Tax on contractor loans
Updated 10 August 2015
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This publication is available at https://www.gov.uk/government/publications/tax-on-contractor-loans/tax-on-contractor-loans
This publication was archived on 22 June 2016. The settlement opportunity closed on 30 June 2015.
Settlement opportunity
A contractor loan scheme is a tax avoidance arrangement where non-UK employers have paid you untaxed income or given you a loan instead of part of your salary.
If you’ve taken part in a contractor loan scheme you may still have to pay Income Tax on the loan.
You can use the Contractor Loans Settlement Opportunity (CLSO) to bring your tax affairs up to date on the best possible terms. This opportunity is is now closed for registration.If you have registered for the CLSO, you have until 30 September 2015 to settle.
Who can do this?
You can take up this opportunity if you’re an individual who has used a contractor loan scheme. But whether you can use the opportunity will also depend on other personal circumstances. For example, you can’t use the opportunity if you’re:
- subject to HM Revenue and Customs’ (HMRC’s) criminal investigation policy
- subject to civil investigation of fraud procedures
- a UK employer who has used an Employee Benefit Trust and should being using the employee benefit trusts settlement opportunity
If you’re not sure whether you can use this opportunity then you should contact HMRC.
HMRC may have already sent you a letter to tell you about this opportunity. If you have a tax agent acting on your behalf, then HMRC will also let them know.
If you think you’ve received a letter by mistake, you should contact HMRC to tell them why you think it doesn’t apply to you. If HMRC has made a mistake they won’t send you any further correspondence about the settlement opportunity.
How to take up
If you want to take up the settlement opportunity you (or your tax agent) needed to have contacted HMRC by 30 June 2015 to register, and agree settlement by 30 September 2015.
Where you agree settlement with HMRC, the terms of the agreement will be legally binding on both you and HMRC - they won’t be affected by any future legal proceedings. Also, if HMRC agrees a contract with you it won’t be binding on any third parties for any tax they might owe.
If you decide not to take up the settlement opportunity
If you don’t take up the settlement opportunity or come to an agreement to settle, HMRC will continue to take legal action which could lead to you owing more Income Tax or additionally, National Insurance contributions.
Find out what you owe
HMRC may have estimated the Income Tax on the loans you’ve actually received based on the rates typically offered. To make sure you don’t pay too much or too little tax please check your records or bank statements and let HMRC know the exact accounts received.
If you want to find out how much you might owe before agreeing to a settlement, you can ask HMRC for a calculation. Please complete and send HMRC form DO3 Contractors loans settlement opportunity - request for tax and interest calculation.
Loans from a trust
If your arrangements involved loans from a trust, there may be Inheritance Tax due. If there is, HMRC will let you know in your calculation.
Open enquiries or assessments
If HMRC has an open enquiry or assessment for a year, depending on the number of years involved they can either agree:
- to bring tax into charge by closing the enquiry and any appeals
- an overall contract with you to include the tax owed for all years
If you pay, or have paid, an assessment which underestimates how much tax you owed you should tell HMRC of any shortfall so that your tax position can be finalised.
Enquiries for different arrangements
If you receive an enquiry notice relating to a different arrangement you’ve used after the tax year ending 5 April 2011 then you can ask HMRC to discuss paying the tax to resolve these years too. HMRC may not be able to settle on the same basis as the earlier years but this will depend on how you used the arrangements and the law in place at the time.
How to pay
If you want to make a payment for what you owe, you should contact HMRC. They will give you a payment reference with instructions on how to pay.
Interest
Interest will run from the original due date until when it is paid. The longer you delay, the more you’ll have to pay. So it’s important to pay the tax as soon as you can.
You can stop interest building up by making a payment now, or using a ‘Certificate of Tax Deposit’. If you pay more than you owe HMRC will return the balance once the amounts have been finalised.
Penalties
If you agree settlement with HMRC it is unlikely that you would be charged a penalty - but HMRC will tell you early on if you will be.
If you report any other previously undisclosed income or gains to HMRC as part of the discussions about this arrangement, HMRC will calculate any penalties that may be chargeable separately and explain to you how they’ve been calculated. Telling HMRC about undisclosed income or gains now means that any penalties that are charged will be lower than if HMRC find out from another source.
Problems making payments
If you want to take advantage of the settlement opportunity but can’t pay the full amount due now, then you should contact HMRC.
HMRC will tell you how much is due so that you have certainty about the amounts involved. If you then pay the full amount due within 90 days you won’t be charged any more interest. If you can’t pay in full within that time HMRC may be able to agree an instalment arrangement in hardship cases. You’ll then be charged interest until the final payment date.