HM Revenue and Customs has today made a final appeal to contractors facing the controversial loan charge to settle ahead of an imminent deadline tomorrow. HMRC is encouraging people to come forward and settle their tax affairs before a charge on these outstanding loans comes into effect on 5th April 2019.
At the same time, MPs are today holding a parliamentary debate on a motion to delay the deadline and call for an independent review led by a tax judge to assess whether it should be scrapped or amended.
What are loan schemes?
Loan schemes – otherwise known as ‘disguised remuneration’ schemes – are tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions by paying scheme users their income in the form of loans.
The loans were never intended to be repaid, so as far as HMRC are concerned they are no different to normal income and are taxable. The charge can be applied up to 20 years retrospectively, applying to all loans made since 6 April 1999
Who is affected by this deadline tomorrow?
It’s estimated that approx 50,000 people (0.2% of UK taxpayers) have used a loan scheme that will be affected by the loan charge. Based on the information available, 65% of those affected work in the business services sector. This includes professions such as management consultants and IT consultants. 10% work in construction. Fewer than 3% work in medical services (doctors and nurses) and teaching.
What should I do if I took part in a loan scheme?
Loan schemes users have 3 choices according to HMRC:-
- Repay the original loan
- Agree a settlement with HMRC
- Pay the loan charge when it comes in to force
HMRC have warned that scheme users who don’t come forward with the intention of settling by 5 April 2019 could pay more when the loan charge is applied. However, instead of facing a large tax bill in one year, HMRC says people can settle by tomorrow and spread the cost. HMRC have advised that the charge will not arise on outstanding loans if the user has agreed or is progressing towards settlement with HMRC before 5 April 2019.
The loan charge policy is expected to bring in £3.2 billion and HMRC estimate that 75% of this will come from employers, and 25% from individuals. HMRC say they want to help people settle, even if they think they have no realistic way of paying what they owe. Help is available to those who want to sort out their tax affairs and manageable payment plans can be put in place.