Social workers, IT contractors, teachers, nurses and doctors, engineering contractors and others are being affected by the new loan charge coming into effect from 6 April 2019.
This is likely to impact on around 50,000 UK citizens who were contractors or employees.
HMRC is likely to gain around £2.3billion from this exercise.
Why is this loan charge being brought in?
So-called ‘disguised remuneration’ schemes were created to allow workers to pay reduced or no personal tax, Class 1 employer and employee National Insurance Contributions, or corporation tax.
Many workers were advised on such schemes by their accountants, employers or other professionals and some had no choice or little choice but to be paid in this manner.
Are you likely to be affected?
If you were paid all of part of your payments via an Employee Benefit Trust (EBT), EBT sub-trust or Employer-Financed Retirement Benefit Trust (EFRBT), or an umbrella company you may be affected.
The retroactive legislation, brought in through the Finance Act 2017, affects payments made on or after 6 April 1999 and still outstanding at 5 April 2019.
There are three main settlement options available:
- Repay the loans before 5 April 2019
- Try to enter into a negotiated settlement with HMRC or start negotiations as early as possible before 5 April 2019
- Pay the loan charge – but beware, this may be the most expensive of the options.
Complex tax implications
The settlement options are likely to have knock-on tax implications, affecting areas such as high income child benefit, tax free childcare, student loans and higher or additional rate of tax.
There are more favourable settlement options for anyone with an income below £30k and options for those with a current income below £50k. However, if you do take the option to pay over 7 years or 5 years respectively, you will incur forward interest on the instalments.
You may also be liable for an Inheritance Tax charge due to transfer of value out of the trust.
What information is needed to start settlement talks?
If you want to enter into settlement or negotiation with HMRC you will be asked to complete a settlement pack. You’ll need to provide information on areas including:
- Yourself: name, National Insurance number, Unique Taxpayer Reference (UTR) number
- Tax avoidance scheme
- Monetary: contractor loans/contributions, benefit in kind offsets
This is an extremely complex area and there are sometimes large sums of money involved or life-changing implications for those in this situation. If you would like to discuss the tax implications of these developments, call us on 01761 241 861 or email us today. We will be pleased to advise you or to invite you into our offices in Paulton, near Bristol and Bath, for a consultation.