HMRC has issued guidance to people that have previously used disguised remuneration loans as a means to avoid paying tax and who are now being pursued for repayment of loans.

In many cases, the request for repayment is because the original provider of the loan has sold the outstanding loans to a third party. In some cases, a loan may also be recalled by an insolvency practitioner.

Some of these third parties are now contacting users of the scheme to demand repayment of their outstanding loans – even if users believed they would not be asked to repay the loans. In some instances they may give an option of the scheme user making a one-off payment to buy themselves out of the loan arrangement to have the balance written off.

In addition to receiving a demand for repayment users of loan schemes may also:

  • have paid the loan charge
  • have arranged a settlement agreement with HMRC for the outstanding tax
  • be liable to the loan charge, but have yet to pay it

The loan charge was calculated on any loan from a disguised remuneration scheme outstanding on 5 April 2019. If the loan was repaid after that date, the loan charge still applies.

We’ve be contacted by people who have found themselves in the position of being pursued for an outstanding loan. HMRC won’t intervene in a dispute between two private parties over loan contracts. Any such dispute should be resolved through the courts in the normal way without government interference.

However, HMRC have set out:

  • some guidance for individuals affected by this, including actions to protect their positon
  • other organisations that may be able to help
  • actions HMRC may be able to take to mitigate the effect (with regards to any tax due)

Companies who are pursuing repayment of a loan are likely to make contact with one of the following:

  • a letter asking for details of loans
  • a request for repayment of loans and/or payment of interest on loans
  • a statutory demand to repay loans

Action you should take

  • Seek independent legal advice.
  • Check your paperwork to confirm if there is a legal liability for you to repay the loan.

Also look at:

  • who the request is from and if they have the right to request repayment – if you can, contact the original provider who made the arrangement to confirm the original terms of the agreement
  • details of any original repayment terms – was it clear the amount would not have to be repaid
  • if the third party is asking for interest in addition to the loan amount – confirm with them that you’re required to withhold the tax due on the interest to comply with Section 874 of the Income Tax Act 2007 (this is because the interest is their income in the UK, and you are required to pay the tax to HMRC on their behalf

If you received a statutory demand, you should be aware there are time limits for replying. In addition to seeking legal advice, you can find more information about how to challenge a Statutory Demand and the time limit for doing so.

Where there is evidence that there was no intention, as part of an agreement entered into, to make repayments of the loan amount, users may have a case for taking their case to the Financial Ombudsman.

The HMRC advice can be found on the .Gov website here.


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