The loan schemes, otherwise known as ‘disguised remuneration’ schemes, are used to avoid paying Income Tax and National Insurance there by reducing the amount of tax paid by individuals.
HMRC makes clear in its statement that it has never approved such schemes and has always said they don’t work. Some promoters have in the past used the fact that their schemes were known to HMRC through having an allocated ‘DOTAS number’ as tacit approval.
The loan charge works by adding together all outstanding loans and taxing them as income in one year. The result is that such taxpayers are likely to pay tax at higher rates than they would have at the time they were paid in loans. If such taxpayers settle their tax affairs before the loan charge arises they will pay tax at the rates for the years they received the loans.
The loan charge policy is expected to protect £3.2 billion income to HMRC. An estimated 50,000 people have used a loan scheme that will be affected by the loan charge. Most of them work in the ‘business services’ industry – this includes jobs like IT consultants, financial advisers and management consultants.
HMRC is encouraging people in these schemes to come forward and settle their tax affairs before the loan charge applies, as it is likely to be more beneficial for them.
The Bedrock team is working with a lot of people who have use loan schemes who now want to enter into settlement with HMRC before April 2019 so as to avoid it costing them more. The basis on which HMRC calculates the amount owed varies based on the calculation used, all of which can be technically correct.
We have assisted a significant number of accountants and their clients to ensure that the technicalities are fully understood, and the lowest possible settlement figure is agreed with HMRC. Get in touch today if you’d like to discuss how we can assist you.