Guidance

Disguised remuneration: schemes affected by the loan charge (Spotlight 44)

Settle your use of disguised remuneration schemes before the loan charge arises in April 2019.

Overview

It’s HMRC’s view that disguised remuneration schemes that replace income with loans do not work. You should settle your use of these schemes now.

The loan charge will arise in April 2019 to tax outstanding disguised remuneration loans.

In most cases early settlement will cost less than under the disguised remuneration loan charge.

How to settle before the loan charge arises

HMRC can help you put your tax affairs right. We know that the cost of settlement will be significant for some, so we’ve made our processes simpler.

The only way to make sure the loan charge will not apply to you are by:

  • settling before the loan charge takes effect
  • repaying all loans in full

HMRC will agree instalment plans of up to 5 years if you want to settle your disguised remuneration schemes before the loan charge arises, without having to give detailed supporting information of your means and ability to pay if:

  • your expected current year income is less than £50,000 (for employees this is your gross earnings, while for self-employed people this is your expected net profit)
  • you’re no longer engaged in tax avoidance

You’ll qualify for an instalment plan if you meet this criteria. To reduce interest you should always pay over the shortest period possible.

If your income is £50,000 or higher, or you need a longer period to pay, we can still work out a suitable arrangement. We’ll need more information from you before doing this.

The published terms cover most circumstances and settling now is cheaper than the loan charge in most cases.

If you want to settle before the loan charge arises you should give HMRC all the information we need before 30 September 2018.

If you’re already speaking to someone in HMRC about your use of a disguised remuneration scheme, or if you have a compliance manager, you should discuss this with them.

If you’re not already speaking to someone at HMRC, register your interest by emailing:

Schemes affected by the loan charge

Most disguised remuneration schemes will be affected by the loan charge in 2019. HMRC is aware that some promoters or agents may have told you that settling will not be beneficial, and that:

  • the disguised remuneration loan charge will not apply to you
  • other disguised remuneration anti-avoidance legislation does not apply to your arrangements

HMRC does not agree.

The legislation is not limited to just loans, it also includes other forms of credit. For example, if you used a Corporate Remuneration Trust scheme you may have been told that the loan charge will not apply to you. HMRC does not agree and you should get independent advice to find out how the settlement terms would be beneficial to your circumstances.

If you’ve used the Self Employed Remuneration Trust scheme then the basis of settlement will be different to that in the published terms, but the April 2019 loan charge will still apply.

HMRC is also aware of new arrangements being sold to try to avoid the loan charge on an existing scheme. These schemes do not work. Read more on these schemes in Spotlight 36 and Spotlight 39.

What happens if you do not settle

If the loan charge arises before you settle, all outstanding loans will be treated as income and taxed on 5 April 2019.

This means you’ll have only the personal allowance for the tax year 6 April 2018 to 5 April 2019 taken into account, and you’ll likely pay more tax at higher or additional rates.

This may impact some income dependent charges or benefits including:

  • entitlement to tax free childcare
  • the high income child benefit charge

If you do not settle before 5 April 2019 and fail to pay the loan charge you may face:

  • continued enquiries
  • higher tax bills
  • interest
  • possible penalties

The longer you take to settle your use of these schemes, the more you’ll pay in interest charges.

Published 30 July 2018