Disguised remuneration – April 2019 Loan Charge
Who should read this?
Anyone who is involved in a contractor loan scheme or other remuneration based tax planning (Employment Benefit Trust, EFRBS etc), should read this. Or for anyone wanting more information regarding the April 2019 Loan Charge.
Who is affected?
If arrangements have been put in place (commonly referred to as disguised remuneration schemes) to circumvent the payment of Income Tax and NIC in the form of a loan to an employee, usually via a trust or other intermediary, and you have not already reached a settlement with HMRC then the April 2019 loan charge may apply. The introduction of the loan charge is estimated by HMRC to raise £3.2bn with 75% coming from the employer whether an individual or a company .
What is the April 2019 Loan Charge?
The Loan Charge came into effect on 5 April 2019. It is used to tackle the use of disguised remuneration schemes by both corporates and self employed individuals. Any loans made since 6 April 1999 and still outstanding on 5 April 2019 fall within the rules. The Loan Charge is calculated as additional remuneration based on the loan amount outstanding as at 5 April 2019. Even if the company is no longer in existence, the individual is still required to report the loans and pay tax on the outstanding balance.
How does this impact on you?
Some people are saying it will not impact at all. It is widely perceived that the loan charge is unfair and is a form of retrospective legislation. This is currently subject of a Judicial Review and other concerns have been raised. So in response, the government announced an independent review of the Loan Charge on 11 September 2019. The review was originally going to be concluded in mid-November. However following the decision to hold a General Election, the findings will not be published until after the Election on 12 December. This leaves very little time to take any meaningful action and advice should be sought now. HMRC have made it clear that the Loan Charge remains in operation. Because of this, you should continue to meet your legal obligations.
What are the financial consequences?
It is understood this will affect around 50,000 individuals and companies. Until the introduction of the Loan Charge it was possible to argue each case on its own facts. Although many people have chosen not to settle,the imposition of the Loan Charge means that a tax charge will arise. This is likely to result in a significant financial cost, either as an individual or corporate taxpayer.
Some will have the means to pay but for many others the position may not be so straightforward. Capital may be tied up in assets or there may be insufficient cash to fund a settlement.
What do I do now?
In short, all options need to be explored. But one option that cannot be taken is to ignore the impending Loan Charge. This may mean you may be in breach of obligations which may result in the stress of a HMRC investigation and the imposition of penalties.
In the event that your company or you become subject to a loan charge plus penalties which it or you cannot pay from your current resources, Richard Alderson of Pannu Tax can assist in seeking to negotiate a settlement with HMRC. Richard can be contacted on richard@pannutax.co.uk or via phone on 07739 874043. In the event that any original loan charge or negotiated settlement cannot be paid in full, Chamberlain & Co can assist either a company or an individual. With formal procedures which will allow you to address a liability that you cannot immediately pay and potentially allow you to continue to trade and retain control of your assets or your company’s assets. You can call us on 0113 242 0808 or email us on advice@chamberlain-co.co.uk
