A Quick Guide to the 2019 Loan Charge

January 30, 2019

(For our in-depth analysis of the 2019 loan charge, see our full loan charge here.)

On 5th April 2019, HMRC will gain a new tax power called the loan charge and will levy £3.2 billion in new taxes on historic disguised remuneration loan payments. If the new charges affect you, it is essential you start making preparations right now.

In this short article, I will look at the new legislation and briefly discuss what options you have if they are caught by new charges.

What is disguised remuneration?

‘Disguised remuneration’ refers to tax avoidance schemes where an individual’s income is disguised as something non-taxable. For example, instead of being paid a taxable salary, you are issued with a non-taxable loan on the understanding that it will never be repaid or written off. Because you are paid via non-taxable means, this massively reduces your tax liabilities.

Here is an illustration from a HMRC fact sheet illustrating how disguised remuneration works.

Disguised Remuneration Scheme According to HMRC

While there are many popular disguised remuneration schemes, there are three that are far more popular than others.

  • Employee Benefit Trusts (EBT)
  • Employer Financed Retirement Benefit Schemes (EFRBS)
  • Contractor Loan Schemes

In 2011 the government changed the law to block the use of disguised remuneration schemes. However, that did nothing about the £3.2 billion lost to such schemes in the past 20 years.

What is the loan charge?

In 2017 the government passed new legislation that allowed HMRC to retrospectively tax disguised income as if it were regular income through the loan charge. The actual implementation of the loan charge was delayed until April 2019 to give affected parties time to investigate their finances and contact HMRC.

In practice, the loan charge works by collecting all the loans someone has outstanding on 5th April 2019 and taxing the sum at their marginal tax rate.

Because HMRC is looking back 20 years, individuals are facing massive large tax bills with little room for negotiation.

What are my options?

While many schemes were sold with some assurance of protection, HMRC can and likely will target you personally.

If you worked through a personal service company, corporate insolvency is not an escape route. HMRC will first pursue the company for payment and then move liability to the employee. Likewise, HMRC can and will pursue individual employees of an umbrella company should the umbrella company be unwilling or unable to pay.

HMRC will be very aggressive in enforcing the new loan charge. You cannot simply ignore HMRC’s demands like you would an Accelerated Payment Notice (APN) and assume it will eventually go away. If you ignore the loan charge, HMRC will bankrupt you.

If the loan charge does apply to you, you have two options available to you.

#1 Negotiate a settlement with HMRC

HMRC has set two deadlines (31/5/2018 and 30/9/2018) to register your interest to negotiate a settlement but both are now past. However, from what I’ve heard, HMRC is still reportedly receptive to individuals coming forward to discuss a settlement.

Reaching out to HMRC gives you the opportunity to negotiate how much you owe and how you will pay it back. If you wait until HMRC starts pursuing you, they will be less receptive to negotiations.

Whenever you are dealing with HMRC, it helps to have someone on your side who is confident in dealing with them. When in doubt, seek advice from a suitably qualified and experienced professional.

#2 Pay the loan charge

On the 5th April 2019, HMRC will apply the loan charge to any loans still outstanding. Depending on your circumstances, this charge could fall anywhere between several hundred and several hundred thousand pounds.

Once the loan charge is applied, you have until the 31st January 2020 to pay HMRC.

While some individuals may be in a position to pay their loan charge, many simply won’t have the cash.

If worried about the imminent loan charge but you haven’t yet received any communication from HMRC, I strongly recommend you take independent tax advice or speak to your accountant. If you do not already have an accountant, I recommend you speak to SD Business Management.

If you cannot pay HMRC’s tax demands, it’s incredibly important you speak to a suitably qualified and experienced professional as soon as possible. At 180 Advisory Solutions, we have extensive experience dealing with personal and corporate debt and are prepared to support you through your negotiations with HMRC. Click here to get in contact today. Our initial advice is free, confidential and no-obligation.

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