How to report details of your disguised remuneration loan scheme and account for your loan charge liability.
Disguised remuneration loan schemes are used to avoid paying Income Tax and National Insurance contributions.
You’re classed as having a disguised remuneration loan, when you’re paid for work or services by receiving a loan or other form of credit in a way that means it is unlikely to be repaid.
If you received a disguised remuneration loan or credit on or after 6 April 1999 and it is still outstanding on 5 April 2019 it will be liable to a tax charge, unless you or your employer have previously accounted for any tax due on the loan.
This is known as the ‘loan charge’.
You need to report outstanding loans to HMRC and where appropriate, to your employer.
If you or your employer have reported the tax and correctly paid the duties due for outstanding loans on or before 5 April 2019 you’ll not have to report the loan charge, but you may still need to complete an additional information return.
The loan charge only applies to the tax year 2018 to 2019. If you receive disguised remuneration income in the form of loans after 5 April 2019, you’ll have to pay Income Tax and National Insurance contributions on it.
Loan charge review
What the loan charge affects
The loan charge affects:
- individuals who used disguised remuneration tax avoidance schemes and have not repaid their loans or provided HMRC with all necessary settlement information by 5 April 2019 and subsequently settled
- employers who provided loan funds through disguised remuneration tax avoidance schemes and have not provided HMRC with all necessary settlement information and subsequently settled, or their employee or former employee has not repaid their loans by 5 April 2019
If you do not reach settlement with HMRC until after 5 April 2019, you’ll be given information when you settle on whether the loan charge reporting requirements will apply to you.
Calculate your loan charge
A loan is classed as outstanding if the total sums loaned are more than the total repayments made. The charge takes the total balance of all outstanding disguised remuneration loans on 5 April 2019 and treats them as income received on that date or trade profits arising in the tax year 2018 to 2019.
This means that loans outstanding on this date will incur an Income Tax and National Insurance contributions charge as if they were earnings or profits received in the tax year 2018 to 2019.
To calculate the value of your outstanding disguised remuneration loans, you may need to check:
- payslips or invoices you received for work performed whilst using these arrangements
- any contracts of employment or service contracts you entered into
- loan agreements you signed, or any other documents that were part of the disguised remuneration arrangement, such as letters from your employer
- your bank statements or check with your bank if your loan was paid directly into your bank account - some banks may charge a fee for searching old records
- your P60
- with the people you received the loan from (usually the trustees of a trust), for information about the loans - they have a legal obligation to give you a response within 30 days of you making a written request
Your outstanding disguised remuneration loan balance will not be treated as earnings when calculating your entitlement to some income-related benefit payments, such as:
- Universal Credit
- Housing Benefit
- Jobseeker’s Allowance
- Employment and Support Allowance
- Pension Credit
- Income Support
- Carer’s Allowance
- tax credits
Loan repayments to be disregarded
Some loan payments will be disregarded for the purposes of the loan charge. Only genuine repayments can be accepted as valid payments. A genuine repayment is one where the repayment amount is not routed back in some way to the person who received the original loan and the repayment is not related to a further scheme to avoid tax.
Some other repayments are also disregarded, so you may still need to report your loan amount as outstanding even if you think the loan has been repaid.
If you used an employment scheme, disregarded repayments include any repayments that were:
- not in money and made on or after 17 March 2016
- linked to an avoidance scheme and made on or after 17 March 2016
- made on or after 17 March 2016 where the money or asset used in the repayment is the subject of a subsequent ‘relevant step’, which means that the amount repaid is then routed back to you in some form
If you used a trade based scheme (used by self-employed traders and partners in trading partnerships), disregarded repayments include those:
- not in money, made on or after 5 December 2016
- linked to a tax avoidance scheme
You may also still need to report your loan information if:
- the loan has been written off or released by the lender without settlement of the tax due
- you entered into subsequent arrangements which attempt to remove the tax liability on the amounts put through the scheme
Repayments made to any disguised remuneration loan in a depreciating currency (whenever made), will only count up to the sterling value of that repayment.
Accelerated Payment Notices
If you have paid an Accelerated Payment Notice (APN) for a tax avoidance scheme covered by the loan charge, you may be able to offset your APN payments against some or all of the charge.
You can only do this if the APN is for the same tax avoidance scheme that the loan charge applies to and if you paid the APN yourself.
You can apply to HMRC for your APN payments to become a non-refundable payment of the tax due on either:
- the loan charge
- any earlier charge on the same income
To use your APN payment in this way you must not have used the APN payment to cover another tax charge and you’ll need to tell HMRC:
- the name and Scheme Reference Number (SRN) of the scheme the APN relates to
- the dates and amounts of the original loan subject to the APN
- the balance of the loan subject to the APN at 5 April 2019
If you use your APN payment in this way you can never have it repaid, even if the scheme to which the APN relates is challenged and HMRC does not win.
Double Taxation Relief
If your disguised remuneration loan is subject to an earlier tax charge, you can ask HMRC to credit any amount already paid or accounted for when you pay the loan charge.
