UK Says Disguised Remuneration Loan Charge Unavoidable
The UK tax authority, HM Revenue and Customs (HMRC), has warned taxpayers to avoid disguised remuneration schemes that attempt to recharacterize loan arrangements to avoid the 2019 loan charge on disguised remuneration.
“HMRC is aware of schemes that claim to avoid the 2019 loan charge on disguised remuneration. These schemes don’t work,” the department said in guidance published on August 10.
The loan charge is part of the Government’s ongoing campaign to tackle tax avoidance through disguised remuneration, and will apply to the outstanding balance of disguised remuneration loans on April 5, 2019, that were made after April 5, 1999. The amount of the loan outstanding is, broadly, the principal of the loan less any repayments.
Disguised remuneration (DR) avoidance schemes are used by employers, employees, and the self-employed, and claim to avoid income tax and National Insurance contributions (NICs) on remuneration.
According to the guidance, scheme users are being told they can sign documents saying that the sums they’ve received from their disguised remuneration scheme under loan agreements are not in fact loans, and that the sums are merely held by them in a “fiduciary capacity.”
However, HMRC said that: “It’s wrong to claim that the loan charge won’t apply because the sums received aren’t loans.”
“Renaming something now doesn’t change what happened in the past. Attempting to describe a loan as something else doesn’t mean it’s not a loan,” it added.
HMRC said that the loan charge will apply to any form of credit or other right to a payment regardless of its terminology. It warned those that do not reflect the loan charge on their tax return that they may face a significant penalty in addition to the tax charge, or in certain cases where HMRC believes it has been “deliberately misled,” prosecution.
“The only way you can avoid the new loan charge in 2019 is by making a repayment of the loan balance or settling your tax liability with HMRC in advance,” the department explained.
