Loan charges – what does it mean for you?
Many in recent months have received letters concerning Disguised Remuneration and the Loan Charge – a measure introduced by HMRC to battle tax avoidance. According to HMRC, disguised remuneration schemes that seek to avoid Income Tax and National Insurance contributions by paying income in the form of loans instead of the ordinary wage.
The disguised remuneration schemes can take many forms including umbrella companies which promote arrangements which claim to be in line with tax laws but in turn keep more of your income by reducing tax liability. The disguised remuneration affects those who have received money without having to pay National insurance contributions and the appropriate tax. The disguised remuneration schemes exist across many different sectors and affects those who are being paid without paying National Insurance contributions and the correct tax. Payments made which have not been included in your self-assessment or have been paid via doubtful umbrella companies.
Who is affected?
Some people that are employed through agencies and umbrella companies are signing up to arrangements that claim to save them tax but ultimately these are tax avoidance schemes.
Most employment agencies and umbrella companies operate within the tax rules, but some umbrella companies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability. The risk lies with you – as you are ultimately responsible for paying the correct contributions to National Insurance and tax.
The crackdown on these schemes will apply to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019. Where an individual would have received their income through a loan scheme that falls within the scope of this legislation, the loan will be treated as income and will be taxed as such from 5th April 2019. HMRC is requiring all of this due tax to be paid by 31st January 2020 – the deadline for self-assessment tax returns.
What to do next
Those affected by the introduction of these measures by HMRC may face considerable charges which will have significant impact. HMRC have introduced various options for those affected and consultants here at Tawanda EU are able to guide you through the process – step by step.
Our team of qualified accountants and business consultants will give you certainty and work with you through the process to ensure that you are no longer violating tax laws but further that any charges due are dealt with in best possible way. There are many options to deal with the loan charges and consequences of disguised remuneration schemes – make sure that you are in the know by contacting a member of our team.