How to report a disguised remuneration loan
You must report any outstanding disguised remuneration loans to HMRC before 1 October 2019.
To use the online service, you need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you apply.
If you’re filling in the form for someone else, you’ll need their National Insurance number or Self Assessment Unique Taxpayer Reference (UTR).
You must include loans under each scheme separately. Monthly loans made as part of the same arrangement should be added together and returned as one for each tax year.
You’ll need to provide details of the loan arrangements you used in each tax year. These details will include:
- the scheme name
- the start and end dates of the schemes you used
- any HMRC case reference number you have
- your Disclosure of Tax Avoidance Scheme number, if you have one
- the total loan amount in each tax year, including any amounts repaid or written off
- any amounts of tax or National Insurance contributions you have already settled
HMRC will check the details you send and will contact you if you need to provide more information.
If you need to add another scheme or change the details you sent, you will need to send your details again together with the changes or new information.
How and when you’ll need to provide the information to HMRC depends on the type of scheme you were using.
Typical characteristics of the main types of scheme are explained below. The reporting requirements depend on the nature of the scheme used, not your employment status now or in the past. For example, this means that if you used an employment based scheme you’ll have to meet the reporting requirements for that scheme, even if you consider yourself as self-employed.
Your employer provides funds to a third party (normally a trust) who lends those funds to you. You’ll normally have an employment contract with your employer who should give you payslips.
You provide your services through a third party known as an ‘intermediary’, who is often based offshore and provides funds to another third party (frequently a trust). The trust then lends those funds to you. You’ll normally have an employment contract with the intermediary who should give you payslips.
Trade based schemes
You may have a contract for services, meaning you are working in a self-employed capacity and payments may be routed through an offshore trust that lends those funds to you. As you were self-employed you would not have a contract of employment or receive a payslip.
If you’re not sure which type of scheme you have used, contact HMRC.
If you do not report details of your outstanding disguised remuneration loan to HMRC before 1 October 2019, or the information is not complete and correct, you may be liable to:
- an initial penalty of £300
- further daily penalties of up to £60 a day for as long as the information remains outstanding, up to a maximum of 90 days
- a penalty not exceeding £3,000 for each inaccuracy deliberately or carelessly included within the information provided, or discovered after the information has been submitted and you do not tell HMRC
Employees and contractors using employment schemes
What you need to do depends on the current status of the employer who you had the disguised remuneration loan arrangement with.
If your employer or former employer:
- exists and is based in the UK, they must account for and pay the loan charge on your behalf using PAYE
- is no longer on the companies register or is not based in the UK, you’ll need to pay the loan charge through your Self Assessment return
As well as telling HMRC about your outstanding disguised remuneration loans, you must also tell any employers you had loan arrangements with or who put arrangements in place from which you benefited.
You must do this by 15 April 2019. If you do not, you must let HMRC know.
You can find information about a company if you do not have any contact details for the employer.
If the company is insolvent you should send the information to the appointed insolvency practitioner. You can find insolvency information about the company if you do not know their contact details.
If the relevant employer is based in the UK they should report and pay any disguised remuneration loan charge on your behalf. If this tax can be deducted from any payments your employer makes to you, they will do this through PAYE.
If your employer cannot deduct this tax from your pay, you should agree how you’re going to repay them before 5 July 2019. This is known as ‘making good’. If you do not do this, you may incur a charge.
HMRC will first go to the employer who provided you with your disguised remuneration loan to collect the loan charge. If they cannot pay the loan charge, HMRC may transfer this charge to you in the future. If this happens you may have to pay the loan charge and the additional tax charge.
If you are concerned that you may not have the chance to make good the tax due to your employer, you can choose to pay your tax directly to HMRC.
Paying directly to HMRC may not stop an insolvency practitioner pursuing any claim in insolvency. You may wish to seek independent professional advice if your employer is insolvent.
If you used a disguised remuneration scheme with a UK employer, HMRC will accept direct payments of tax from you, and will agree that the additional charge will not apply if you make this payment.
If you used an employment based scheme, and want to pay the tax you owe directly to HMRC you should notify firstname.lastname@example.org or Telephone: 03000 599110 by 4 July 2019.
If you contact HMRC by 4 July 2019, and reach a binding agreement to pay the loan charge, HMRC will not apply an additional charge.
When reporting the loan charge to HMRC you must also include it on a Self Assessment tax return for the tax year 2018 to 2019, using the SA102 return.
Your employment income in the tax year 2018 to 2019 should include the amount of disguised remuneration loans outstanding, as well any other employment income. You should use the figures from your P60 or information provided by your employer if you have left employment.
You’ll need to give details of your employment income relating to the loan charge on your tax return, along with any other employment income you received in the tax year 2018 to 2019. Loans you received through trade based schemes should be shown separately to the sums for employment based schemes.
Employer no longer exists or is not based in the UK
You still need to tell HMRC about any outstanding disguised remuneration loans before 1 October 2019.
You also need to complete a Self Assessment return. The total of your outstanding loans is deemed as employment income in the tax year 2018 to 2019. You should report this in the additional information page, boxes 21 to 24.
