Don’t trust loan schemes for contractors
Don’t trust loan schemes for contractors
In August 2016 HMRC published their consultation document on tackling what they call disguised remuneration (“DR”). The changes were given effect in the Finance Act 2017, and anyone in one of these “schemes” will have to pay taxes on any loans they have received and which have not been repaid or taxed as income.
If you are in one of these arrangements don’t think you can just bury your head in the proverbial sand. The legislation will affect all loans made after 06 April 1999.
Look at this example included in HMRC’s consultation document:
“An employee ‘A’ received a £10,000 loan from a disguised remuneration scheme on 1 January 1999. In 2003 the loan was replaced with a new loan also of £10,000. The loan is still outstanding on 5 April 2019 and has not been taxed as income or replaced. Because the replacement loan was made after 6 April 1999 the loan charge will apply to it and it will be taxable….”
The Government’s view is that what are called DR loans, and are not taxed as employment income, are employment-related loans. This means that when they are written off, or released, there is an income tax charge payable. Sometimes these arrangements involve offshore intermediaries, but it will make no difference whether the provider is based in or outside the UK.
HMRC also propose that taxes due will have to be paid at the time the loan is made, so there will no longer be any tax advantage or financial benefit to be gained by these schemes.
HMRC are going to transfer liabilities to the employee so if the company can’t pay the tax the income tax liability automatically arises on the employee. So even if a contractor closes down a business, they can still be expected to pay any taxes owed by the business many years later.
If you are a contractor in this sort of arrangement you should look closely at your set up NOW and ensure you are not going to get caught out – now or in the future.
For further advice existing clients email us at support@anytime.uk.com or call 03333 110 230
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