Contractor Loans Settlement Opportunity

Contractor Loans Settlement Opportunity 

HM Revenue and Customs (HMRC) have announced today they are giving around 16,000 tax avoidance scheme users the opportunity to pay the tax they owe or risk facing bigger tax bills and heavy legal costs.

On average, each of the users of the contractor loan schemes covered by this settlement opportunity owes £11,000 a year in tax.

The schemes, used by a small minority of contractors to avoid paying income tax, involve complex arrangements with individuals signing a contract of employment with an offshore employer. The contractor then receives their pay through the offshore company. 

HMRC firmly believe that these arrangements do not work and that the amounts described as loans are taxable. HMRC have begun issuing letters to tax agents, identifying individual taxpayers whom they believe have signed up to these schemes. The individual taxpayers are due to receive their “invitations” to settle in the coming days.on-taxable loan, rather than income.

HMRC view these as particularly aggressive schemes and their users will have until January 2015 to take up the settlement opportunity. If they do, they will pay the tax and interest due on the sums they received as loans under the scheme but “penalties would only be charged in exceptional cases.”

If the contractor continues to challenge HMRC in the courts, they risk having to pay additional tax charges and penalties – as well as the costs of litigation if they lose.

Jennie Granger, HMRC Director General for Enforcement and Compliance, said:

“Many people regret ever getting involved with complex aggressive tax avoidance schemes and HMRC is providing an opportunity for contractors to come forward and straighten out their tax affairs.

This is an important opportunity and we are working hard to encourage users to withdraw from such schemes. We also want to ensure they’ve understood our position. They can choose to continue to litigate for a better outcome but they risk a worse result.

HMRC has a strong track record of winning tax avoidance cases in court, with around 80% of decisions in our favour. The costs for users are high, potentially resulting in penalties, charges and significant legal costs for scheme users”

If any of our clients have any queries or concerns regarding this matter do not hesitate to get in touch with your dedicated Accountant for advice.

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