Disguised Remuneration Schemes and Contractor Loans

Many contractors who entered into tax avoidance schemes may face larger fines in April 2019 if they do not take advantage of an extended deadline offered by HMRC.

HMRC had originally offered contractors the opportunity to register their interest to settle any unpaid tax by 31stMay 2018. However, in a recent change, the deadline has now been extended to 30th September 2018.

Contractors who had entered into disguised remuneration schemes may now face financial penalties that in some case could be higher than the amount of outstanding tax. Such schemes worked by contractors receiving payments via loans from an offshore trust.

HMRC now considers such arrangements as tax avoidance and is seeking to recover unpaid tax from contractors who entered into these. The schemes are commonly known as disguised remuneration schemes, employee benefit trusts and contractor loan schemes.

The use of these arrangements was largely considered as legitimate prior to 2010, which is when HMRC issued a notice. HMRC also changed rules relating to the schemes in 2016, which may subsequently leave many individuals facing charges on the loans received through the schemes.

Critics of HMRC’s approach have argued that the rules are being applied retrospectively and the potential fines for many may result in bankruptcy.

HMRC has said that the recent deadline to register an interest would give contractors certainty over their position and potential outstanding tax. Beyond this, HMRC has now shifted the onus on private companies who hire contractors to determine their official employment status.

Time is ticking for contractors who entered into these arrangements. If interest is not registered to clarify their tax position, contractors could face higher repayment demands in April 2019.

Our team of experienced tax advisers have assisted a number of individuals who had entered into disguised remuneration schemes and who were unsure of their tax liabilities. Despite the deadline passing, there are still options available to make a voluntary tax disclosure, and we offer a free initial phone consultation to assist in clarifying your current position.

To discuss your circumstances in complete confidence, call us on 0113 387 5670, email us at enquiries@forthsonline.co.uk or fill out an Enquiry Form and we will contact you directly.