Are you liable for the April 2019 loan charge?

We have had a number of enquiries from people that were previously paid via loan schemes (disguised remuneration). These people have now found that they need to be paid using PAYE via Umbrella Payroll.  Loan companies are closing down left, right and centre and agencies that once allowed contractors to use these, are now refusing to facilitate this method.

Moving to PAYE has been quite a shock to these people due to the correct contributions needing to be paid.  It is a common question for us to be asked “why am I being deducted so much?”  These schemes were designed to help an individual avoid paying the correct contributions using a loophole in legislation.  The effects of this are now being felt.

Now that HMRC are looking to reclaim what is owed which in-turn is leaving many workers with potentially huge bills to pay. This is coming into effect as the April 2019 loan charge.  Not everyone entered into these arrangements knowingly to avoid tax and HMRC appreciate this.  Some agency workers were given little choice to participate in such schemes if they wanted to work.  If you were one of these people, there is help.  Read on.

The Loan Scheme

Most loan schemes payed an individual for work using an interest free, non-repayable loan that is not subject to income tax or National Insurance contributions (NIC). This was in place of ordinary salary, which as defined by HMRC ‘disguised remuneration’. HMRC determined that these schemes don’t work and in 2011, the law was changed to try and stop people using them.

Even though the law was changed scheme providers exploited various loopholes in the law.  These types of schemes continued to be offered, increasingly by some umbrella companies.  These intermediaries would pay agency workers like locum nurses and supply teachers. The problem was they did not provide information that this scheme was provided from within a grey area.

The doors have now closed and the Government has given HMRC the power to impose a second taxing point for historical schemes. This has come in the form of the April 2019 loan charge. This charge will affect anyone who used one of these loan schemes and who hasn’t paid the intended amount of tax over the last 20 years.

If you have been placed in this situation and are concerned about how to repay any tax owed, there is help available.  Your best course of action is probably to speak to HMRC and ask them for advice sooner rather than later.  If you are on a low income, there may be help available from other organisations.  Details on this can be found below.

Getting Help

HMRC are willing to offer you help but only if you are no longer using loan schemes.  If you are, and are trying to move away using this method then there is still hope.

If it is the case then you need to contact HMRC for support in migrating away from these schemes.  HMRC have dedicated teams that will work to assist you. This applies to both historic and current situations with the aim of working out and settling what you owe.  It is essential that this is done before the April 2019 charge is applied.  If you have not already started this process then do so now.  Speak to someone at HMRC about your affairs, give them a call or email cl.resolution@hmrc.gsi.gov.uk.

For more information about the loan charge you can read HMRC’s policy paper ‘Disguised remuneration charge on loans’ by clicking here.

Are You Responsible?

Most of these loan companies have shut up shop leaving the fallout for the contractor.  This means that there is no one for HMRC to go after except for the person who used the scheme.  HMRC can show a large degree of discretion when it comes to settling what is owed.  It may be likely that they will be sympathetic towards those who had no real control or a tax avoidance motive over entering into these arrangements.

Detailed settlement terms have been published in this article on GOV.UK (check the ‘contractor’ settlement terms, as these will be the ones most relevant to you as an individual settling your own liability).

Can You Avoid Paying The Charge?

There are some services that have sprung-up that offer to help you avoid the April 2019 loan charge.  HMRC have made it very clear that they believe such schemes do not work.  If you choose to use one of these it could go on to provide you with additional costs as well as even more stress.

On 14 February 2017, HMRC published Spotlight 36 to comment on this:

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.… 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.”

Is It Your Fault?

For some people there may be some light at the end of the tunnel.  You may have grounds to claim back any money you have to pay from the agency that provided the work.  New laws that have recently been introduced may hold agencies accountable. Those agencies who insisted people be paid through a ‘preferred’ umbrella company (that used loan schemes) may be liable.  Because of this new and complex scenario, you should seek legal advice so you understand it fully before taking action against the agency.

Summary:

If you have found yourself victim to the April 2019 loan charge the first thing you should do is contact HMRC.  There is hope but you need to act now, show willingness and show compliance.