Changes to the Treatment of Disguised Remuneration
Disguised remuneration was a scheme used by many directors of companies and of umbrella companies to avoid paying tax and National Insurance by taking out loans that were not repaid.
HMRC introduced harsh penalties for this scheme but yesterday published draft legislation following an independent review.
The major changes to the loan charge are as follows:
The loan charge will only apply to outstanding loans made on, or after, 9th December 2010.
The loan charge will not apply to outstanding loans made in any years before 6th April 2016 where the avoidance scheme use was disclosed to HMRC and they did not take any action.
This is a key change that will protect many people that had declared using the scheme but were being penalised anyway.
HMRC are proposing to refund voluntary payments already made to prevent the loan charge arising and included in a settlement agreement reached since March 2016 for loans made before 9th December 2010 and loans made before 6th April 2016 where the avoidance scheme was disclosed.
However, HMRC have said that they cannot process any refunds until the legislation has been passed by Parliament.
Furthermore, a number of packages to spread payments over a longer period, in some cases for a minimum of 7 years, have been announced.
This is good news for those that would have been hard hit by the loan charge but had been open with HMRC in declaring their use of the scheme. Where HMRC knows that the scheme has been used, they will be sending letters to give explanation of the changes.
Those needing to file a 2019 tax return can give their best estimate of tax due and HMRC have said that they will waive late filing fees and late payment penalties for outstanding tax for the period 1st February 2020 to 30th September 2020, as long as a tax return has been filed and any tax paid, or an arrangement to pay the tax made, by 30th September 2020.