Contractors' Questions: When do Disguised Remuneration rules bite?

Contractor’s Question: Having read about the disguised remuneration clampdown, I was going to respond to the consultation but am surprised to see it’s already closed. So timing-wise, when will the clampdown take effect and what are the ramifications, broadly?

Expert’s Answer: Tax planning schemes involving companies making interest free loans to employees as an alternative to withdrawing profits as salary and paying tax and national insurance on them were meant to be headed off by the Accelerated Payment Notice regime.

But APNs have not eradicated these schemes and so, in order to avoid protracted legislation, HMRC is bringing in new rules on disguised remuneration.

The broad effect of these new rules is that if any contractor still has an outstanding loan from their company, or a third-party vehicle set up for the purpose (whether it is in the UK or lurking offshore), and has not already reached a settlement with HMRC, then the Revenue plans to levy tax, national insurance, and interest on the loan in April 2019, as though it was salary.

If the tax liability can’t be recovered from the employer – which is highly unlikely in most cases - HMRC will impose the liability to tax and NIC on the individual.

In terms of timing, a consultation did indeed close last month and the general expectation now is that this legislation will be enacted around the time of the Autumn Statement on 23 November.

As this could happen, and if it does it would happen with retrospective effect, we’d recommend contractors consider whether to settle the liability with HMRC now, on the most favourable terms that can be secured. The only other obvious way of avoiding this charge would be to repay the loan before April 2019 – in cash – which is not likely to be a particularly palatable or practical solution for many contractors. We also recommend that regardless of which option you’re leaning towards, you enlist a reputable, experienced and commercially-savvy adviser at the earliest opportunity.

The expert was Liz Coleman, head of disputes & forensics at Opus Business Services.

Editor’s Note: Related Reading –

Disguised Remuneration Users get relief tempter