HMRC has started its crackdown on disguised remuneration – basically tax evasion – and is warning against joining schemes that advertise themselves as avoiding the new loan charge. They don’t avoid the charge and may land you in a lot more trouble!
Why is the loan charge needed?
Some businesses tried to pay their staff by providing them with loans that they would never have to repay, rather than pay a proper salary in the normal way. This allowed them to avoid paying national insurance as they would have to on a salary, and the employees received payments without having income tax or national insurance deducted. The new loan charge looks to recoup those amounts.
HMRC deemed this type of payment ‘Disguised remuneration’ – basically tax evasion. If you’re unclear on the difference between tax avoidance and tax evasion then read our blog here.
Why should it matter to me?
If you have been paid in this way, then HMRC will be coming for you and your employer for the missing tax and will also more than likely look to impose penalty fines and interest charges on the amounts they have missed out on.
In short, you could end up owing HMRC a lot more than you ever hoped to avoid by being paid via the loan route.
When does the loan charge come in?
The new loan charge comes into force on 5th April 2019 and will apply to any loan you received from 6th April 1999 through a disguised remuneration tax avoidance scheme or is still outstanding 5 April 2019.
So, if you have been paid in this way, you basically have just under a year to fix the situation before you become liable for the charge.
What can you do?
If you have been paid in this way you have four main options:
- Explore settlement with HMRC – this is HMRC’s preferred route as it involves the least resources and practical difficulties on their part, and they have provided a great deal of information on how to engage with them. Read here how to contact HMRC to discuss settlement – it’s much better to be upfront with them than wait to be found out. You must register your interest in settlement with HMRC by 31st May 2018 so you do not have much time left to start the process
- Do nothing – DO NOT DO THIS unless you want to be in a lot more trouble
- Repay the loan to the issuer
- Suffer the April 2019 loan charge – the due national insurance and income tax on the loans for the last twenty years will all be due by 31st January 2020.
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