HMRC warns contractors over offshore loan scheme
IT contractors are among 16,000 individuals who have been given six months to come forward to the taxman or risk paying more, having used an offshore scheme that avoided £176m a year in tax.
Unveiling the settlement opportunity, HM Revenue & Customs said it would be open until January 2015 to users of the loan scheme, each of whom has an average annual tax bill of £11,000. (Ed: HMRC has extended the settlement opportunity to June 30th 2015)
If they fail to come forward and continue to challenge the liability, HMRC said the contractors risk having to pay additional tax charges and penalties – as well as the costs of litigation if they lose.
If they do use the settlement opportunity, applicable to the tax years up to April 5th 2011 (before the Disguised Remuneration rules took effect), they can settle up on the “best possible terms.”
This means they will pay only the tax and interest due on the sums they received as loans under the “particularly aggressive” scheme, which was used by 1% of the UK’s contractor population.
They signed a contract of employment with an offshore employer, which then paid them for their work on UK contracts via an offshore company or trust, in the form of non-taxable loans, not income.
Such an arrangement is broadly similar to that of Employee Benefit Trusts, users of which – if they are UK employers – are also eligible to use the settlement opportunity, HMRC said.
Addressing UK contractors and employers who have used such loan schemes, the department explained: “They can choose to continue to litigate for a better outcome but they risk a worse result.
“[But] HMRC has a strong track record of winning tax avoidance cases in court, with around 80% of decisions in our favour. The costs for users are high, potentially resulting in penalties, charges and significant legal costs for scheme users.”
Jennie Granger, HMRC’s director-general for enforcement and compliance, said the six-month settlement facility was on offer because many users of loan schemes “regret ever getting involved” with them.