Time running out for 'disguised remuneration' scheme users to settle affairs

"Time is running out for users of the various types of loan schemes to settle their affairs before being hit with a new loan tax charge in April," said Josie Hills, a tax investigations expert at Pinsent Masons, the law firm behind Out-law.com. "Anyone who is affected needs to take urgent advice. This applies to both employers and employees or contractors who have used these schemes."

The schemes are designed to avoid income tax and national insurance contributions (NICs) and involve an employee or contractor receiving a loan or other payment from a third-party, such as a remuneration trust or employee benefit trust (EBT), which is unlikely to ever be repaid.

HMRC has argued for a number of years that these schemes do not work and has issued various 'spotlights' advising people not to use the various different variants of the scheme. 

In July 2017 the Supreme Court decided that payments made by Rangers Football Club to players and executives at the club through an EBT avoidance scheme were earnings, and therefore subject to income tax and National Insurance contributions.

HMRC’s settlement facility opened in November 2017 and originally had a registration and information deadline of 31 May for taxpayers wishing to settle disguised remuneration liabilities. However, in an update in June 2018, HMRC extended the deadline to 30 September 2018 for registering and providing information to HMRC.

A new loan charge for disguised remuneration loans arises on 5 April 2019. It will apply to any loan from 6 April 1999 that was received through a disguised remuneration tax avoidance scheme and is still outstanding on 5 April 2019. The charge will not arise on outstanding loans if the individual has agreed a settlement with HMRC before that date.

Accelerated payment notices (APNs) have been issued in relation to many disguised remuneration schemes, meaning that tax may have been already paid, even though arguments with HMRC over the efficacy of the relevant scheme are still continuing. Those who have already made an accelerated payment for the same loan can apply to postpone the loan charge in some circumstances.

HMRC says that since the loan charge was announced, more than 5,000 individuals and employers have agreed to pay tax they owe and a further 20,000 people have contacted HMRC to register an interest in settling.

Flexible payment arrangements are available to anybody who has genuine difficulty paying what they owe, HMRC states. It will allow scheme users to spread their payments over 5 years if their taxable income in 2018 to 2019 is estimated to be less than £50,000, as long as they are no longer in avoidance. It will consider arrangements on an individual basis for those with higher incomes who may need to pay over an extended period.

"Anyone who may be affected will need to act quickly as it is not simply a question of registering by 30 September, HMRC also need to be given all the information needed for the settlement by this date," Josie Hills said.

30 September is also the deadline for those who have not declared all their offshore income or gains to correct their non compliance under the 'requirement to correct'. Those who do not come forward by this date face face stringent financial penalties and, in the most serious of cases, the prospect of a criminal prosecution.