Repercussions of tax schemes
Convoluted tax avoidance methods are known as ‘tax schemes’. Back in 2000, a popular tax scheme was to receive pay from your job as a ‘loan’, on which there was no tax, and no National Insurance. The individuals who took part in these schemes were told they were 100% legal and the loan would be written-off on their death, so they would never have to pay tax on the loan. In reality, the money provided wasn’t a loan if it was never going to be repaid; it was a disguised form of remuneration.
In December 2009 HMRC made it clear that disguised remuneration schemes would not be tolerated. Anyone who took part in such a scheme after that point was taking a huge risk, but the promotors of such schemes often didn’t warn their customers.
Now HMRC has got tough and a stiff penalty is due. If you received a disguised remuneration loan at any point in the past, and it is still outstanding on 5 April 2019, it will be deemed to be your taxable earnings received on that date. This special loan charge will apply on top of the tax and NIC actually due on the loan, so in effect a double hit of tax.
There is a partial solution, but only if you act fast. If you engage with HMRC before 30 September 2018 you can avoid the special loan charge in 2019, but you will have to pay tax according to the rates in force when you received the loan. However, we can help you negotiate a repayment schedule so the payment can be spread over time.