Updated: The section ‘Schemes claiming to avoid the loan charge’ has been updated with more information and to clarify some points.
Disguised remuneration avoidance schemes are used by employers and individuals to avoid Income Tax and National Insurance contributions. Although there are various types, they normally result in a loan from a third party on such terms that mean it’s unlikely to ever be repaid.
At Budget 2016 the government announced a number of changes to tackle existing avoidance schemes and prevent their future use.
The changes will include a new ‘loan charge’ on disguised remuneration loans which are outstanding on 5 April 2019. To prevent attempts to exploit the new loan charge, a targeted anti-avoidance rule will ensure further avoidance schemes don’t work.
More details on these changes can be found in the consultation on tackling disguised remuneration.
Schemes claiming to avoid the loan charge
Some promoters claim to have come up with schemes that enable users to get out of the loan arrangements and avoid the loan charge, in return for a fee.
Spotlight 39 sets out details of one of these schemes. Another example is that some promoters say that individuals should enter into a bet with the trust that granted them the loan. The terms of the ‘bet’ mean the individual is almost certain to win, and then able to use the winnings to repay the loan. This scheme will not prevent the loan charge arising as the loan repayment is connected to a new tax avoidance arrangement.
These schemes don’t work. The only way you can avoid the new loan charge is by making a genuine repayment of the loan balance or settling the tax liability with HM Revenue and Customs (HMRC) in advance. Any repayments connected to a new tax avoidance arrangement will be ignored and the loan charge will still apply.
Why you shouldn’t use these schemes
Using such a scheme and paying further fees to a promoter won’t prevent the loan charge from applying to disguised remuneration loans outstanding on 5 April 2019. HMRC will investigate any attempts to avoid the new loan charge.
For transactions taking place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) may apply. After 14 September 2016, transactions where the GAAR applies will be subject to a 60% GAAR penalty.
What to do if you’re using one of these schemes
Users of these schemes can pay back the outstanding loan in full by 5 April 2019 or settle with HMRC to avoid accruing interest.
If you’re already speaking to someone at HMRC about your use of a disguised remuneration scheme, you should contact them.
If you’re not already speaking to someone at HMRC, you should email: firstname.lastname@example.org
Find out more about how to identify tax avoidance schemes.