You’ll also need to include any other employment income received in the tax year 2018 to 2019. If you received loans through trade based schemes you should include those sums in your Self-Assessment return separately to the sums for employment based schemes.
If your employer is not based in the UK, the responsibility for payment of the tax on the loan charge transfers to you.
If you do not usually complete a tax return you’ll need to register for Self Assessment.
Employees and contractors using trade based schemes
You should include outstanding disguised remuneration loan amounts from trade based schemes in your Self Assessment tax return.
If the trade in which you received the loans continued trading in the tax year 2018 to 2019, you should include the loans as ‘disguised remuneration additions to profits’ in the appropriate box of your SA103 self-employed tax return. Your tax return will also need to include any other profits from trading activities for the tax year 2018 to 2019.
If the trade did not continue in the tax year 2018 to 2019, what you need to do depends on when the trade ended. If the trade ended:
before 6 April 2018, you should include the loan amount in your SA101 additional information tax return as ‘self-employed or partnership income where the trade has ceased’
before 6 April 2012, you should include the total loan amount in Box 22 of your SA101 additional information tax return, as income taxable in the tax year 2018 to 2019
Where the trade ended between 6 April 2012 and 5 April 2018 you can have the loans treated as taxable income in the tax year in which the trade ended.
In this case, do not complete Box 22 of your SA101 additional information tax return, but instead complete boxes 23 and 24.
If you do not usually complete a tax return you’ll need to register for Self Assessment by 5 October 2019.
If more than one tax charge arises for the same loan, you can ask HMRC to credit what you pay under the loan charge against the other tax liability. This will prevent you having to pay tax twice on the same income.
If you also had loans from employment based schemes, you’ll need to report them separately using the employment income pages in your Self Assessment return.
If you have difficulty paying
If you think you’ll have difficulty paying the Income Tax and National Insurance contributions due, you must still send the information shown in this guidance or you may be liable to penalties. You should contact HMRC as soon as possible to discuss your options.
Reporting and paying the loan charge will not settle any other outstanding liabilities in relation to your tax affairs. These will continue to be dealt with by the office dealing with your ongoing case.
Any employees you’ve had disguised remuneration loan arrangements with, should send you details of outstanding loans by 15 April 2019 so you can account for the loan charge.
Third party lenders (usually trustees of an Employee Benefit Trust or similar body) also have a duty to provide you with this information.
Even if they do not provide you with any information you must still send a loan charge return to HMRC.
You have a legal obligation to operate PAYE on the amount of the outstanding disguised remuneration loans for each employee or former employee you funded.
You should check with your payroll software provider whether they have made the changes necessary for you to correctly report the outstanding disguised remuneration loans.
If they have not, you’ll need to use an Earlier Year Update (EYU) submission through HMRC’s Basic PAYE Tools (BPT) to report the outstanding disguised remuneration loans. This will be available from 20 April 2019.
When submitting the EYU for each employee or former employee, you should:
- enter the amount of that employee’s outstanding disguised remuneration loan balance in the ‘Amount of Part 7A disguised remuneration income’ field
- include this amount in the taxable pay fields, the gross earnings for National Insurance contributions fields and if relevant the student loan deduction fields
- calculate and pay the PAYE tax and National Insurance contributions due by 22 April 2019 if paying electronically, or 19 April 2019 if paying by post
If you’re using BPT to complete an EYU submission, you’ll need to enter the previously submitted year to date figures. You’ll also need to calculate the tax, National Insurance and student loan deductions due.
BPT will not do this for you, so you should use your current payroll software product to do your calculations. If this is not possible you’ll need to calculate the tax, National Insurance and student loan deductions.
You must submit the EYU to HMRC as soon as possible after 20 April 2019 and ensure you pay the Income Tax and National Insurance contributions payment. Late payment interest will be due if you do not pay on time.
If you’re reporting an outstanding disguised remuneration loan balance for a former employee, you should use the guidance for paying an employee after giving them a P45.
If you’re an employer who is liable to the apprenticeship levy as your pay bill is over £3 million in the tax year 2018 to 2019, you’ll also need to recalculate this levy and send a revised Employer Payment Summary.
You should include any disguised remuneration income in respect of the loan charge on a P60. If you do not include the disguised remuneration income in a P60, you should notify the employee of the:
- date of the payment (loan charge)
- amount of the relevant payment (loan charge)
- amount of tax deducted on making the payment, or to be deducted or accounted for under regulation 62(4) or 62(5) (notional payments)
- amount of employee Class 1 National Insurance contributions deducted on making the payment
You should provide the employee with this information as soon as you reasonably can.
If your employees do not repay the disguised remuneration loan tax liability you accounted for by 5 July 2019 and you could not deduct this from your employees’ normal salary, a benefit in kind charge will be due. You must then complete a P11d for the tax year 2018 to 2019.
You may be subject to penalties if you do not report outstanding disguised remuneration loans for your employees and pay the tax and National Insurance due.
If you do not have enough funds available to pay the PAYE you reported, you should contact HMRC as soon as possible to discuss your options.