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HMRC’s Loan Charge legislation – controversial money raiser?

Article posted: 27th February 2019

Introduced in 2017, this legislation is aimed at individuals who participated in so-called ‘Disguised Remuneration Loan Schemes’ that were being promoted as long ago as before the turn of the century.

According to their promoters, the schemes offered individuals a way to pay a lower rate of tax than if they had received a ‘normal’ salary and some promoters went as far as suggesting that the schemes were acceptable tax planning as far as HMRC was concerned.

However, this was never HMRC’s point of view, although it has taken a considerable amount of time to decide what it should do with those who participated in the schemes. The course of action HMRC has chosen is to introduce a tax charge on all loans made since 6 April 1999 if they are still outstanding on 5 April 2019.

For many participants, this is likely to cause a great deal of financial and emotional distress. They will have spent the money they received years ago without any thought that HMRC would be wanting them to pay further tax at some point in the future. Indeed, it is this aspect that is causing controversy, with some commentators arguing that it amounts to retrospective legislation.

According to HMRC estimates, up to 50,000 individuals will be affected by the loan charge. It is also suggesting that 65% of those affected work in the business services sector (such as management consultants and IT consultants), 10% work in construction, while fewer than 3% work in medical services (doctors and nurses) and teaching.

HMRC says it has written to those affected to encourage them to come forward and discuss proposals for settlement before the 5 April 2019 deadline. They are warning that those who don’t come forward could pay more when the loan charge is applied.

This matter has received a good deal of media and press attention over the past few weeks and is likely to receive a good deal more the closer it gets to the deadline.

At the moment, there doesn’t appear to be any softening in HMRC’s stance, despite representations from politicians, the ICAEW and a number of pressure groups that have been formed specially to campaign about the legislation.

If you have been contacted by HMRC or haven’t but are worried you may have been involved in a loan scheme at some point in the last 20 years, please contact us so that we can explore and explain the options available.

It might be tempting to do nothing and adopt a ‘wait and see’ approach, but this could prove more costly to you in the long run.

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