Disguised Remuneration: Why You Must Settle Your Tax Affairs Before April 2019

As part of their ongoing campaign against aggressive tax avoidance, HMRC’s disguised remuneration loan charge comes into force in April. If you have an outstanding loan balance there is no way to neatly side-step this legislation. The good news is that you could still control the damage, if you act now.

Contractor's Guide To Disguised Remuneration. Click here to download >>

Will you have to pay the loan charge?

If you’ve received earned income as a loan at any point since 6th April 1999, and you have an outstanding loan balance on 6th April 2019, then you will have to pay the loan charge.

There is no way around the charge, and if you’ve been told that your particular scheme has found a clever solution, it’s very likely that you’ve been misled.

What you’ll have to pay after April 2019

On 6th April 2019, any outstanding loan balance, including any accrued interest, becomes taxable as earned income taxed on 5th April 2019.

Even if you received the money over several years, you’ll pay tax as if you earned the full amount in the tax year 2018/19. Obviously, this will artificially inflate your taxable income for that year and may leave you paying tax at a higher rate. It may also affect your entitlement to tax free childcare, and/or mean you have to pay the high-income child benefit charge.

If you can’t or don’t pay the loan charge straight away, you’ll incur interest and penalties as normal. For many of those affected, the amount will be substantial and difficult to pay all at once.

What you can do if you don’t want to pay the loan charge

You won’t have to pay the loan charge if you:

  • Repay the loan
  • Contact HMRC and arrange to pay what you owe

HMRC contend that settlement will cost most people less than the loan charge. According to their contractor settlement terms, you’ll have to pay tax on all disguised remuneration loans or other payments on a net receipt basis. This means that fees deducted by the scheme providers will not be taxed as income.

Tax will be calculated using the rates and bands applicable for the years when the loan or payment was made, rather than being lumped together in one tax year. You may also have to pay late payment interest.

Reaching a settlement now could mean:

  • You’ll have less tax to pay than you would if you wait and pay the loan charge
  • You’ll have the opportunity to spread the payments over several years

It’s important that you act now

If you want to settle your affairs and avoid the loan charge, HMRC’s extended settlement window closes on 30/09/2018. They will need to receive all relevant information by this date, so time is very much of the essence.

If you haven’t contacted HMRC yet, begin the process of settling your tax affairs by emailing:

cl.resolution@hmrc.gsi.gov.uk for contractor loan schemes

or

ca.admin@hmrc.gsi.gov.uk for all other disguised remuneration schemes

If you’re working with Orange Genie Accountancy

And you haven’t yet discussed your outstanding loans with your accountant, please do so as soon as possible. They’ll do everything they can to resolve the issue and achieve the best possible outcome for you. If you’re a contractor and you’re not working with us yet, contact our expert team to find out how we can help.  

Request a Call Back

 

edge promo