If you’ve been following developments in the contracting world recently, you’ll have probably heard about the 2019 Loan Charge and the devastating impact this taxation is already having on a number of contractors.
Like a lot of tax legislation, the Loan Charge isn’t the easiest of concepts to grasp. But since it comes into effect on 5th April 2019 and you’re sure to be hearing a lot more about it in the next few months, we’ve boiled it down for you.
What is the 2019 Loan Charge?
The Loan Charge is a retrospective tax that applies to contractors who took out ‘disguised remuneration schemes’ that were often sold on the basis that contractors who bought into them did not need to pay Income Tax and National insurance Contributions on their earnings.
A significant rise in the number of these loans led HMRC to announce that they were illegal, and so the 2019 Loan Charge was unveiled in the 2016 Budget as the government looks to recoup missing tax dating as far back as 1999. This effectively means contractors who benefitted from these schemes now face the prospect of having to repay vast sums of money to HMRC.
Why are contractors furious about it?
Because thousands of individuals took out these schemes on the understanding they were totally compliant, contractors are outraged. In some cases, HMRC is demanding six-figure sums from individuals, which as you can imagine has placed an enormous financial and emotional strain on those affected. Sadly, it has reportedly resulted in a number of contractors committing suicide.
Contractors are wondering why HMRC is chasing them for missing tax and have been making the point that the taxman should be working harder to pursue the companies that sold these loans in the first place.
What is a ‘disguised remuneration’ scheme?
These type of schemes typically involve a contractor being paid in the form of a loan or another non-taxable distribution by a third-party in order to avoid tax. Given they are set up with the sole aim of evading tax, HMRC does not view them as compliant and contractors should be wary about entering into particular arrangements. Individuals are advised to work off the basis that if it sounds too good to be true, it usually is.
How many contractors took out these loans?
It’s difficult to know exactly how many individuals are impacted by the charge, but it’s been speculated that between 50,000 to 100,000 contractors face bills from the taxman. HMRC has said it has notified the vast majority of those who need to repay years of Income Tax and National Insurance Contributions, but if you believe it could affect you and you’re yet to receive any correspondence, you’re advised to call the government helpline on 03000 534 226 as soon as possible.
What’s the latest news on the 2019 Loan Charge?
The government has faced huge resistance to the Loan Charge and HMRC is under growing pressure to delay its introduction or make a U-turn on its decision to roll-out these changes.
After concerns were raised in Parliament, the government has promised to hold a review into the charge, with the findings due to be published at the end of this month. Although given the tax comes into effect a week or so later, at this stage in the game, it’s safer to work off the assumption that it will go ahead.
What can I do if I think I’m affected?
At the time of writing, HMRC has not backed down and despite preparing to publish a review into the impact of the charge, this retrospective tax will be enforced in April.
If you think you took out one of these loans and for some reason haven’t received a letter from HMRC, you’re advised to get in touch with the taxman right away. After apparently taking into account the sheer amounts of money involved, HMRC has said ‘flexible payment arrangements are available to anybody who has genuine difficulty paying what’s owed.’
Contractors earning less than £50,000 and who are no longer involved in one of these disguised remuneration schemes can spread their payments over five years, while those earning less than £30,000 have seven years to pay back HMRC. Individuals with an income of £50,000 or more can request extended payment plans, but the general feeling among contractors is that they will need to make a strong argument for doing so.
How to get help
As we approach the introduction of what many people consider to be an unfair tax grab on contractors, individuals are urged to reach out, speak with HMRC and lean on the support of the Loan Charge Action Group, for example, which was formed to raise awareness of the charge and also offers contractors advice on how to cope.