Missed the First Loan Charge Settlement Deadline? Don’t Despair
HMRC is targeting contractors that have participated in disguised remuneration ‘loan schemes,’ and time is running out to avoid an enormous tax bill next year.
If affected contractors fail to make a settlement with HMRC by 5 April 2019, any outstanding ‘loan’ tax payments could be tacked onto their 2018/19 tax bill.
Unfortunately, the first settlement deadline has already passed. HMRC had instructed contractors to register their interest in settling and fill out relevant documentation before 30 September.
HMRC said that this deadline needed to be met if the taxman was to guarantee that it could process a settlement before the April deadline.
If you have missed this date it may still be possible to settle with HMRC, but you will need to act quickly.
What is the loan charge
The loan charge applies to contractors that participated in disguised remuneration schemes.
These are tax avoidance schemes where participants received remuneration in the form of a ‘tax-free-loan’, avoiding income tax and National Insurance Contributions (NICs).
HMRC says that because these loans are unlikely to ever be paid back, this money is actually income and subject to tax.
Loan charges apply to all applicable ‘loans’ made since 6 April 1999 if they are still outstanding on 5 April 2019.
If disguised remuneration contractors don’t reach a settlement with HMRC before the April deadline, any outstanding loans will be treated as income in 2018/19, resulting in a very large tax bill.
Remuneration loans can also attract hefty penalties of £60 for each day that the payment is outstanding.
HMRC estimates that 50,000 individuals will be affected by the loan charge, but it is thought that a significant proportion still haven’t come forward to apply for a settlement.
Settling the loan charge
Although there are other ways around paying the loan charge - such as repaying the original loan - we believe that, for most contractors, the best option will be to reach a settlement agreement with the taxman.
When entering into a contract settlement, HMRC will work with contractors to agree a manageable payment plan.
Contractors settling before the April deadline will be able to settle over a period of up to five years if their current taxable income is less than £50,000 and they are no longer involved in tax avoidance.
If your income is higher than £50,000 or you need a longer period to pay, HMRC will require more detailed financial information before agreeing to arrangement.
I have missed the 30 September deadline
If you haven’t registered your interest and filed the necessary paperwork before the 30 September deadline, you may still be able to reach a settlement before the April deadline.
You can still come forward after the 30 September deadline but HMRC says it may not be possible to reach a settlement ahead of the loan charge arising.
HMRC says: “The earlier you send HMRC the information the more chance there is of reaching a settlement before the loan charge arising.”
If you cannot reach a settlement agreement with HMRC before the April deadline, you should seek professional advice.
If you cannot afford to pay the settlement or the resulting loan charge, you may want to consider personal insolvency action.
Umbrella Insolvency are personal insolvency experts. Speak to a member of the team today. Call: 0800 611 8888 or visit our specialist insolvency website at www.umbrella.uk