The loan charge is a legislation that has been introduced to collect underpaid taxes from people who have been part of Employee Benefit Trusts (EBT), or other forms of disguised remuneration schemes, most commonly the contractor loan scheme.
This legislation allows HMRC to collect taxes retrospectively going back as far as 6th April 1999 (20 years). Loan scheme participants would have been paid loans (usually through EBT providers) instead of salary or self-employed income. As payments being received are loans on terms which do not require repayment, they would not be subject to tax and hence considered as 'disguised remuneration'.
Under the loan charge legislation, HMRC will be allowed to pool these loan payments as income to be taxed in tax year 2018/19. This results in a significantly higher tax/NIC liability than if these payments were taxed in the year of receipt.
As a result, taxpayers who participated in these schemes would come under significant financial distress and could even face bankruptcies as they are expected to pay tax on the loan charge (payments received over 20 years) by 31 January 2020.
If you feel you are affected by this legislation, you need to seek professional advice and help immediately as HMRC require loan scheme participants to report outstanding loans no later than 30 September 2019.
How we can help
Our team of professionals include senior ex-HMRC inspectors and Chartered Tax Advisers who are experienced in dealing with the loan charge/disguised remuneration and can offer valuable advice at the right time to help avoid matters getting worse.
We have helped several taxpayers affected by the 2019 loan charge legislation to agree and enter into settlement agreements with HMRC. We review the contractor loan scheme to ascertain whether it was a trade based or an employment base scheme and establish where the scheme providers are located (onshore/ offshore) and if they are still in existence. This along with detailed analysis of records and bank statements allows us to establish the outstanding loan charge and ultimately minimise the tax liability.
Given that the loan charge will cover payments received over significant periods (15-20 years), most taxpayers will not be able to pay the tax due on the loan charge and will need to agree a payment plan. In such cases, we will review and examine affordability and agree payment plans which allow the tax liability to be spread over several years.
We understand that this can be distressing and will help by talking through your worries or concerns. If you think you are affected by the 2019 loan charge legislation and would like to discuss with our tax investigation experts, please call us for a free and confidential consultation.