HMRC Loan Scheme Charge to come into effect on 5 April – here’s what you need to know

An estimated 50,000 self-employed workers in the UK made use of the scheme, which saw employers pay them via loans from an offshore trust. Employees were enrolled in such schemes as contractors, and are set to face a huge tax bill, as HMRC deploys crackdown on schemes dating back 20 years. ACCA (the Association of Chartered Certified Accountants) urges those affected to seek advice from qualified accountant.

With HMRC set to crackdown on tax owed through controversial loan schemes, ACCA is urging contractors and self-employed workers enrolled to seek financial advice from a chartered certified accountant.

It stems from government legislation in 2016, which applied a tax charge on outstanding balances – where employees had benefited from the lower tax rates applied under loan advances, instead of being paid salaries.

The schemes first arose in 1999, following a change in legislation on the way contractors were taxed. In 2010, HMRC issued a notice on such schemes advising they would fail, and three years later revealed it would conduct an investigation into the tax affairs of loan schemes users.

From April 5, the charge levied on loan scheme users comes into force. Those yet to have paid on outstanding loans dating back to 1999 could be facing a hefty tax bill. On average, the tax at stake is £13,000 per person – a figure based on extremes.  

Examples of those using this practice were highly-paid contractors redirecting personal income through trusts based abroad, and significantly, a large number of contractors working in the a variety of sectors including healthcare.

If the loan was repaid within the tax year, then it is ignored for tax purposes. It has also been widely reported HMRC is now issuing settlement offers in some cases, allowing users to avoid the loan charge.

Chas Roy-Chowdhury, head of taxation at ACCA, said: ‘ACCA urges anybody who used a loan scheme, or even thinks they may have been enrolled on one, to seek advice from a chartered certified accountant.

‘It is important to check if you are still enrolled, as HMRC will only offer you help if you are no longer using loan schemes.

‘HMRC has revealed that settlement do not necessarily need to be paid in one go. Payment arrangements are available. Those with a taxable income of less than £50,000 in the 2018/19 tax year is less than £50,000 won’t have to provide detailed supporting information about income and assets, and can spread payments over five years.

‘A seven year plan is available for those with an income of less than £30,000 a year.’

Commenting on the schemes, Mr Roy-Chowdhury says the number and variety of taxpayers involved is quite considerable, and that over the last 20 years differences in each scheme have arisen.

He said: ‘It is impossible to generalise, and we are witnessing what is becoming an irreparable situation.

‘Some employees were doubtlessly fully aware of the scheme, relying on the fact this was a loan which would never be repaid. Others rightly or wrongly relied on reassurances the scheme was legal and effective.

‘HMRC were very slow to publically condemn these schemes, and to pursue taxpayers, even those where enquiries were opened into their affairs.

‘The schemes relied upon having terms which would have allowed the balance to be repaid, and maybe even on certain conditions being met. Whatever the intentions of the parties, the legal words said that the advance of the funds was a loan.’

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About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, offering business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 208,000 members and 503,000 students in 179 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 104 offices and centres and more than 7,300 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

ACCA has introduced major innovations to its flagship qualification to ensure its members and future members continue to be the most valued, up to date and sought-after accountancy professionals globally.

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