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Time is running out on the 2019 Loan Charge….What could it mean for you?

By RJP LLP on 22 March, 2019

Disguised remuneration schemes have been the subject of intense HMRC scrutiny for some time and now an important deadline is looming; the 2019 Loan Charge. This was introduced to recoup income tax and NIC payments that were avoided by employees and employers participating in “disguised remuneration” or loan schemes. In other words, by receiving their salary paid as a loan through an intermediary, like a company, who offers a low interest loan to the individual in place of their salary or dividends, free of taxes or NICs.

Around 50,000 people – primarily consultants working in business services - are estimated to have used loan schemes which are affected by the loan charge. If you are one of those involved in a disguised remuneration loan scheme, you have until 5th April 2019 to settle any liabilities or agree a repayment period. Otherwise you will run the risk of penalties and other charges, in addition to paying the outstanding tax already owed, dating back to 6 April 1999.

Despite all the negative publicity surrounding the Loan Charge and the April deadline, there are still schemes being promoted. Accountancy magazine recently highlighted that schemes being marketed from an offshore location such as Cyprus, Malta or Isle of Man were available and that they claimed to avoid the 5 April 2019 loan charge legislation. Some of the schemes also claim that by entering the scheme, disguised remuneration loans will be paid off, and that there is no requirement to make a disclosure under the disclosure of tax avoidance schemes regime (DOTAS).

HMRC have issued a warning about these schemes and confirmed that ‘they do not work’.
Anyone who signs up will likely end up paying administration and promoters fees, in addition to the outstanding taxes associated with the loan charge.

Here’s what to expect as a result of a Loan Charge

  • It is still possible to contact HMRC to register and discuss a settlement agreement before the new tax year on 6 April 2019.
  • Individuals with a current income of less than £50,000 per annum and who are no longer engaging in tax avoidance, can agree a payment plan of up to five years without the need to give HMRC information about their income and assets. This period extends to seven years for individuals who earn less than £30,000.
  • People who consider they need more time to pay, or who earn more than £50,000 can propose alternative payment terms.

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