We have been going on about this for a while, knowing it would only be a matter of time before HMRC would clamp down on these non-compliant payroll schemes. We all know if something is too good to be true, it usually is.
Disguised remuneration schemes are arrangements that pay loans instead of normal salary to avoid Income Tax and National Insurance contributions.
From April 2019, HMRC will introduce the loan charge to deal with the use of these avoidance schemes.
The terms were published in November 2017 to encourage users of these schemes to settle their affairs before the loan charge comes into effect.
HMRC are aware that wording about Inheritance Tax (IHT) in the settlement pack they ask scheme users to complete is being misunderstood. This especially applies where contractor loans schemes have been used.
Scheme users are being told that HMRC will demand a deed of release or exclusion, or both, before agreeing a settlement of your disguised remuneration liabilities and in some cases, being charged for these deeds.
HMRC will not demand a deed of release or exclusion, or both, before they agree a settlement.
If a settlement is not reached and the loan charge becomes payable, HMRC may accept a payment made to secure a deed of release or exclusion, as reducing the outstanding loan balance if it:
- represents a genuine repayment of the loan
- is paid in cash
Any flat fee paid is unlikely to be deductible in reaching the settlement amount due.
HMRC has now changed the IHT wording of the settlement pack to explain. It now reads:
‘I wish to have IHT included in the settlement on the basis of the loans being written off or released within 30 days of a settlement being agreed. No further evidence will be required by HMRC of this. If the loans are not written off or released within 30 days of a settlement being agreed, I will contact HMRC so that the IHT position can be reviewed.’
In simple terms once, if the company or employer wrote off the loan, you would be liable to pay the full amount of tax back. If the loan was not written off, you would be liable for the full sum of money.
If HMRC rules that you are guilty of tax avoidance (even unknowingly), the penalties can be severe. You may be liable for the full tax amount upfront and any Inheritance Tax charges if the loan was paid through a trust.
If you’re using or have used disguised remuneration tax avoidance arrangements, you should come forward and contact HMRC before the loan charge comes into effect on 5 April 2019.
HMRC understands that for some people who have used these schemes, paying the tax due will have a significant impact. If you have problems paying what you owe, flexible payment arrangements are available.
If you are looking for any advice on these schemes or looking for an accredited payroll provider to manage your payroll requirements from April 2019, we might have a solution to suit your needs, contact us on 01252 863 700 for a confidential chat or visit www.epayme.co.uk