HMRC is determined to tackle tax evasion and recuperate unpaid tax it deems to have been avoided or evaded through loan schemes. There is important information in the Finance Act 2017 on how HMRC are carrying out investigations on schemes that support disguised remuneration and any individuals that are choosing to use them.
The 2019 Loan Charge explained
HMRC introduced the 2019 Loan Charge to recuperate any unpaid tax by people who have been using disguised remuneration schemes, dating back to the 6th April 1999. If you have been using such scheme since 6th April 1999, you must pay back to HMRC what they deem to owe by 31st January 2020.
Which loan schemes are you to look out for?
A few that have been identified are the Employee Benefit Trusts (EBT), Contractor Loan Schemes or Arrangements and Employer Financed Retirement Benefit Schemes (EFRBS). There are plenty other schemes that may include more interesting names as the practice became increasingly more common and companies are being incorporated overnight; targeting contractors and business owners.
How much will the Loan Charge recuperate?
These schemes designed purely to avoid tax are costing the government billions of pounds annually.
It is believed that since 2010, HMRC has put in place over a hundred processes to reduce tax evasion/avoidance and they predict that over £175 billion has been protected that would have gone down as unpaid. HMRC is planning for 2017/18 to continue to improve these regulations so tax evasion and avoidance will be reduced to an estimated £1.2 billion.
What should you do if you participated in a loan scheme in the past?
Reporting to HMRC is the best option, as avoiding it and doing nothing will only prolong the inevitable. HMRC is becoming better at catching tax avoiders. Settling with HMRC will only put you in good stead as otherwise you could incur severe penalties.
You will most likely be challenged on your involvement on the loan scheme. As HMRC do not tolerate ignorance as a reason to be excused from paying tax. If it comes to light that it is the recruitment agency that has forced you into the loan scheme then both you and the agency could be punished.
Can your recruitment agency be accountable?
If your recruitment agency decides to facilitate you with tax avoidance or evasion schemes, then you and your recruitment agency are both responsible and will face penalties. The Criminal Finances Act 2017 explains that it is now classed as an offence to refer candidates to non-compliant payroll schemes.
At Churchill Knight Umbrella, you can be fully assured that we comply with all HMRC rules and regulations. This year, we are celebrating 20 years as a leading and compliant provider of contractor accountancy and umbrella payroll.
We look forward to working with you.