such folk.
Spreading the pain
HMRC say they want to make it easy for people to be rid of the loan scheme millstone around their necks and are offering a range of flexible payment options for those who may have difficulty in paying off the resultant tax arrears in one foul swoop. For example, someone currently earning less than £50,000 and no longer using a tax avoidance scheme, is able to agree a payment plan of up to 5 years without the need to provide detailed information about their income and assets.
Anyone earning in excess of £50,000 should be able to agree a manageable payment plan with HMRC based on their personal circumstances.
In the firing line
According to HMRC, only a tiny minority of the UK population will be affected by the DR loan charge. Most of those affected, approximately 50,000 and representing 65%, work in business services which includes IT consultants, financial advisers and management consultants.
Again, according to the Revenue, when taking into account the loan(s) they received, loan scheme users have on average twice as much income as the average taxpayer, and 70% of participants have used a scheme for two years or more.
The average amount avoided was £20,000 per year, per person and a large number used a scheme more than once.
Less than 1% of individuals have an outstanding loan pre-2003 and around half of scheme users have received a loan within the last 7 years.
Approximately 250 different DR schemes, which are both detailed and complex, will be affected by the loan charge.
The loan charge works by aggregating all outstanding loans and taxing them in one year, rather than spreading them across the tax years they fall. This is likely to result in a person paying more tax than had they settled with HMRC before 5th April 2019.
Three choices now lie before scheme users:
- repay the loan; or
- agree a settlement with HMRC; or
- pay the loan charge when it comes into force
Promoters of loan schemes can sometimes make false claims, such as the arrangements being ‘HMRC approved’ or ‘compliant with the tax rules.’ Anybody who feels they have been a victim of being mis-sold a financial arrangement should take legal advice as it is not fair they should carry the can for being lured into an arrangement where the full facts and risks were not openly disclosed to them.
The latest guidance can be found here: DR loan scheme guidance.