Have you received a letter from HMRC you to report and pay loan charge?
Brief introduction on 2019 loan charge.
This anti-avoidance scheme was introduced because of tax loss to the revenue.
Basically taxpayers that were affected were using a tax avoidance scheme to disguise their income to HMRC so as to pay little or no tax or national insurance.
Simple Illustration of how the disguised remuneration worked.
James work as Engineer, He earns £1000 weekly from his employment.
His payroll is run by an umbrella company based in Jersey.
This income would be declared to HMRC through the PAYE.
However, rather than declaring and paying tax and national insurance on the full amount of £1000, the payroll company declares £200 as salary and £800 as directors loan.
Therefore tax is only applied to £200.
This director loan that has been recorded for James will be set up by the umbrellas company through a third party such as an ‘employee benefit trust’ funded by them.
However, the loans are structured so that they were unlikely ever to be paid back by John.
So what changed to the last year to disguised remuneration?’
Last year, the HMRC was given permission by the parliament to go after taxpayers that have taken such loan I have described above since 1999 and is still outstanding as at 5 April to be treated as taxable income.
So, therefore, John would now have to pay tax on all the income declared as loan for the last 20years.
The main issue with loan reporting and tax payment.
If I James has been receiving income under this arrangement for the last 20 years and still unpaid by April 5 2019(because the plan was for the loan not to be paid), this will create a lot of tax bill due to be paid for James.
HMRC has actively encouraged taxpayers like James to have an arrangement on declaring the loans as income and set a payment arrangement on the tax due.
Why dealing with Loan charge now?
The introduction of the IR35 legislation made this tax avoidance scheme very popular recently.
Whereby contractors caught under the scheme used it as an alternative way of reducing their taxes.
Some taxpayers are not aware of the issues surrounding such loan tax and the umbrellas companies that have been set up specifically for these schemes are mostly not reachable.
Deadline for report and declare loan charge.
The deadline for reporting and paying loan charge for tax year 2018/19 is the 30th of September.
If you are been affected by these loan charge what you would need to the following
- Register yourself for self-assessment if not under the self-assessment regime.
- Use your bank statement to find the actual amount that you have received.
- Then find your P60 to see how much that has been declared through payroll and tax paid already.
- Submit your self-assessment and make a payment arrangement with HMRC
Conclusion on loan charge.
Thanks for reading my blog, I hope it has been helpful.
If you have been affected by the issues I have raised in this blog and you would like me to support you in resolving them, kindly contact me by visiting www.taxgirl.co.uk.
