Loan scheme tax loophole closed

 HMRC has moved to close a tax loophole that replaced income with loans, and warns against misleading advice from financial advisers that such schemes are still an acceptable way to avoid paying tax

Disguised remuneration schemes will be taxed from April 2019 and HMRC is advising individuals to close them with immediate effect to avoid greater expense when the law is changed.

Charges can be avoided altogether if loans are repaid and settled in full before the changes take effect and HMRC will agree instalment plans of up to 5 years to settle disguised remuneration schemes before the loan charge arises.

Detailed supporting information of means and ability to pay will not be required if:

  • the expected current year income is less than £50,000 (for employees this is gross earnings, while for self-employed people this is expected net profit)
  • individuals are no longer engaged in tax avoidance

If income is £50,000 or higher, or a longer period to pay is needed, an arrangement can still be agreed but more information will be needed.

HMRC is also warning that all such schemes will be taxed, despite what is being said by some promoters.

‘Most disguised remuneration schemes will be affected by the loan charge in 2019. HMRC is aware that some promoters or agents may have told you that settling will not be beneficial, and that: the disguised remuneration loan charge will not apply to you and other disguised remuneration anti-avoidance legislation does not apply to your arrangements,’ said HMRC in a statement, adding that this advice is wrong.

‘The legislation is not limited to just loans, it also includes other forms of credit. For example, if you used a Corporate Remuneration Trust scheme you may have been told that the loan charge will not apply to you. HMRC does not agree and you should get independent advice to find out how the settlement terms would be beneficial to your circumstances'.

Individuals who want to settle before the loan charge comes into force should give HMRC all the information they need before 30 September 2018.

The revenue points out that settling now will save individuals money as, if they wait until the charge is introduced in April, all previous loans will be added together and taxed in a single year.

Failing to settle may also affect income dependent charges or benefits including entitlement to tax free childcare and the high-income Child Benefit charge.

Report by Rob Munro

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