LITRG urges action on new loan charge provisions

Released 8 January 2019

The Low Incomes Tax Reform Group (LITRG) is urging low-paid workers affected by the 2019 Loan Charge to consider contacting HMRC to settle, after statistics from the tax authority suggest a worrying lack of engagement and understanding of the Loan Charge among workers.

HMRC have revealed that only 25,500 out of about 50,000 people they suspect had their financial affairs managed by offshore ‘umbrella’ schemes have come forward to agree a repayment schedule.

Broadly, the loan charge applies to certain ‘disguised remuneration’ arrangements that have been implemented to avoid tax. In recent years scheme providers have exploited various loopholes in the law, which meant that these types of schemes continued to be offered, including – increasingly – by some umbrella companies (e.g. intermediaries that assume the role of paying agency workers, rather than the agencies themselves) to agency workers like locum nurses and supply teachers.

The Government has endeavoured to close these loopholes and has given HMRC powers to impose a second taxing point for historical schemes, in the form of the April 2019 ‘loan charge’. This charge will basically affect anyone who used one of these loan schemes and who hasn’t paid the intended amount of tax over the last 20 years.

The loan charge will apply from 5 April 2019. Those affected by its introduction have two options:

try to voluntarily agree to settle with HMRC any income tax and interest on the loans, before the loan charge comes into play on 5 April 2019; or

pay the loan charge. In many cases this option is likely to be more expensive than settling.

View the LITRG guidance on the loan change.

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