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A guide to disguised remuneration – time to act is now

David Redfern
july

Taxpayers Affected by Introduction of Loan Charge on Friday Urged to Take Action Now Before Loan Charge Comes Into Force on 5th April. Contributor David Redfern, Managing Director – DSR Tax Claims Ltd.

As HMRC gears up to take action against the more than 40,000 businesses and individuals who have taken part in disguised remuneration schemes in order to avoid their full tax liabilities, guidance is being offered to those now facing huge tax bills as a result. David Redfern, Managing Director of DSR Tax Claims Ltd, offered his expert guidance to those affected taxpayers who could find themselves owing hundreds of thousands of pounds as a result of HMRC’s new loan charge against these tax avoidance schemes which comes into force on Friday 5th April 2019.

Disguised remuneration schemes have proliferated since the 1990s and typically involve individuals receiving the majority of their income as a “loan”, usually via an offshore trust in low or no tax jurisdictions such as Cyprus, Malta and the Isle of Man. Individuals are typically paid enough to use up their tax-free personal allowance and protect their entitlement to state benefits, while receiving the rest of their income as a loan designed never to be repaid, which means that Income Tax and National Insurance are avoided. 

Successive governments have attempted to tackle this form of tax avoidance, which is estimated to cost taxpayers hundreds of millions of pounds per year. The new charge on any outstanding loans under disguised remuneration comes into force on 5th April 2019, as part of the Finance Act (No2) 2017 and adds together all outstanding loans and taxes them as income in one year. Redfern commented “HMRC has been warning taxpayers about the introduction of this loan charge since 2016 and has already settled more than 6000 cases, worth more than £1 billion in tax revenue in that time. However, time is running out for those who have not yet made any attempt to settle their case with HMRC. If you have taken part in a disguised remuneration scheme in the past and you still have outstanding loans then you need to contact HMRC as a matter of urgency”.

Of the estimated 50,000 or more taxpayers who have taken part in disguised remuneration schemes, around 65 percent of those are within the Business Services sector with a further 10 percent within the Construction sector. While those who have already repaid their loans will not face any action under the new loan charge scheme, those who are yet to settle their loans are urged to take action immediately or face tax bills of hundreds of thousands of pounds. Redfern stated “HMRC is rightly aware that those now facing these huge tax bills will be under incredible financial pressure, with a significant potential impact on mental health. 

As a result it aims to treat those affected as sympathetically as possible. HMRC has stated that it intends to take into account ability to pay when agreeing payment terms and is not usually requiring the sale of the taxpayer’s main home. For example, those earning £30,000 or less who contact HMRC before 5th April are being offered a minimum of 7 years to make payment on the loan charge without needing to provide any detailed supporting information. But if you are affected, you need to take action now – burying your head in the sand won’t make this go away”.

Despite this HMRC action, there are still some companies promoting disguised remuneration schemes for the purposes of tax avoidance, Redfern stated “These kinds of schemes have always contravened UK taxation legislation – the introduction of the loan charge doesn’t indicate that there has been a change in the law, rather it indicates that HMRC are finally getting tough on this form of tax avoidance. HMRC is targeting those companies who are still peddling these types of schemes with large penalties but the unfortunate fact for those caught up in this crackdown is that individuals have a responsibility to ensure their tax return is accurate. For those who are tempted to take part in disguised remuneration schemes, they are now and have always contravened HMRC legislation”. Affected taxpayers are urged to contact the dedicated HMRC helpline on 03000 534 226 before Friday 5th April 2019. HMRC estimates that action against these schemes will bring an extra £3.2 billion to public finances over the next 5 years, 75 percent of that from employers.

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